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This week Rob answers listener questions with TinySeed co-founder Einar Vollset. Einar has been on the selling side of many SaaS acquisitions. He is also a developer with a Ph.D. in computer science, so he has a well-rounded experience, and it makes him the perfect person to answer these listener questions. There are some interesting questions from listeners who are growing SaaS apps.
The finer points of the episode:
- 2:38 – What metrics you should be documenting on your SaaS app
- 9:04 – The things buyers checked on when we were selling Drip
- 13:00 – How to navigate creating the terms for a business partnership
- 18:43 – Should you be sending unsolicited marketing emails?
- 24:18 – Best strategies to make sales
- 27:32 – Potential opportunities to make sales during the COVID-19 crisis
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. It’s episode 497. I am your host, Rob Walling. Each week of the show, we cover topics relating to building and growing startups using an ambitious yet a sane approach. This week, I’m answering listener questions with my friend and co-founder of TinySeed, Einar Vollset. Welcome to the show.
Einar: Hello. Good to be here.
Rob: Good to have you back. If you’ve been listening to the show, even for the past few months, Einar has been on several episodes talking about entrepreneurship he has experienced. He went through Y Combinator in 2009, the company he started there was later sold to Google, and he’s been on the sell side of many seven- and eight-figure SaaS acquisitions, so he has expertise. My go-to for Einar is partnerships, business development, sales, outreach like cold-calling, cold-emailing, buying and selling SaaS valuations, pricing. That’s the high level. Anything I missed in there?
Einar: No, I think that’s pretty good. You’re making me sound like Glengarry Glen Ross salesperson but that’s good.
Rob: You’re going to get booed off the stage here at the Startups for the Rest of Us. People are like, “Get that guy.” But here’s the thing. You’re also a developer, so you have the cred with the crowd. You’ve been writing software for a few decades. You have a PhD in computer science which I’m going to let that one slide.
Einar: That’s fair. Absolutely.
Rob: Yeah. When we were hiring at a company I worked at in LA, we would get folks with a PhD in CS to apply for a senior developer position and instantly set off a yellow flag of can this person actually write code? Can they ship code? We had to see if they didn’t have work experience and they had just come out of the Masters or PhD, we’re just a little concerned about it.
Einar: Yeah. I get it. I don’t get so much with Masters and PhD. Actually there is a diminishing return if you start doing a PhD. It’s a problem, actually, for some of the people who were in grad school with me and then later on. They were like, “Yeah, I can’t even get an interview because everyone thinks I’m this non-producing wonk who comes up with opinions all day.” I know the feeling.
Rob: Academia can have that effect. It doesn’t always do that, of course. Hey, if you want to have a conversation with Einar, especially about TinySeed Fund too, just head to tinyseed.com/invest. Fill out that form, he’s on the other end of that. We are starting fundraising for that fund under five or six C.
Einar: That’s right.
Rob: All right. We are going to answer listener questions today. I picked a nice sampling of questions about SaaS and all the stuff that we talk about all the time and think about it. The first question is from Roger. The subject is documenting SaaS for a sale. He says, “I work on the technical side of a SaaS and the owner is interested in selling the company. They asked me to look into documenting the technical side but I have no idea where to start. Do you know of any resources or have any advice?” After listening to this question, let’s flip it and talk about what you should have documented for financial and SaaS metrics type of stuff because I think that’s interesting as well.
Einar: Yeah. I actually think—having done this a number of times—it obviously depends on the complexity of the product that’s being sold. There’s no indication here of what’s going on. But typically, actually quite surprisingly, I think the technical documentation and the sort of technical diligence that gets done in an acquisition is certainly better than what gets done for venture capital investments.
I’ve always been surprised at how light the technical diligence is during an acquisition. Typically, it’s confirmatory because fundamentally, if your business is able to be sold and it’s profitable, it’s growing, it’s doing what it needs to do on the business metrics, then the buyers usually have the assumption that you have your […] together to some degree. They’re like, “Well, it’s not going to be totally fake.”
That being said, certainly during diligence, at least if you’re talking a deal north of (say) $20 million, then there’s likely to be technical diligence and they’ll usually bring in—if it’s a financial sponsor—an external technical team to do the diligence. Sometimes there are firms that specialize just in doing that or they’ll have their internal development team take a look.
I think most developers think of, how am I documenting the code? Can I explain the code of this working? Are we doing best practices as it relates to X, Y, Z inside the code? I find that most of the time actually, what they’re looking for is more high level. Is there a single point of failure in terms of either technically or with a person?
Quite often what ends up happening in the smaller acquisitions is that there’s one guy who knows how a critical piece of this something works. Whatever it is like scheduling, whether it’s how to bring the site up if it goes down. A lot of the time, what they’re trying to ascertain is whether there is redundancy and business continuity in place. They are not in the situation where they buy the company, then it goes down, and it turns out that John, who was the only person who knew how something worked, has been fired, left, or whatever.
It’s usually quite surprising to people the kind of things that get asked. Certainly, they’ll be asking questions like where are you hosting things. Typically, the more standardized the answers are, the better. If you come and say, “Hey, we have this custom rack that runs out of my brother’s apartment and that’s where we’re serving everything in order to save 50¢ on the dollar and hosting cost,” they’re probably not going to be as impressed with that as if they just say, “Oh, yes. Just on AWS. It’s easy to use AWS,” or whatever. They like standard things.
They’ll ask higher-level questions like what are your development procedures? If a feature comes through from a product, how does it get implemented? What is the process by which things go into engineering? They’ll ask questions like what is your testing procedure? What’s your deployment procedure? Usually, it’s actually more higher-level process stuff and people than that is like, explain to me how you’re modularizing your code. They will ask some of those questions.
When I did diligence stuff, I would sometimes say, “Okay. Show me the last 10 pull requests with the code.” That used to freak people out but that level of detail and that low-level detail is actually quite unusual. With the exception of what you’re selling is a very technical, very detailed, technical product where it’s critical that the people understand exactly how your product works. Whereas you’d be surprised a lot of the time for the business people doing acquisitions, it actually doesn’t matter all that much specifically how you’ve written the code as long as they understand there’s a good process in there.
This is something where they could hire more people and it’s not completely loony tunes. If it’s something that’s hosted in your basement on a custom version of Lisp with a database that’s no longer supported, that’s going to be a problem. Even if it’s not a hack on PHP but if it’s PHP hosted on EC2, that’s great. They’re not really going to care that much about specifically which framework or PHP you’re using, or anything like that. That’s my high-level view of it.
I think you’d be surprised at what kind of thing they’re looking for during diligence in this most often process. Do you have that checklist of things in place? Do you have version control? If you’re using open-source software, are you using that according to licensing? Are you publishing things that you need to publish on the GPL? Things like that come up much more often than I think most developers assume. They think that I get into diligence, somebody will come through, they’ll have me like they’ll sit next to me and go through line by line of code and have me explain how it works. I’ve never seen that happen.
Rob: That’s been in line with my experience as well. I’ve been involved on the sell side of a lot fewer deals than you. But still, if I were to put it, personally, it’s two or three that are substantial enough that people wanted to review code, and then I think there were maybe four that I’ve been pulled into by startups that I’ve either invested in on an advisor or whatever. That’s typically advice I give as well as no one cares about your code comments because the people buying it aren’t developers and they don’t need to get into that level of detail of the code.
It’s a lot like I’ve compared it to a real estate investor who buys investment properties, will often buy multiple properties without ever seeing the properties because what they’re looking at are the numbers. If things have been rented for this many years and the maintenance has been X, Y, Z for this many years, they want to make the numbers work. If that happens, they don’t care if the kitchen has been granite, if it’s fake granite, or whatever because they’re not living there.
For better or worse, when a company is spending $10, $20, $30, a hundred million dollars on a product, they’re not buying it for the code quality. Unfortunately, as a developer, that’s not what is driving the price. Unless, as you said, it’s some extremely limited IP where it’s like we built the Google search engine and that’s worth a bunch of money or whatever but that’s not really what I’m looking at. I have a few things I jotted down. Specifically, when we sold Drip. They were really concerned. They asked a lot about any open source stuff that we used.
Einar: Oh, yeah. That happens all the time.
Rob: Yeah. There are certain types of licenses that essentially mean that if you use it, you should open-source all of your code for the entire app. We had been careful about that but you have to prove that there’s nothing in. They sent a consultant out who brought a Raspberry Pi, opened it up out of the package, plugged it. He said, “I’m not going to walk away with any of your code or any devices that plug into any of your machines.” He plugged it into Derek’s laptop into this big scan of the code and then he handed us the Raspberry Pi at the end. He was doing a big scan for patterns of license. I’m assuming that headers are there. Certainly much like a virus scanner, it just picks up a pattern of like, ding, this is a red flag license.
Einar: Absolutely. I think most developer types think that it’s not a big deal to use open source and that’s true, it isn’t. But it’s a big enough liability that typically if you’re selling a software company, you have to warrant that you’re not in violation of open source licenses. Basically, what that means is that if you do that and they get sued, the acquirer gets sued because of GPL violations that you did, they’ll come to you for the money. It’s that serious. If you have very good clarity on like, these are exactly the licenses we’re using. If we’ve made changes, for example with the GPL, then we publish those changes as required by the license. That stuff is important.
Rob: Yeah. The other thing that I’ve seen asked for a lot is not code-related but it’s IP agreements. Do you have an IP assignment agreement from every contractor, every employee, everyone who has ever touched basically anything in your code? That can be a big deal. Backup and recovery is something else that they asked. That’s like you said.
Einar: Disaster, continuity. Yeah.
Rob: Yup. It’s like, how often do you backup? How often do you recover? How do you test your backups? That kind of stuff. That’s something I would include in a technical doc. The original question is what should I document? Technically, it can be a four- or five-page doc plus a network diagram that is kept up today as best you can. It doesn’t have to be some 30-page home. In fact, we didn’t even have a network diagram. When […] was doing due diligence, click-ons flew out with their senior engineer like the head of engineering. He just said, “Walk me through on a whiteboard,” and that was the network diagram. They took a picture of it.
It was like Derek writing things and talking through, this is where there is a single point of failure in the database and blah, blah, blah. That was good enough for them. There was also a level of trust between Clay and I because he and I knew each other. He also knew that, as an engineer working with a co-founder who is an engineer, we would say we have 2½ lines of unit tests for every line of production code, which is pretty good. It implies that these guys probably know what they’re doing, so we were given a little bit of leeway there.
The last thing I’ll say is to document the tools you use. Just high-level languages, what editors you use, obviously, the database—Postgres, MySQL, whatever—version control, we use GitHub on this thing and it’s never been out in public or whatever. It’s just the basics if you think about it. I think both of us, what we’re saying is, it’s very unlikely that anyone will dig deeper than basically the top-level things that we’ve said here.
Einar: I think it’s true. I think the most helpful thing to think about is the documentation isn’t required to be at a level of detail where if you got a fresh developer and gave them the documentation, that was sufficient for him to start developing features on the code. That’s too detailed. The way you should think about it is what does a project manager need to know? What does an engineering manager need to know about the process by which we build software here and roughly how it’s structured? That’s the right level of documentation, at least to start. Inevitably, during the process, during some diligence, there’ll be some further questions, but then they can dig into that. You don’t need to write 100 pages worth of documenting every single thing. I think that’s probably a waste.
Rob: Our next question is from Fabbri. He said, “I bootstrapped the guilt box, a personal and SMB financial software as a side project for a few years. We’ve also developed our own banking data aggregation system for our B2C products. We’ve been approached a few times by companies to provide this service, the banking data aggregation, but haven’t had much bandwidth to also take on the B2B opportunities (obviously, of selling that to other businesses).
Recently, I was offered to provide the aggregation service to another startup. At first, I agreed with the founder on a fee per user and a retainer. Later, he offered me 5% equity, I assume, and in the startup to integrate the aggregation system, plus some additional funds because he wanted more control and a commitment for me. I’m hesitant to accept this since the aggregation system still serves my business and has the potential to serve others. Also, it took a few years of work to get it right for only 5% equity in another startup, but I think it could negotiate that. What are your thoughts on this?”
The subject line is a business partnership or B2B client. He’s kind of trying to decide between those two. It’s a little muddy and we don’t have all the details. I wish we have more info, but do you have thoughts on this about going into a business partnership versus keeping someone at arm’s length as a client?
Einar: Yeah. My gut feeling would be that this 5% equity to get more control and commitment like that, I’d be extremely wary of just because what kind of controls is he talking about? Does this preclude you from doing changes that you want to do? Are you now required to maintain this in a way that fits their business rather than yours? Also, what is the value of 5% of the equity? Now, you have to effectively do due diligence on them to figure out what is the value effectively of what they’re offering you for this.
It almost doesn’t sound like a partnership, it almost sounds more like a joint venture, that proposal. Although, it’s quite vague so it’s hard to tell. But certainly, I’d be very wary of doing the 5% equity piece. This sounds to me more like you have an enterprise-type integration plan, white-label plan, or something like that. It’s easier to do this lighter touch and effectively say, “This is something that you can buy, it’s going to cost a lot of money, or if you’re reselling it, then you have to give us a good chunk of the whatever revenue you’re getting in.”
That’s a much better, at least, starting point than getting to the point where it sounds like this potential partner effectively wants to control how this piece is being built, maybe exclusively get access for themselves. Giving all that away for 5% equity in an unknown startup is not something that I would do without a lot more information. It depends. If the startup is Zoom, sure, but if the startup is some no-name thing I’ve never heard of, then my general view is that I’d be very wary.
Rob: Yeah. I would echo that. Anytime you take a minority stake in a private company that you have no control in, that has no liquidity prospects—
Einar: Are you describing TinySeed, Rob?
Rob: No, of course not. I’m describing a lot of these stock deals. Whenever I hear there was an acquisition, I hear the purchase price, I always want to know how much of that was stock because if it’s stock in a public company, great, good for you. You can sell that in 6 or 18 months. But if it’s a private company, you are basically tying yourself to the fortune of that company for years. You can say I got $20, $30, $40 million in stock in a company that then goes bankrupt, you actually get nothing.
Einar: That’s happened to friends of mine, actually. They sold their startup to a company. This is 2001—got them old—and they were like, “Yeah. I sold my company for $10 million,” and they got $10 million worth of stock in a startup that went to zero. It happens.
Rob: I know. If someone were to approach me about selling my startup and they want to give me an all-stock deal, like you said, it just really depends on the company, their prospects, and where you think they’re going. But almost in all cases, I’d be like, you got to get enough cash that you feel good about this, that if that stock goes to zero, you at least don’t have massive regret around it.
Einar: That’s true for a type of M&A work we do, too. It’s not unusual in a deal that, say, $25 million that the founders are going to ask. Okay, you get some cash, you get some earn-out, you get some maybe owner financing, and then you have to roll a portion of your proceeds into the new company. Usually, the hurdle there, at that point, I always advise people, we need to do some diligence on the acquirer, that they’re not just something that’s going to blow up. That’s worth thinking about.
If that gets on that level, then you shouldn’t just accept 5% to walk away because there are all sorts of things like 5% preferred stock, 5% common stock. Are there any anti-dilution things in place? It agrees for 5% equity. If there’s no anti-dilution, this is common stock. The other guy could just issue another $10 million shares and dilute you down to 0.005% and you have no recourse.
Rob: Yeah. I’m in the same boat. I feel like the B2B client is the first step in an integration. Get to know them and how they are as a customer. It’s like the crawl-walk-run-type thing or that they’re dating before you get married. A B2B partnership, an acquisition, whatever, often those relationships are built over time so that you can see how they operate and learn more about the people involved and the company involved. If that’s helpful, Fabbri.
The next question is from Chris and it’s about email harvesting and spam. He says, “I recently read an article published on Medium. It’s about how to harvest email addresses. In one of the discussions with Bluetick, Mike Taber has talked about warm versus cold emails. Can you guys comment on the practice of sending unsolicited emails these days?
If you get enough spam complaints, won’t Mailchimp, Constant Contact, Infusionsoft, et cetera, shut down your account? I get a reasonable amount of these. If it’s something I have zero interest in, the company sounds cheesy, or I’m certain I did not sign-up but often the spam button. I have two small companies and I understand the need to fill up the funnel but I’m annoyed that someone is taking up my time to click delete.”
Before I toss it over to you, I do want to chime in that is a very big difference. If you scrape emails and get an essence of a cold email list and you put that in MailChimp, Constant Contact, Infusionsoft, Drip or anything, you will get banned. They will block your account because those tools are not designed for cold email. They’re designed for warm email, folks who have opted in to hear from you.
When this thing […], if you harvest emails or God forbid, by an email list, that is where you could go to a tool like Bluetick that uses your own known inbox, your own Gmail inbox or outbox (in this case) to send Yesware, ToutApp—there’s a bunch of them, you probably know more—that’s where those won’t be on you because it’s sending from your email inbox. It’s not like their IPs are impacted. With that, you want to comment on this?
Einar: Sure. I agree. These are definitely not the tools to use, although I’m constantly surprised at how many people are running cold outbound processes using tools like this and don’t realize how close they are to getting their whole account shut down. If they have marketing stuff in there too, that’s problematic.
My view is—this is also in the CAN-SPAM Act—actually sending cold business mail or solicit mail in the business context is not considered spam. Effectively, what’s going on is what’s annoying is not necessarily unsolicited, it is unhelpful email where you’re getting an email and it’s clear that this person knows not only anything about you and has never heard from you before but doesn’t really know what your business is.
To me, I get offended as a sales guy. I think you should do enough research so that you at least have a half a chance to know what kind of a company you’re trying to email. A good example of this actually is, I don’t know if you saw this, but we keep getting emails into the TinySeed account, at least I do, that says, “Hi. Been really excited about what you guys are up to there at TinySeed. Just wanted to let you know that our B2B SaaS accelerator is open for applications and would encourage TinySeed to apply.” I’m like, “You have no idea what TinySeed is. We’re not a B2B SaaS company, we’re effectively your competitor.” That’s generally my view of it.
Sales in general, particularly when it comes to B2B sales, the best stuff is almost like being an outsource consultant for your prospects. You’re effectively trying to figure out how do I reach out to this person or this company where I have figured out that they can add significant value to their bottom line or whatever by using the tool that I’m providing. You can imagine a consultant being hired by the company in question to figure out how to better do X, Y, Zs so that we improve our bottom line and they get paid to go out and pick your tool.
The best kind of consultative enterprise-type sales is effectively the inverse of that where you’ve done enough research that you’re confident that if this prospect took up your tool and used it, they would get significant benefit. You’re going to get a chunk of that as the sort of price you take for the service, whatever. But I don’t think you should email people unless you are pretty confident that this actually would be a value-add for the company in question.
It doesn’t sound like Chris is getting an awful lot of well-targeted emails. Similarly here, I get a bunch. It seems to be anything on LinkedIn, there is outsourced software, developing firms are notoriously bad at this. They just sort of blast everybody. There’s certainly a much better way to run that than what they’re doing.
Rob: Yeah. I have bought things, I’ve signed up for a couple of SaaS apps that have cold-emailed me over the years. I’ve also hired someone off in essence, an email campaign consultant. But let’s say I’ve done it five times. Each of those times, it was really well-targeted and it was obvious that they knew something and they were presenting something that made sense to me, not like a round of venture funding to an accelerator which is what I got in email this morning about that. We have in my TinySeed address like we have a list of venture capitalists who invest in companies like yours. I’m like really? Are you sure?
Einar: I don’t think you do.
Rob: Nope. That’s targeted. You should see the stuff we get to the podcast email address. It’s probably 10 emails a day, maybe 7 or 8 emails a day. A lot of its guest pitches, but a lot of it’s like SEO stuff like, “Let’s trade links and let’s do an article,” this and that. They’re so badly targeted. You can just tell a mile away if they’re actually a listener because they all act like they’re a listener but you can’t just say, “Hey, I’m a big fan of the show,” because that doesn’t cut it anymore. It’s like you really have to speak the language. All right. Thanks for the question, Chris. Hope that was helpful.
Next question is from Adam […], it’s about how to increase sales. He said, “I let go of my salesperson this week and this was about seven or eight weeks ago, right as the quarantine started. She’s now employed on a commission-only basis. But navigating from here, what would you suggest I do to make sales? It put some ideas like starting a blog. Should I start ads? Should I automate my sales flow as much as possible? It currently requires a demo so we started by opening it up past the demo. Should I just focus on maximizing profitability out of existing customers or give existing customers a significant discount so that there are still customers on the other side of this in my industry?”
Obviously, this is industry-dependent. I think he’s in one of those I have been talking about how it’s about 10% or 15% of companies that have knowledge of taking off because everyone’s working remotely. 10% or 15% are completely getting decimated because they are involved in things that when people are remote, they can’t can’t be done. There’s kind of this middle, let’s say, 70% -ish, 70%–80% that are just floating and just watching. They’re slowing down maybe, but they’re not certainly not cratering and they’re waiting to see what happens on the other side of the quarantine. I think Adam’s company falls within that. He has a lot of ideas here.
Einar: I have some meta thoughts, to be honest with you. Obviously, I think this was asked a month or two, I guess, ago. If they’re US-based, I think it probably was a mistake to let them go because you could have gotten PPP to pay for it.
Rob: I believe he’s in Australia.
Einar: Okay. Well, that’s even better. I actually don’t know about Australia, but in certain places like the UK, there’s Proper Paycheck Protection in the sense that they’re basically effectively paying a percentage of salary to keep them on payroll. That’s my first high-level comment. That’s something to look into. Just firing people willy nilly might not actually be the best move.
The second thing, which I have no idea what this product is, so it’s hard. In terms of his specific idea like a blog, I haven’t really done this. That, to me, sounds like someone who perhaps doesn’t realize how long the process is to build out a significant organic funnel-through a blog. I’ve seen several companies just decide, “Oh, we need to do a blog to get more customers.” They spend three or four months posting a blog post every week, they see zero inbound interest, and then they shut it down.
If it’s a hair on fire like, oh, crap, we’re going down, we just need more customers immediately, starting a blog is not going to do it in time. I think it’s a good thing to do, potentially, by yourself but it’s certainly not something they could just be like, “Oh yeah. I’m going to start blogging and then customers will come strolling through the virtual door.” Focus on ads, I think that’s the more interesting ones.
Obviously, it depends on your industry and whether people are a complete acquisition as it were spending freeze or whether people are potentially still looking in. I’ve actually seen several companies do pretty well right now with ads because they’re cheaper than they used to be, everything is at a discount like Facebook Ads or Google CPC. It can be immediate and they can scale. I actually think now is a pretty unique time to experiment with advertising just because, as you said, they’re at a discount, and if your industry is amenable and still buying then that potentially could work very well and it could scale pretty quickly.
The other stuff, honestly, I don’t know, automates the sales process. Well, that’s good, currently requires a demo. Give existing customers a significant discount so there are still customers on the other side, I wouldn’t volunteer it. People start canceling. I’d reach out and say, “Hey, what’s going on? Are you guys struggling? Do you need a discount? We can help you out.”
Rob: Discount or just deferment, right? “Hey, next three months, you’d have to pay, next two months, or whatever.” It’s scheduling software. I’ve actually talked to him about it before. He’s a super cool, dude. I was trying to remember exactly what it was, but I think it is for a lot of in-person businesses, I think like driving schools or just whatever, anything that needs scheduling and kind of back-office stuff. For him, I would think about deferments.
Einar: Yeah. Particularly, if you can say, if you have an annual plan, say like, “Okay. It’s coming up, you don’t have to renew it. Just renew it now, we won’t charge you for three or four months and it’ll run from a year from then.” Something like that makes sense, I think, because I think there’s a fair amount of industries which are in a position where they know that they’re going to reopen like, yes, summer for all time, hopefully. Part of the stuff they’re doing right now is looking at their processes and things. If you can land them now and like essentially book the revenue for the fall, that’s super helpful coming out of this.
Rob: Yeah, I’ve heard of a few companies. I’ve been watching a few companies do that where they are looking out to September, trying to find folks now, and basically giving them free access until then such that if things do re-open before then, the customer gets some value out of it.
It really depends, Adam. If your leads have completely dried up, is there some ads or some outreach you can do to companies? Like you said, if they’re totally shut down, then what are the owners or the managers doing? Are they thinking about how to improve the processes? Is this the time to potentially pitch that? If you still have leads coming in and your salesperson is on a commission basis and she’s able to handle them, I don’t know that I see a huge issue with that. Thanks for the question, Adam. I hope that was helpful.
Einar Vollset, that’s all the questions we have for today. If folks want to keep up with you, they can head to @einarvollset on Twitter or they can head to tinyseed.com/invest. Is that your contact info now?
Einar: That is my contact info now. It’s the easiest way to get my direct attention.
Rob: Exactly. […] there. You bet he will read that.
Einar: You’ll get a response pretty quickly.
Rob: That’s cool. Thanks for taking the time, man. Appreciate it.
Einar: Sure thing.
Rob: Thanks again to Einar for coming on the show. Hope you enjoyed our conversation. If you have a listener question, we only have about five or six in the queue. Remember, if you record an audio file, send me a Dropbox or a Google Drive link to questions at startupsfortherestofus.com. That will go to the top of the stack. I don’t believe we have any voicemails right now, so literally next Q&A episode, it would get answered. That’s all for this week. Thank you for listening, I’ll see you next time.
Einar: Hello. Good to be here.
Rob: Good to have you back. If you’ve been listening to the show, even for the past few months, Einar has been on several episodes talking about entrepreneurship he has experienced. He went through Y Combinator in 2009, the company he started there was later sold to Google, and he’s been on the sell side of many seven- and eight-figure SaaS acquisitions, so he has expertise. My go-to for Einar is partnerships, business development, sales, outreach like cold-calling, cold-emailing, buying and selling SaaS valuations, pricing. That’s the high level. Anything I missed in there?
Einar: No, I think that’s pretty good. You’re making me sound like Glengarry Glen Ross salesperson but that’s good.
Rob: You’re going to get booed off the stage here at the Startups for the Rest of Us. People are like, “Get that guy.” But here’s the thing. You’re also a developer, so you have the cred with the crowd. You’ve been writing software for a few decades. You have a PhD in computer science which I’m going to let that one slide.
Einar: That’s fair. Absolutely.
Rob: Yeah. When we were hiring at a company I worked at in LA, we would get folks with a PhD in CS to apply for a senior developer position and instantly set off a yellow flag of can this person actually write code? Can they ship code? We had to see if they didn’t have work experience and they had just come out of the Masters or PhD, we’re just a little concerned about it.
Einar: Yeah. I get it. I don’t get so much with Masters and PhD. Actually there is a diminishing return if you start doing a PhD. It’s a problem, actually, for some of the people who were in grad school with me and then later on. They were like, “Yeah, I can’t even get an interview because everyone thinks I’m this non-producing wonk who comes up with opinions all day.” I know the feeling.
Rob: Academia can have that effect. It doesn’t always do that, of course. Hey, if you want to have a conversation with Einar, especially about TinySeed Fund too, just head to tinyseed.com/invest. Fill out that form, he’s on the other end of that. We are starting fundraising for that fund under five or six C.
Einar: That’s right.
Rob: All right. We are going to answer listener questions today. I picked a nice sampling of questions about SaaS and all the stuff that we talk about all the time and think about it. The first question is from Roger. The subject is documenting SaaS for a sale. He says, “I work on the technical side of a SaaS and the owner is interested in selling the company. They asked me to look into documenting the technical side but I have no idea where to start. Do you know of any resources or have any advice?” After listening to this question, let’s flip it and talk about what you should have documented for financial and SaaS metrics type of stuff because I think that’s interesting as well.
Einar: Yeah. I actually think—having done this a number of times—it obviously depends on the complexity of the product that’s being sold. There’s no indication here of what’s going on. But typically, actually quite surprisingly, I think the technical documentation and the sort of technical diligence that gets done in an acquisition is certainly better than what gets done for venture capital investments.
I’ve always been surprised at how light the technical diligence is during an acquisition. Typically, it’s confirmatory because fundamentally, if your business is able to be sold and it’s profitable, it’s growing, it’s doing what it needs to do on the business metrics, then the buyers usually have the assumption that you have your […] together to some degree. They’re like, “Well, it’s not going to be totally fake.”
That being said, certainly during diligence, at least if you’re talking a deal north of (say) $20 million, then there’s likely to be technical diligence and they’ll usually bring in—if it’s a financial sponsor—an external technical team to do the diligence. Sometimes there are firms that specialize just in doing that or they’ll have their internal development team take a look.
I think most developers think of, how am I documenting the code? Can I explain the code of this working? Are we doing best practices as it relates to X, Y, Z inside the code? I find that most of the time actually, what they’re looking for is more high level. Is there a single point of failure in terms of either technically or with a person?
Quite often what ends up happening in the smaller acquisitions is that there’s one guy who knows how a critical piece of this something works. Whatever it is like scheduling, whether it’s how to bring the site up if it goes down. A lot of the time, what they’re trying to ascertain is whether there is redundancy and business continuity in place. They are not in the situation where they buy the company, then it goes down, and it turns out that John, who was the only person who knew how something worked, has been fired, left, or whatever.
It’s usually quite surprising to people the kind of things that get asked. Certainly, they’ll be asking questions like where are you hosting things. Typically, the more standardized the answers are, the better. If you come and say, “Hey, we have this custom rack that runs out of my brother’s apartment and that’s where we’re serving everything in order to save 50¢ on the dollar and hosting cost,” they’re probably not going to be as impressed with that as if they just say, “Oh, yes. Just on AWS. It’s easy to use AWS,” or whatever. They like standard things.
They’ll ask higher-level questions like what are your development procedures? If a feature comes through from a product, how does it get implemented? What is the process by which things go into engineering? They’ll ask questions like what is your testing procedure? What’s your deployment procedure? Usually, it’s actually more higher-level process stuff and people than that is like, explain to me how you’re modularizing your code. They will ask some of those questions.
When I did diligence stuff, I would sometimes say, “Okay. Show me the last 10 pull requests with the code.” That used to freak people out but that level of detail and that low-level detail is actually quite unusual. With the exception of what you’re selling is a very technical, very detailed, technical product where it’s critical that the people understand exactly how your product works. Whereas you’d be surprised a lot of the time for the business people doing acquisitions, it actually doesn’t matter all that much specifically how you’ve written the code as long as they understand there’s a good process in there.
This is something where they could hire more people and it’s not completely loony tunes. If it’s something that’s hosted in your basement on a custom version of Lisp with a database that’s no longer supported, that’s going to be a problem. Even if it’s not a hack on PHP but if it’s PHP hosted on EC2, that’s great. They’re not really going to care that much about specifically which framework or PHP you’re using, or anything like that. That’s my high-level view of it.
I think you’d be surprised at what kind of thing they’re looking for during diligence in this most often process. Do you have that checklist of things in place? Do you have version control? If you’re using open-source software, are you using that according to licensing? Are you publishing things that you need to publish on the GPL? Things like that come up much more often than I think most developers assume. They think that I get into diligence, somebody will come through, they’ll have me like they’ll sit next to me and go through line by line of code and have me explain how it works. I’ve never seen that happen.
Rob: That’s been in line with my experience as well. I’ve been involved on the sell side of a lot fewer deals than you. But still, if I were to put it, personally, it’s two or three that are substantial enough that people wanted to review code, and then I think there were maybe four that I’ve been pulled into by startups that I’ve either invested in on an advisor or whatever. That’s typically advice I give as well as no one cares about your code comments because the people buying it aren’t developers and they don’t need to get into that level of detail of the code.
It’s a lot like I’ve compared it to a real estate investor who buys investment properties, will often buy multiple properties without ever seeing the properties because what they’re looking at are the numbers. If things have been rented for this many years and the maintenance has been X, Y, Z for this many years, they want to make the numbers work. If that happens, they don’t care if the kitchen has been granite, if it’s fake granite, or whatever because they’re not living there.
For better or worse, when a company is spending $10, $20, $30, a hundred million dollars on a product, they’re not buying it for the code quality. Unfortunately, as a developer, that’s not what is driving the price. Unless, as you said, it’s some extremely limited IP where it’s like we built the Google search engine and that’s worth a bunch of money or whatever but that’s not really what I’m looking at. I have a few things I jotted down. Specifically, when we sold Drip. They were really concerned. They asked a lot about any open source stuff that we used.
Einar: Oh, yeah. That happens all the time.
Rob: Yeah. There are certain types of licenses that essentially mean that if you use it, you should open-source all of your code for the entire app. We had been careful about that but you have to prove that there’s nothing in. They sent a consultant out who brought a Raspberry Pi, opened it up out of the package, plugged it. He said, “I’m not going to walk away with any of your code or any devices that plug into any of your machines.” He plugged it into Derek’s laptop into this big scan of the code and then he handed us the Raspberry Pi at the end. He was doing a big scan for patterns of license. I’m assuming that headers are there. Certainly much like a virus scanner, it just picks up a pattern of like, ding, this is a red flag license.
Einar: Absolutely. I think most developer types think that it’s not a big deal to use open source and that’s true, it isn’t. But it’s a big enough liability that typically if you’re selling a software company, you have to warrant that you’re not in violation of open source licenses. Basically, what that means is that if you do that and they get sued, the acquirer gets sued because of GPL violations that you did, they’ll come to you for the money. It’s that serious. If you have very good clarity on like, these are exactly the licenses we’re using. If we’ve made changes, for example with the GPL, then we publish those changes as required by the license. That stuff is important.
Rob: Yeah. The other thing that I’ve seen asked for a lot is not code-related but it’s IP agreements. Do you have an IP assignment agreement from every contractor, every employee, everyone who has ever touched basically anything in your code? That can be a big deal. Backup and recovery is something else that they asked. That’s like you said.
Einar: Disaster, continuity. Yeah.
Rob: Yup. It’s like, how often do you backup? How often do you recover? How do you test your backups? That kind of stuff. That’s something I would include in a technical doc. The original question is what should I document? Technically, it can be a four- or five-page doc plus a network diagram that is kept up today as best you can. It doesn’t have to be some 30-page home. In fact, we didn’t even have a network diagram. When […] was doing due diligence, click-ons flew out with their senior engineer like the head of engineering. He just said, “Walk me through on a whiteboard,” and that was the network diagram. They took a picture of it.
It was like Derek writing things and talking through, this is where there is a single point of failure in the database and blah, blah, blah. That was good enough for them. There was also a level of trust between Clay and I because he and I knew each other. He also knew that, as an engineer working with a co-founder who is an engineer, we would say we have 2½ lines of unit tests for every line of production code, which is pretty good. It implies that these guys probably know what they’re doing, so we were given a little bit of leeway there.
The last thing I’ll say is to document the tools you use. Just high-level languages, what editors you use, obviously, the database—Postgres, MySQL, whatever—version control, we use GitHub on this thing and it’s never been out in public or whatever. It’s just the basics if you think about it. I think both of us, what we’re saying is, it’s very unlikely that anyone will dig deeper than basically the top-level things that we’ve said here.
Einar: I think it’s true. I think the most helpful thing to think about is the documentation isn’t required to be at a level of detail where if you got a fresh developer and gave them the documentation, that was sufficient for him to start developing features on the code. That’s too detailed. The way you should think about it is what does a project manager need to know? What does an engineering manager need to know about the process by which we build software here and roughly how it’s structured? That’s the right level of documentation, at least to start. Inevitably, during the process, during some diligence, there’ll be some further questions, but then they can dig into that. You don’t need to write 100 pages worth of documenting every single thing. I think that’s probably a waste.
Rob: Our next question is from Fabbri. He said, “I bootstrapped the guilt box, a personal and SMB financial software as a side project for a few years. We’ve also developed our own banking data aggregation system for our B2C products. We’ve been approached a few times by companies to provide this service, the banking data aggregation, but haven’t had much bandwidth to also take on the B2B opportunities (obviously, of selling that to other businesses).
Recently, I was offered to provide the aggregation service to another startup. At first, I agreed with the founder on a fee per user and a retainer. Later, he offered me 5% equity, I assume, and in the startup to integrate the aggregation system, plus some additional funds because he wanted more control and a commitment for me. I’m hesitant to accept this since the aggregation system still serves my business and has the potential to serve others. Also, it took a few years of work to get it right for only 5% equity in another startup, but I think it could negotiate that. What are your thoughts on this?”
The subject line is a business partnership or B2B client. He’s kind of trying to decide between those two. It’s a little muddy and we don’t have all the details. I wish we have more info, but do you have thoughts on this about going into a business partnership versus keeping someone at arm’s length as a client?
Einar: Yeah. My gut feeling would be that this 5% equity to get more control and commitment like that, I’d be extremely wary of just because what kind of controls is he talking about? Does this preclude you from doing changes that you want to do? Are you now required to maintain this in a way that fits their business rather than yours? Also, what is the value of 5% of the equity? Now, you have to effectively do due diligence on them to figure out what is the value effectively of what they’re offering you for this.
It almost doesn’t sound like a partnership, it almost sounds more like a joint venture, that proposal. Although, it’s quite vague so it’s hard to tell. But certainly, I’d be very wary of doing the 5% equity piece. This sounds to me more like you have an enterprise-type integration plan, white-label plan, or something like that. It’s easier to do this lighter touch and effectively say, “This is something that you can buy, it’s going to cost a lot of money, or if you’re reselling it, then you have to give us a good chunk of the whatever revenue you’re getting in.”
That’s a much better, at least, starting point than getting to the point where it sounds like this potential partner effectively wants to control how this piece is being built, maybe exclusively get access for themselves. Giving all that away for 5% equity in an unknown startup is not something that I would do without a lot more information. It depends. If the startup is Zoom, sure, but if the startup is some no-name thing I’ve never heard of, then my general view is that I’d be very wary.
Rob: Yeah. I would echo that. Anytime you take a minority stake in a private company that you have no control in, that has no liquidity prospects—
Einar: Are you describing TinySeed, Rob?
Rob: No, of course not. I’m describing a lot of these stock deals. Whenever I hear there was an acquisition, I hear the purchase price, I always want to know how much of that was stock because if it’s stock in a public company, great, good for you. You can sell that in 6 or 18 months. But if it’s a private company, you are basically tying yourself to the fortune of that company for years. You can say I got $20, $30, $40 million in stock in a company that then goes bankrupt, you actually get nothing.
Einar: That’s happened to friends of mine, actually. They sold their startup to a company. This is 2001—got them old—and they were like, “Yeah. I sold my company for $10 million,” and they got $10 million worth of stock in a startup that went to zero. It happens.
Rob: I know. If someone were to approach me about selling my startup and they want to give me an all-stock deal, like you said, it just really depends on the company, their prospects, and where you think they’re going. But almost in all cases, I’d be like, you got to get enough cash that you feel good about this, that if that stock goes to zero, you at least don’t have massive regret around it.
Einar: That’s true for a type of M&A work we do, too. It’s not unusual in a deal that, say, $25 million that the founders are going to ask. Okay, you get some cash, you get some earn-out, you get some maybe owner financing, and then you have to roll a portion of your proceeds into the new company. Usually, the hurdle there, at that point, I always advise people, we need to do some diligence on the acquirer, that they’re not just something that’s going to blow up. That’s worth thinking about.
If that gets on that level, then you shouldn’t just accept 5% to walk away because there are all sorts of things like 5% preferred stock, 5% common stock. Are there any anti-dilution things in place? It agrees for 5% equity. If there’s no anti-dilution, this is common stock. The other guy could just issue another $10 million shares and dilute you down to 0.005% and you have no recourse.
Rob: Yeah. I’m in the same boat. I feel like the B2B client is the first step in an integration. Get to know them and how they are as a customer. It’s like the crawl-walk-run-type thing or that they’re dating before you get married. A B2B partnership, an acquisition, whatever, often those relationships are built over time so that you can see how they operate and learn more about the people involved and the company involved. If that’s helpful, Fabbri.
The next question is from Chris and it’s about email harvesting and spam. He says, “I recently read an article published on Medium. It’s about how to harvest email addresses. In one of the discussions with Bluetick, Mike Taber has talked about warm versus cold emails. Can you guys comment on the practice of sending unsolicited emails these days?
If you get enough spam complaints, won’t Mailchimp, Constant Contact, Infusionsoft, et cetera, shut down your account? I get a reasonable amount of these. If it’s something I have zero interest in, the company sounds cheesy, or I’m certain I did not sign-up but often the spam button. I have two small companies and I understand the need to fill up the funnel but I’m annoyed that someone is taking up my time to click delete.”
Before I toss it over to you, I do want to chime in that is a very big difference. If you scrape emails and get an essence of a cold email list and you put that in MailChimp, Constant Contact, Infusionsoft, Drip or anything, you will get banned. They will block your account because those tools are not designed for cold email. They’re designed for warm email, folks who have opted in to hear from you.
When this thing […], if you harvest emails or God forbid, by an email list, that is where you could go to a tool like Bluetick that uses your own known inbox, your own Gmail inbox or outbox (in this case) to send Yesware, ToutApp—there’s a bunch of them, you probably know more—that’s where those won’t be on you because it’s sending from your email inbox. It’s not like their IPs are impacted. With that, you want to comment on this?
Einar: Sure. I agree. These are definitely not the tools to use, although I’m constantly surprised at how many people are running cold outbound processes using tools like this and don’t realize how close they are to getting their whole account shut down. If they have marketing stuff in there too, that’s problematic.
My view is—this is also in the CAN-SPAM Act—actually sending cold business mail or solicit mail in the business context is not considered spam. Effectively, what’s going on is what’s annoying is not necessarily unsolicited, it is unhelpful email where you’re getting an email and it’s clear that this person knows not only anything about you and has never heard from you before but doesn’t really know what your business is.
To me, I get offended as a sales guy. I think you should do enough research so that you at least have a half a chance to know what kind of a company you’re trying to email. A good example of this actually is, I don’t know if you saw this, but we keep getting emails into the TinySeed account, at least I do, that says, “Hi. Been really excited about what you guys are up to there at TinySeed. Just wanted to let you know that our B2B SaaS accelerator is open for applications and would encourage TinySeed to apply.” I’m like, “You have no idea what TinySeed is. We’re not a B2B SaaS company, we’re effectively your competitor.” That’s generally my view of it.
Sales in general, particularly when it comes to B2B sales, the best stuff is almost like being an outsource consultant for your prospects. You’re effectively trying to figure out how do I reach out to this person or this company where I have figured out that they can add significant value to their bottom line or whatever by using the tool that I’m providing. You can imagine a consultant being hired by the company in question to figure out how to better do X, Y, Zs so that we improve our bottom line and they get paid to go out and pick your tool.
The best kind of consultative enterprise-type sales is effectively the inverse of that where you’ve done enough research that you’re confident that if this prospect took up your tool and used it, they would get significant benefit. You’re going to get a chunk of that as the sort of price you take for the service, whatever. But I don’t think you should email people unless you are pretty confident that this actually would be a value-add for the company in question.
It doesn’t sound like Chris is getting an awful lot of well-targeted emails. Similarly here, I get a bunch. It seems to be anything on LinkedIn, there is outsourced software, developing firms are notoriously bad at this. They just sort of blast everybody. There’s certainly a much better way to run that than what they’re doing.
Rob: Yeah. I have bought things, I’ve signed up for a couple of SaaS apps that have cold-emailed me over the years. I’ve also hired someone off in essence, an email campaign consultant. But let’s say I’ve done it five times. Each of those times, it was really well-targeted and it was obvious that they knew something and they were presenting something that made sense to me, not like a round of venture funding to an accelerator which is what I got in email this morning about that. We have in my TinySeed address like we have a list of venture capitalists who invest in companies like yours. I’m like really? Are you sure?
Einar: I don’t think you do.
Rob: Nope. That’s targeted. You should see the stuff we get to the podcast email address. It’s probably 10 emails a day, maybe 7 or 8 emails a day. A lot of its guest pitches, but a lot of it’s like SEO stuff like, “Let’s trade links and let’s do an article,” this and that. They’re so badly targeted. You can just tell a mile away if they’re actually a listener because they all act like they’re a listener but you can’t just say, “Hey, I’m a big fan of the show,” because that doesn’t cut it anymore. It’s like you really have to speak the language. All right. Thanks for the question, Chris. Hope that was helpful.
Next question is from Adam […], it’s about how to increase sales. He said, “I let go of my salesperson this week and this was about seven or eight weeks ago, right as the quarantine started. She’s now employed on a commission-only basis. But navigating from here, what would you suggest I do to make sales? It put some ideas like starting a blog. Should I start ads? Should I automate my sales flow as much as possible? It currently requires a demo so we started by opening it up past the demo. Should I just focus on maximizing profitability out of existing customers or give existing customers a significant discount so that there are still customers on the other side of this in my industry?”
Obviously, this is industry-dependent. I think he’s in one of those I have been talking about how it’s about 10% or 15% of companies that have knowledge of taking off because everyone’s working remotely. 10% or 15% are completely getting decimated because they are involved in things that when people are remote, they can’t can’t be done. There’s kind of this middle, let’s say, 70% -ish, 70%–80% that are just floating and just watching. They’re slowing down maybe, but they’re not certainly not cratering and they’re waiting to see what happens on the other side of the quarantine. I think Adam’s company falls within that. He has a lot of ideas here.
Einar: I have some meta thoughts, to be honest with you. Obviously, I think this was asked a month or two, I guess, ago. If they’re US-based, I think it probably was a mistake to let them go because you could have gotten PPP to pay for it.
Rob: I believe he’s in Australia.
Einar: Okay. Well, that’s even better. I actually don’t know about Australia, but in certain places like the UK, there’s Proper Paycheck Protection in the sense that they’re basically effectively paying a percentage of salary to keep them on payroll. That’s my first high-level comment. That’s something to look into. Just firing people willy nilly might not actually be the best move.
The second thing, which I have no idea what this product is, so it’s hard. In terms of his specific idea like a blog, I haven’t really done this. That, to me, sounds like someone who perhaps doesn’t realize how long the process is to build out a significant organic funnel-through a blog. I’ve seen several companies just decide, “Oh, we need to do a blog to get more customers.” They spend three or four months posting a blog post every week, they see zero inbound interest, and then they shut it down.
If it’s a hair on fire like, oh, crap, we’re going down, we just need more customers immediately, starting a blog is not going to do it in time. I think it’s a good thing to do, potentially, by yourself but it’s certainly not something they could just be like, “Oh yeah. I’m going to start blogging and then customers will come strolling through the virtual door.” Focus on ads, I think that’s the more interesting ones.
Obviously, it depends on your industry and whether people are a complete acquisition as it were spending freeze or whether people are potentially still looking in. I’ve actually seen several companies do pretty well right now with ads because they’re cheaper than they used to be, everything is at a discount like Facebook Ads or Google CPC. It can be immediate and they can scale. I actually think now is a pretty unique time to experiment with advertising just because, as you said, they’re at a discount, and if your industry is amenable and still buying then that potentially could work very well and it could scale pretty quickly.
The other stuff, honestly, I don’t know, automates the sales process. Well, that’s good, currently requires a demo. Give existing customers a significant discount so there are still customers on the other side, I wouldn’t volunteer it. People start canceling. I’d reach out and say, “Hey, what’s going on? Are you guys struggling? Do you need a discount? We can help you out.”
Rob: Discount or just deferment, right? “Hey, next three months, you’d have to pay, next two months, or whatever.” It’s scheduling software. I’ve actually talked to him about it before. He’s a super cool, dude. I was trying to remember exactly what it was, but I think it is for a lot of in-person businesses, I think like driving schools or just whatever, anything that needs scheduling and kind of back-office stuff. For him, I would think about deferments.
Einar: Yeah. Particularly, if you can say, if you have an annual plan, say like, “Okay. It’s coming up, you don’t have to renew it. Just renew it now, we won’t charge you for three or four months and it’ll run from a year from then.” Something like that makes sense, I think, because I think there’s a fair amount of industries which are in a position where they know that they’re going to reopen like, yes, summer for all time, hopefully. Part of the stuff they’re doing right now is looking at their processes and things. If you can land them now and like essentially book the revenue for the fall, that’s super helpful coming out of this.
Rob: Yeah, I’ve heard of a few companies. I’ve been watching a few companies do that where they are looking out to September, trying to find folks now, and basically giving them free access until then such that if things do re-open before then, the customer gets some value out of it.
It really depends, Adam. If your leads have completely dried up, is there some ads or some outreach you can do to companies? Like you said, if they’re totally shut down, then what are the owners or the managers doing? Are they thinking about how to improve the processes? Is this the time to potentially pitch that? If you still have leads coming in and your salesperson is on a commission basis and she’s able to handle them, I don’t know that I see a huge issue with that. Thanks for the question, Adam. I hope that was helpful.
Einar Vollset, that’s all the questions we have for today. If folks want to keep up with you, they can head to @einarvollset on Twitter or they can head to tinyseed.com/invest. Is that your contact info now?
Einar: That is my contact info now. It’s the easiest way to get my direct attention.
Rob: Exactly. […] there. You bet he will read that.
Einar: You’ll get a response pretty quickly.
Rob: That’s cool. Thanks for taking the time, man. Appreciate it.
Einar: Sure thing.
Rob: Thanks again to Einar for coming on the show. Hope you enjoyed our conversation. If you have a listener question, we only have about five or six in the queue. Remember, if you record an audio file, send me a Dropbox or a Google Drive link to questions at startupsfortherestofus.com. That will go to the top of the stack. I don’t believe we have any voicemails right now, so literally next Q&A episode, it would get answered. That’s all for this week. Thank you for listening, I’ll see you next time.
Episode 496 | “The Press Covers Exceptions, Don’t Compare Yourself to Slack or Zoom”
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This interview was recorded several months ago, but is still relevant despite the pandemic. Colin Nederkoorn, the co-founder of customer.io has taken a unique approach to building their company. Customer.io does marketing automation for the entire customer lifecycle. They have raised funding, but not traditional venture money, and they’ve run it more like a self-funded SaaS. Colin and his cofounder John left their jobs with no savings, and they set out to build an analytics tool. Their story is powerful because of their unconventional approach and ability to persevere through hard times.
The finer points of the episode:
- 4:05 – The customer.io founder journey
- 5:23 – Their approach to selecting investors
- 7:01 – Reflecting on how Colin and John bootstrapped a SaaS app after leaving their jobs with no savings
- 8:02 – Why they pivoted from an analytics company to selling marketing solutions
- 13:15 – Finding the balance between innovation vs following the best practices
- 18:37 – How customer.io became a remote company, and the advantages/disadvantages of building a remote team
- 22:05 – What customer.io is doing to support the bootstrapping startup community (and why they care about bootstrappers)
- 24:30 – Marketing approaches that customer.io used in the earlier days
- 31:55 – The highs and lows of building customer.io
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. As always, I am your host, Rob Walling. Thanks for joining me this week. Thanks to everyone who reached out about last episode 495 where I went solo. I got more positive feedback about that episode than I have in six, eight, nine months. I appreciate folks reaching out. Let me know what I’m doing right and let me know what constructively could be doing a bit better.
In this episode, I air an interview that I did months ago. It was certainly pre-pandemic and it may even have been before the end of last year. While there are no mentions of COVID or Coronavirus in the interview, I think there are so many lessons learned from the journey of this founder, Colin, the co-founder of Customer.io. Customer.io has taken such a unique approach to thinking about how to build their business, the way that they got it started, and the way that they didn’t go down the venture track but also didn’t straight bootstrap. They were one of the first companies that I had ever heard doing that.
Before we dive into that conversation, if you haven’t heard of helpfounders.com, you can head there. It’s a collaboration between a bunch of podcasts that are intended to help Bootstrap founders and folks who may be impacted by COVID or maybe it’s just an effort to give back, so different podcasts. A lot of us in the bootstrapping space offered up just a couple ad slots but really it’s just more of here’s this company. Here’s what they do just to make the Startups for the Rest of Us listenership aware. This is all voluntary. It’s a non-paid sponsorship. It’s really to give back to the community.
The company I want to talk about this week is called Hugo. It’s at hugo.team. According to the founder Darren Chait, he says Hugo is centralized, searchable meeting notes that connect with tools such as Zoom, Slack, Zendesk, and HubSpot. It’s free for up to 40 users. The target market is SaaS companies of all sizes including brands you already know such as Atlassian, Shopify, and Spotify. They were a good addition to the other work-from-home tools that are growing in popularity. If that sounds interesting, head over to hugo.team.
With that, I hope you enjoy my conversation with the co-founder of Customer.io, Colin Nederkoorn.
Today with me on the show, I have Mr. Colin Nederkoorn from Customer.io. Colin, thank you so much for joining me.
Colin: Hey, Rob, great to be here.
Rob: I’m actually pretty surprised that we haven’t had you on the show before now because you’ve just been in this bootstrapper/ these days, I’m calling it an indie-funded space where folks are raising small rounds but they want to keep control of their company. They want to stay independent. I really feel like you were one of the first, if not the first companies, to do that. I think we have some really good stuff to dive into today.
Colin: Thanks. It’s interesting because I’ve never felt like I belonged in any community, but certainly I share more values with the bootstrapper community than I do with the ‘venture-funded grow at all costs’ community. I guess there’s that great quote from Groucho Marx. I forget what the quote is.
Rob: He says, “I would never be a member of a club that would have me.” That makes sense. As I’ve watched you, certainly, you want to build a real product for real customers who pay you real money, which is something I often say on the show. That is much more in line with this non-venture track startup software.
For folks who haven’t heard of Customer.io, you guys effectively built out and launched over the course of 2012. You really had your public launch in 2013. According to your website right now, your HTML title tag is marketing automation for the whole customer lifecycle. Your headline is, “With Customer.io, you can send targeted emails, push notifications, and SMS to low return, create stronger relationships, and drive subscriptions.” I know you started off doing a lot of emails but now you’re in push in SMS.
In 2012, you guys designed your first logo. As we know what’s important in SaaS is not building a product and selling it to people. It’s designing a logo and printing business cards in 2012. I want to ask you a question about that in a second. I want to get to the timeline so folks can keep it in their head.
April Fool’s Day of 2012, you guys had your first full-time days working on this. You quit salary jobs with no runway, five customers paying you $10 a month, no savings and no income, which we’ll get into in a second. This is great. You can’t make this stuff up. You wind up raising about $225,000 from friends and family later that year. As I said, you launched January 2013 with between $5000 and $10,000 MRR. That’s when you raised a seed round.
You extended that friends and family around to $750,000. You’ve never taken truly venture money, institutional money. It’s been more from people who are willing to just support your vision of building a profitable company not go Unicorn, go IPO, or go home type of thing.
Colin: I think that’s pretty true. I don’t know if I could say that we articulated that well in the early days. I don’t know that we had those values but I don’t know that we self-selected investors based on that alignment. I imagine some of our investors, the other investments that they made either have died or are really big companies now.
Rob: Has that caused you any issues in terms of investors who did want you to go Unicorn? Some investors don’t want a profitable business or they don’t want whatever at $10, $30, $50 million exits. They only want Unicorns.
Colin: Not really. We have about 40 people on the cap table which our lawyer always tells us that’s a lot of people on the cap table. Anytime we need to get people to sign documents, it’s a big headache to get everyone to sign. What that’s meant is that for the people who are investing in a lot of high growth startups, we’re not in the front of their minds. Early on, we got a lot of help from people, but now we don’t hear from them too much. They have a big pile of money. They make a lot of investments. We’re just one of them.
Rob: Today, you have more than 1400 paying customers, 57 remote employees. You mentioned you have a small office in Portland with about five people but effectively a remote-first company. You told me offline that you have been public with revenue recently, that you guys are doing $11.5 million ARR, and that you grew 32% last year.
I wanted everyone to have the context as we go into this conversation to hear about your journey, truly bootstrapping this in 2012, to then raising a small amount of funding to get you to profitability, to help with growth, but never taking the massive plunge that a lot of folks do. I’m curious. You and your co-founder John left your jobs without savings, without income, expecting to be able to make this work. How did that come about? These days that would be an anti-pattern because we know SaaS takes forever. What was your thinking back then?
Colin: I can’t even understand why we did that. It just doesn’t make any sense reflecting back on it. Our milestone that we wanted to hit to go full time was 5 companies paying us $10 a month. How you get from there to full-time salaries is a pretty big leap. I think we just knew that we had to do it and then we’d figure it out. We’d do some consulting or we’d start doing services for companies and be able to charge more. But if we didn’t take the leap, then we wouldn’t be in the ocean. We’d still be on the beach and we’d still be trying to figure out how to take the leap. By throwing ourselves way into deep water, it forced us to figure out how to survive and what we needed to do to realize the business.
Rob: You set out to build an analytics platform. What caused you to alter that course and instead go after email?
Colin: We decided in January that we wanted to build the company. I think in the very early days, we spent some time talking with prospective customers. This was right around the time of Lean Startup, Eric Reis’s transformative book. We spent a lot of time going out and talking to people who we thought would be good customers. What we learned was this is what people felt. I still don’t know how true this is but people felt like they had tons of different analytics tools that help them understand their business. The struggles that they were having were they could see what was going wrong but they couldn’t influence it.
We heard that a few different times. We thought to ourselves with that analytics data, we can make something happen. We can send an email. If we’re embedded into a website or mobile app, we actually know what happens after someone clicks on the email and they go back to the app. We can build this amazing circle or we can close the loop (essentially) and show people the impact of the emails that they’re sending in influencing someone’s behavior in your product. That seemed really compelling. When we started talking to people about that, they wanted that because it actually moved their business, whereas giving them another analytics dashboard didn’t.
Rob: Customer is one of the first tools, if not the first that I ever heard of, where the data that you use to send emails could come from inside a SaaS app, a mobile app I believe you focused on. At that time the ESPs that I was using that were popular were Mailchimp and AWeber. I’d vaguely heard of Infusionsoft. There was Constant Contact but those were just marketing places. They were purely about email blasts which are totally not personal, not behavioral, not anything. Customer was the first one where I thought it’s a very clever use. I love how you guys came about that by saying we’re going to use analytics to power email rather than send emails in order to get some type of click-throughs or whatever.
Colin: I think that we were coming from a venture-funded startup. Interestingly, after we heard this from the people doing customer development, we looked back at our company and said, “Oh, wait, that’s the problem here too. Our marketing person wants to send emails in Mailchimp but she asks the engineering team, “Can you please export a list of people who have done this but not that.” Then, there were all of these transactional messages that were in the code of the application that that same marketing person would want to tweak the language in and we would have to put a ticket. I think we were doing Kanban boards at this point. We would write up a notecard. As the head of product and the head of engineering, my co-founder and I would always deprioritize that no card because it wasn’t that interesting to us.
Customer.io, when we thought about it, if you had the data, you could send that newsletter without having to ask engineers to export anything. If you pull the content out of the code of the application, you could make changes to your transactional emails and all of your trigger-based emails without having to ask an engineer to do anything. It was all about strengthening the relationship between your engineering team and your marketing folks, product, or whoever was responsible for talking to customers.
Rob: That makes a lot of sense but it was a big leap. There are obviously a lot of tools that do it today but we’re talking effectively eight years ago that you were working on this. I have one question for you about designing the logo and getting business cards. Did you ever use those business cards because I chuckle these days. I think I printed some on the move for one conference that I went to or something. Was that something you look back on and you were like, why did we do that so early?
Colin: I think when you start a company, it just doesn’t feel real. I think people print business cards and they make a logo because somehow that makes it more real to them. When you tell someone I’ve started a company and you hand them a business card and it has a logo, maybe that convinces them that you’re real, too.
I think it’s just a lack of confidence in a company actually coming out of the other end of this process. People want to start with business cards and so we did as well. We were going to meetups and other things like that like going to social events where you’re like, “Hey, we started a company.” “Oh, cool. What does it do?” “It does A, B, and C. Here’s my business card. Contact me.” It’s so silly but I think it’s like a playing company. It’s part of the package of the playing company. I don’t have business cards now.
Rob: I was going to ask. Do you still have business cards? No. None of us do. Unless you’re literally in person with people at conventions and you don’t want to do the exchange of your conferences, events, or whatever. You don’t want to do that type this into your phone type of thing. There’s just not a ton of reason to do it these days.
I read through several interviews that you’ve done over the years. I like to do that to prepare for these interviews. There’s something you said and one of them struck me. It’s something I wanted to dig into. You said, “So much of what people consider conventional has never felt right to me and our company.” Could you expand on that and maybe talk about one or two conventional things that you guys don’t do or maybe some unconventional things that you do at Customer.io?
Colin: I think there’s really a balance here. There are things that you want to innovate on and there are things that you should try to find best practices for. The things that felt wrong to me was certainly venture scaling a company didn’t feel right to me. Typically, what I would see is most venture-funded startups fail for one. The approach that I would see founders take when they were scaling a company with venture money was that it was really undisciplined and they were just spending cash all over the place. But at the end of the day, it didn’t matter because they would end up crashing the company and landing a job, working as an investor, as an entrepreneur in residence, or whatever, something like that.
It just bugs me that essentially irresponsible behavior can end up with a positive outcome for people but that’s how that world works. I didn’t feel like I wanted to participate in that. Trying to straddle the line between bootstrapping a company and raising money is something that I never felt like we wanted to do either of those things, the conventional way that people do those things.
We’ve explored things like how to organize the company and how to run the company. Holacracy is something that people have experimented with. That somewhere where maybe at this time we want to explore things like that, but I’ve realized that that’s not a place you want to be innovative and challenge the norm. Unless your company is all about how companies work, you should probably not challenge the norm there and just use the tried and true methods that have worked over the years.
Certainly on stuff like running a remote company, we faced a lot of skepticism from early customers. Our now CMO once told me that he worked at a publicly-traded company back then and he had to go to bat for us internally to say that we’re actually a legitimate business because we made this choice to build a remote company and we didn’t have physical office places.
There’s a bunch of decisions like that. I think I’m a contrarian by nature. I typically feel like an outsider and I like being an outsider. I like the challenge that that creates for people. For me personally, I think the struggle is important. Feeling like an outsider means that it’s never the easy path when you look at technology companies.
I imagine a lot of bootstrappers feel like outsiders in technology but the happy path is you go to Stanford because you come from legacy or something like that. You have a legacy into Stanford. You graduate from Stanford. Maybe you work in consulting or you join a startup. Maybe you go to an investor and work at an investor for a while or you work in Google or Facebook. Out of your experience at Google and Facebook, you can go and raise a really big round of funding. None of those things felt right to me or particularly accessible to me. I resist all of it because I see how it works on the happy path if that makes sense.
Rob: That makes sense. I think that’s where the bootstrapper is in that indie-funded path. I think why it has so much traction is that most of us are outsiders. Most of us don’t go to Stanford. Most of us don’t know a venture capitalist who lives down the street from us. Most of us don’t grow up in the Bay Area. I think there’s a real appeal to having a path where you don’t need to know someone to break into it, where it feels like this, where you are an outsider that you can’t break through those doors. What you and John did is you didn’t go the bootstrap route and you didn’t go to that funded route. You pick the third path that so few had gone down at that point.
Now, there are more companies. There’s EDBC now that is effectively funding companies to become profitable. There’s a Tiny Seed Accelerator I run that is funding companies with the option to become profitable. Even though I’ve done about a dozen angel investments on my own, half of those are in essentially fund-strapped companies. Part of the Startups for the Rest of Us’ drinking game is when I say fund strapping. I always say it’s a term coined by Colin from Customer.io. It’s always the same thing. People have given me crap about it because they’re like why do you say that every time? It was this really novel concept back then. I can imagine that trying to stay away from dogma is almost what it sounds like. You didn’t want to go down the dogma of the VC nor the dogma of bootstrap necessarily. We’re thinking, is there another path.
I think remote is another big thing that in 2012–2013 (as you’re saying), people wouldn’t take you seriously if you didn’t have an office. Was that a decision from the start like this is just what we’re going to do? Have you ever regretted that? I’ve had remote companies. I’ve had a non-remote. I’ve had half remote companies. I know the value of being in an office with someone. Talk to me through that.
Colin: It’s hard. There are many things which are harder when you’re a remote company. We didn’t set out to be remote but we knew the value of deep work at that point. When it was just two of us, we were sitting next to each other, communicating with each other in a campfire chat, because I knew that if I had an idea and I wanted to share that idea with John but he was deep in work, I could just type it in the chat. He would ignore it, continue doing what he was doing, and he’d get back to me later. We definitely knew the value of deep work. We set up to support asynchronous and remote really early on.
We chose to do remote out of necessity because I couldn’t see a path forward building the company in New York City, trying to find the people that we needed and be able to attract them at the salaries we needed to pay to compete against other venture-funded startups in New York City, the investment banks, and all of the people who could pay way more than we could. We had to find a thing that we could offer that none of those people could offer.
To me the value of working for Customer.io as a developer or anyone on the team is you get to do the type of work that you would do if you were in San Francisco or New York, except you can be anywhere. Let’s say you get a co-located job in Cincinnati, Ohio, chances are the engineering problems you’re going to be working on there are not that interesting but we have really interesting engineering problems. That appeals to the flexibility of the work. The interest of the work is what was exciting to me and what was our competitive advantage, essentially, to hire quality people wherever they were in the world.
Rob: That’s the promise and the beauty of hiring remote. You don’t have to pay Berry or New York salaries. You can hire in whatever, the Midwest, the South, in the middle of nowhere, in Washington. You’re able to pay to give someone a higher standard of living without them having to have a long commute.
Colin: We couldn’t afford New York and San Francisco salaries out of necessity at that point, but it was never the goal to spend less on salaries. One of the things that we do now, we increase salaries as soon as we could, 2014–2015, we pay market rates now. We benchmark to the US national average. I think it’s the 75th percentile of the US national average for all of our roles. One of the things we’re still figuring out is how to make adjustments against that for international. My philosophy on this is that if you live in a less expensive place, I want to share in that benefit with you, the benefit of a cheaper cost of living. If you live in a more expensive place, we’ll share in the cost as well, but we won’t fully adjust the salary for that more expensive place.
Rob: I think I want to ask one question. There’s so much to talk about because you’ve been doing this for eight years. There are a lot of aspects of the customer that I think are interesting to listeners. You had mentioned to me offline before we started that Customer.io is not necessarily ideal for bootstrappers as customers because of the pricing. It’s $150 a month to get started. You guys want to fix that. You would prefer to help bootstrappers out. Do you want to talk a little bit about what you want to offer folks who are listening today?
Colin: I personally think it’s a little unfair that there are all these offers and opportunities out there for venture-funded startups. AWS has credits you can get and all of the companies out there do that. I want to find a way for us to better give back to that community and better support the bootstrapper community.
I think as we talked about earlier, we started at $10 a month. Over time, we raised our prices. One of the things that we found by raising our prices is a lower churn because if you have a really low price point, many people will sign up but also many people will churn. We were pulled by our customers to make the product more and more sophisticated. Because of that, if you’re one person working on a company, the investment required to use Customer.io effectively is probably beyond what you want to do.
The sophistication in Customer.io is probably beyond what you want to do, but I think that not every bootstrapped company is really looking to be a solopreneur company in the long run. I think for those companies that want to grow, expand their team, and are looking for a high growth rate, we want Customer.io as a product to be accessible to those people so that they get the value that the companies that pay us thousands or $2000 a month. All of that sophistication, they get that available to them on day one of their company.
I think you shouldn’t have to use crappy tools, basically. We think Customer.io is a really amazing, flexible tool. We want more people to have access to it but it takes investment. If you’re a solopreneur, you probably don’t want to do the investment required to get the value out of Customer.io. We’re exploring this right now. If this sounds interesting to you after checking out Customer.io, if you go to customer.io/bootstrapper that will give you a little more information. We want to have a conversation with you and figure out how to give you an offer that really helps you get started in the product.
Rob: Circling back, I want to look at some marketing approaches that you guys used in the early days and how you got traction. Obviously, this whole journey is hard but I think you and I both know that the first three months, six months, nine months are really trying because you don’t know if you’ve built anything people want. People are giving you all different kinds of feedback. People are telling you you’re too expensive, you don’t have the features, whatever, and you’d have this fragile idea. You’ve been working on this for eight years, $11.5 million ARR now, much less fragile. In the early days, you’ve talked about Twitter actually being an early sales channel and that your word-of-mouth was very strong. Can you talk about how that came about, why that worked, and what worked at the time?
Colin: There were a couple of things that happened in the early days for us. One, this area that we were focused on became a pretty hot space for conversation in tech in general. I think this guy, Paul Stamatiou, wrote a blog post about User Retention as a Service. People were just talking about this in general.
What I would do before we had a product to sell, I would see people talking about the problems we were trying to solve on Twitter, I would reach out to them, and I would say, hey, I want to understand this better. Can we talk? I don’t have anything to sell you but we’re working on this problem. That was a way to gather information to figure out if we were building the right thing.
What I found is under the guise of not selling something, trick people into having a conversation with you but really you’re trying to sell them something. That’s happened to me a couple of times as CEO. It’s really annoying but we were genuinely not able to sell someone anything. That made for really useful conversations with future prospective customers.
I think at that time Rand Fishkin was talking about this problem. He introduced me to people on his team at Moz who were working on it. We did a customer development call. They never became a customer but I learned really useful information from that. It’s pretty typical. We had a signup page where people could register their interest. We would send people to that page and we’re getting a decent number of signups there.
The other thing that happened at this time is I think Patrick McKenzie introduced me to this guy Ramit Sethi. Ramit runs I Will Teach You To Be Rich. He agreed to meet us for coffee. He asked what we were doing to build an audience and communicate with people as we were building the audience. I said we’re collecting all these email addresses. In six months when we launch, we’re going to email them to let them know.
I don’t know if these are his exact words but it was something along the lines of you guys are idiots. You got to talk to the people whose email addresses that you’re collecting because in six months when you email them, they’re not going to remember you. Figure out how you can provide value for them in the meantime. They signed up for something. Give them what you can now that will help build your audience, then they’ll at least remember you when you launch the thing that you want to sell them. That was hugely valuable advice.
One of the things that we were able to do—I don’t know how easy or possible it is to do today, because there’s just so much content marketing out there—we built our newsletter list, we started writing about email copywriting like trigger messages, and had a pretty good following of early-stage companies and CEOs of startups basically, one- to five-person startups primarily. That really helped us in the early days. Over time, I wasn’t able to keep myself motivated to continue to write content and do content marketing. That fell off a little bit, but fortunately, we’ve built a bunch of evergreen content and still have a lot of inbound today. That’s really how the word-of-mouth engine got kicked off.
Rob: That makes sense. That really has become a playbook. It was emerging during that time. I’ll say 2011–2013, 2014 content marketing playbook. It sounds like you and your team by this point executed really well on the product, but you also got maybe a little lucky in terms of hitting this thing at an inflection point with targeted messaging event-based behavioral stuff. I think that’s something that I’ve been talking about. We’re really thinking about this concept of what do I think the keys to success are. I think there are just three things. I think it’s this simple. I think it’s skill, hard work, and luck. It’s a combination of those three. One plus one plus one equals success.
At varying times, if you have a lot more luck, you may need less skill and experience if you get lucky to hit it. If you don’t have a lot of luck and you want to just purely do something you can repeat over and over without having to make a billion-dollar bet, then you need skill/experience and a lot of adding. You need a lot of hard work. It sounds like you had a little of all of them because I’m just going to assume in knowing what I know about you that you guys work your asses off. The hard work was there and you had development skills for sure. It sounds as I just said, you get a little lucky with that thing, but it sounds like you’ve executed very well on that vision is an addition.
Colin: The way I think about luck is that it’s not evenly distributed. You can’t just go anywhere into any market. There’s some luck that you can tap into. There are some areas and there are some products that you could build today where you’d be extremely lucky relative to other products.
I think we were really fortunate in the space that we picked. We had a lot of interest at that time. We had a lot of competitors at that time but it was really nascent. We were able to build a very immature product and get some traction. Now, there’s a much larger moat where the expectations of what our product needs to do on day one are much higher.
When we had five customers paying us $10 a month, the reason we were limiting how many customers we could service and the way that all that stuff worked was my co-founder would write a MapReduce script behind the scenes when someone would set up a campaign. They would write in plain English what they wanted the campaign to do. We would manually look at the data that they were sending in to figure out if it was possible. If it was possible, we’d write a manual like MapReduce query to find the right people to match the campaign.
You could not launch a product today with that approach. Nobody would take you seriously. I think our experience working in tech helped us know that that was an interesting space to go after. Our luck in picking that space has helped us a lot to become successful and really just the luck of who we met along the way.
Rob: There’s always a little bit of that in all these stories especially when it’s folks like us coming from the outside who didn’t have some in this space. I’m curious. What’s the high point of building a customer? What’s a moment you can think over here like this is amazing, I love what I’m doing here, and I’m euphoric at this moment?
Colin: I don’t have a moment where everything was so amazing like I’m sitting there with a glass of champagne, I’m looking at some company dashboard, takes over, and then all of a sudden, I drink the champagne and feel just like pure joy. I don’t have that. Basically, every time one of the people on our team has a child, every time someone buys a house, every time one of our customers is really happy with us and gives us the feedback that our support was amazing or they were able to accomplish something in their job that they hadn’t been able to accomplish before, it’s those micro-moments that make me feel a great degree of satisfaction just deep inside. It’s not revenue-driven. It’s what having this company and what having this product allows us to do and allows the people touched by it to do in their lives that create the lasting feeling of success, if you can even call it that, but really just satisfaction.
Rob: How about on the flip side? What’s been the hardest part?
Colin: There have been moments, knock on wood can’t really happen to us anymore, but we made some decisions early on technology choices. I think in 2015, we had an outage that lasted 24 hours. Basically what had happened was we were using this database technology called FoundationDB. It was acquired by Apple. Apple would not let FoundationDB renew any service contracts and they took the product off the market. We were in production with this thing with no migration path. The service went down. We were hosting the database ourselves but our database went down. We couldn’t recover it and we couldn’t get any help.
I thought that was it. I thought we were going to have to call our customers and say, sorry but we can’t get your data back. We can’t bring the service up. You’re gonna have to take emergency action to migrate away from Customer.io. That’s the lowest point I’ve personally experienced in the company. If you can imagine as a business how you could fail your customers in the most dramatic way, that is it. If service goes down all of a sudden and there’s no recovery, no migration path, no time, that’s it.
Rob: That is devastating. My palms are literally sweaty thinking about it because we never had outages that long but I know exactly. I’ve been in your shoes. How did you get out of this? Don’t leave us hanging. How did you figure it out?
Colin: My co-founder was trying a bunch of things. I think we had someone else on the engineering team or maybe a couple more people on the engineering team who were helping him with this. We’re just trying things, trying to figure out how to recover the database. One of the key aspects of this is this was a distributed data store. There were lots of machines essentially running one underlying database.
The big problem with that is one, it wasn’t necessary for the type of business that we had. Customer data doesn’t relate to any other customer data. There was no need to have a big distributed data store to run our business. Basically there was one single point of failure again. The idea of these things is that a server can go down and the database will stay up but the problem is you still have this single point of failure. When a server goes down, there’s data that needs to get moved around and it overwhelms the network.
We receive a ton of data all the time from our customers sending us data. That made it even harder to recover. It got bad enough that on Twitter I was like, “Hey, we really need some help. If anyone knows anyone who worked at FoundationDB, please can you connect us?” I reached out on LinkedIn to a bunch of people who had worked at that company and were now working in Apple. Some people responded to us. I think we got some help from one or two people there.
We were ultimately able to recover this whole time. As soon as the acquisition happened, we were immediately trying to figure out how to migrate away but it was too much data. We couldn’t do it fast enough, but we ended up getting things back up and running and had to really massage that database every single day to keep it running while we created a migration path.
Rob: Wow. These are the kinds of stories that don’t make it to the front page of TechCrunch. It’s the growth curve of Slack and Zoom that you’ve mentioned offline, how Zoom goes public, Uber and all this, but how many people are talking about the realities of what it feels like to grow up.
Colin, we’re coming up on time. If folks want to hear more about you, they can go to @alphacolin on Twitter. Thanks so much for joining me.
Colin: Thanks, Rob.
Rob: Thanks again to Colin for coming on the show. As we wrap up, I have a couple of emails that came in that I just wanted to mention here before I take us out. I got an email from Adam. He was responding to episode 479 where we talked quite a bit about marketplaces. I think there may have been a question about who’s talking about building marketplaces. He says that they have a podcast that covers building their marketplace called Menyu. The podcast covers their bootstrapping journey. If that sounds interesting to you, check that out.
The other email I received was from Justin. He said, “I just wanted to say thank you. Your show has been invaluable to me and my co-founders over the years. We’ve built a tool. We’re revamping and launching in a few months, but everything from figuring out what LTV for our customers will be to evaluate whether a free model could work for us. You shed insight on a lot of issues we’re going through. I hope we can buy you a beer sometime in appreciation.” Thanks for that, Justin. I really appreciate that. Justin is with forekast.com.
If you have feedback or questions for the show, you can do what Justin did and email questions@startupsfortherestofus.com. I read every email that comes into that inbox.
If you haven’t left us a five-star review in whatever podcast app that you listen to, I’d really appreciate it. We’re in Spotify, Downcast, Overcast, iTunes, and all the Apple podcasts. We’re in all the places. Every five-star review that you leave puts a big smile on my face. It also helps keep me motivated to keep doing the show and it helps us to find new listeners. Thanks for tuning in this week. I’ll see you next time.
In this episode, I air an interview that I did months ago. It was certainly pre-pandemic and it may even have been before the end of last year. While there are no mentions of COVID or Coronavirus in the interview, I think there are so many lessons learned from the journey of this founder, Colin, the co-founder of Customer.io. Customer.io has taken such a unique approach to thinking about how to build their business, the way that they got it started, and the way that they didn’t go down the venture track but also didn’t straight bootstrap. They were one of the first companies that I had ever heard doing that.
Before we dive into that conversation, if you haven’t heard of helpfounders.com, you can head there. It’s a collaboration between a bunch of podcasts that are intended to help Bootstrap founders and folks who may be impacted by COVID or maybe it’s just an effort to give back, so different podcasts. A lot of us in the bootstrapping space offered up just a couple ad slots but really it’s just more of here’s this company. Here’s what they do just to make the Startups for the Rest of Us listenership aware. This is all voluntary. It’s a non-paid sponsorship. It’s really to give back to the community.
The company I want to talk about this week is called Hugo. It’s at hugo.team. According to the founder Darren Chait, he says Hugo is centralized, searchable meeting notes that connect with tools such as Zoom, Slack, Zendesk, and HubSpot. It’s free for up to 40 users. The target market is SaaS companies of all sizes including brands you already know such as Atlassian, Shopify, and Spotify. They were a good addition to the other work-from-home tools that are growing in popularity. If that sounds interesting, head over to hugo.team.
With that, I hope you enjoy my conversation with the co-founder of Customer.io, Colin Nederkoorn.
Today with me on the show, I have Mr. Colin Nederkoorn from Customer.io. Colin, thank you so much for joining me.
Colin: Hey, Rob, great to be here.
Rob: I’m actually pretty surprised that we haven’t had you on the show before now because you’ve just been in this bootstrapper/ these days, I’m calling it an indie-funded space where folks are raising small rounds but they want to keep control of their company. They want to stay independent. I really feel like you were one of the first, if not the first companies, to do that. I think we have some really good stuff to dive into today.
Colin: Thanks. It’s interesting because I’ve never felt like I belonged in any community, but certainly I share more values with the bootstrapper community than I do with the ‘venture-funded grow at all costs’ community. I guess there’s that great quote from Groucho Marx. I forget what the quote is.
Rob: He says, “I would never be a member of a club that would have me.” That makes sense. As I’ve watched you, certainly, you want to build a real product for real customers who pay you real money, which is something I often say on the show. That is much more in line with this non-venture track startup software.
For folks who haven’t heard of Customer.io, you guys effectively built out and launched over the course of 2012. You really had your public launch in 2013. According to your website right now, your HTML title tag is marketing automation for the whole customer lifecycle. Your headline is, “With Customer.io, you can send targeted emails, push notifications, and SMS to low return, create stronger relationships, and drive subscriptions.” I know you started off doing a lot of emails but now you’re in push in SMS.
In 2012, you guys designed your first logo. As we know what’s important in SaaS is not building a product and selling it to people. It’s designing a logo and printing business cards in 2012. I want to ask you a question about that in a second. I want to get to the timeline so folks can keep it in their head.
April Fool’s Day of 2012, you guys had your first full-time days working on this. You quit salary jobs with no runway, five customers paying you $10 a month, no savings and no income, which we’ll get into in a second. This is great. You can’t make this stuff up. You wind up raising about $225,000 from friends and family later that year. As I said, you launched January 2013 with between $5000 and $10,000 MRR. That’s when you raised a seed round.
You extended that friends and family around to $750,000. You’ve never taken truly venture money, institutional money. It’s been more from people who are willing to just support your vision of building a profitable company not go Unicorn, go IPO, or go home type of thing.
Colin: I think that’s pretty true. I don’t know if I could say that we articulated that well in the early days. I don’t know that we had those values but I don’t know that we self-selected investors based on that alignment. I imagine some of our investors, the other investments that they made either have died or are really big companies now.
Rob: Has that caused you any issues in terms of investors who did want you to go Unicorn? Some investors don’t want a profitable business or they don’t want whatever at $10, $30, $50 million exits. They only want Unicorns.
Colin: Not really. We have about 40 people on the cap table which our lawyer always tells us that’s a lot of people on the cap table. Anytime we need to get people to sign documents, it’s a big headache to get everyone to sign. What that’s meant is that for the people who are investing in a lot of high growth startups, we’re not in the front of their minds. Early on, we got a lot of help from people, but now we don’t hear from them too much. They have a big pile of money. They make a lot of investments. We’re just one of them.
Rob: Today, you have more than 1400 paying customers, 57 remote employees. You mentioned you have a small office in Portland with about five people but effectively a remote-first company. You told me offline that you have been public with revenue recently, that you guys are doing $11.5 million ARR, and that you grew 32% last year.
I wanted everyone to have the context as we go into this conversation to hear about your journey, truly bootstrapping this in 2012, to then raising a small amount of funding to get you to profitability, to help with growth, but never taking the massive plunge that a lot of folks do. I’m curious. You and your co-founder John left your jobs without savings, without income, expecting to be able to make this work. How did that come about? These days that would be an anti-pattern because we know SaaS takes forever. What was your thinking back then?
Colin: I can’t even understand why we did that. It just doesn’t make any sense reflecting back on it. Our milestone that we wanted to hit to go full time was 5 companies paying us $10 a month. How you get from there to full-time salaries is a pretty big leap. I think we just knew that we had to do it and then we’d figure it out. We’d do some consulting or we’d start doing services for companies and be able to charge more. But if we didn’t take the leap, then we wouldn’t be in the ocean. We’d still be on the beach and we’d still be trying to figure out how to take the leap. By throwing ourselves way into deep water, it forced us to figure out how to survive and what we needed to do to realize the business.
Rob: You set out to build an analytics platform. What caused you to alter that course and instead go after email?
Colin: We decided in January that we wanted to build the company. I think in the very early days, we spent some time talking with prospective customers. This was right around the time of Lean Startup, Eric Reis’s transformative book. We spent a lot of time going out and talking to people who we thought would be good customers. What we learned was this is what people felt. I still don’t know how true this is but people felt like they had tons of different analytics tools that help them understand their business. The struggles that they were having were they could see what was going wrong but they couldn’t influence it.
We heard that a few different times. We thought to ourselves with that analytics data, we can make something happen. We can send an email. If we’re embedded into a website or mobile app, we actually know what happens after someone clicks on the email and they go back to the app. We can build this amazing circle or we can close the loop (essentially) and show people the impact of the emails that they’re sending in influencing someone’s behavior in your product. That seemed really compelling. When we started talking to people about that, they wanted that because it actually moved their business, whereas giving them another analytics dashboard didn’t.
Rob: Customer is one of the first tools, if not the first that I ever heard of, where the data that you use to send emails could come from inside a SaaS app, a mobile app I believe you focused on. At that time the ESPs that I was using that were popular were Mailchimp and AWeber. I’d vaguely heard of Infusionsoft. There was Constant Contact but those were just marketing places. They were purely about email blasts which are totally not personal, not behavioral, not anything. Customer was the first one where I thought it’s a very clever use. I love how you guys came about that by saying we’re going to use analytics to power email rather than send emails in order to get some type of click-throughs or whatever.
Colin: I think that we were coming from a venture-funded startup. Interestingly, after we heard this from the people doing customer development, we looked back at our company and said, “Oh, wait, that’s the problem here too. Our marketing person wants to send emails in Mailchimp but she asks the engineering team, “Can you please export a list of people who have done this but not that.” Then, there were all of these transactional messages that were in the code of the application that that same marketing person would want to tweak the language in and we would have to put a ticket. I think we were doing Kanban boards at this point. We would write up a notecard. As the head of product and the head of engineering, my co-founder and I would always deprioritize that no card because it wasn’t that interesting to us.
Customer.io, when we thought about it, if you had the data, you could send that newsletter without having to ask engineers to export anything. If you pull the content out of the code of the application, you could make changes to your transactional emails and all of your trigger-based emails without having to ask an engineer to do anything. It was all about strengthening the relationship between your engineering team and your marketing folks, product, or whoever was responsible for talking to customers.
Rob: That makes a lot of sense but it was a big leap. There are obviously a lot of tools that do it today but we’re talking effectively eight years ago that you were working on this. I have one question for you about designing the logo and getting business cards. Did you ever use those business cards because I chuckle these days. I think I printed some on the move for one conference that I went to or something. Was that something you look back on and you were like, why did we do that so early?
Colin: I think when you start a company, it just doesn’t feel real. I think people print business cards and they make a logo because somehow that makes it more real to them. When you tell someone I’ve started a company and you hand them a business card and it has a logo, maybe that convinces them that you’re real, too.
I think it’s just a lack of confidence in a company actually coming out of the other end of this process. People want to start with business cards and so we did as well. We were going to meetups and other things like that like going to social events where you’re like, “Hey, we started a company.” “Oh, cool. What does it do?” “It does A, B, and C. Here’s my business card. Contact me.” It’s so silly but I think it’s like a playing company. It’s part of the package of the playing company. I don’t have business cards now.
Rob: I was going to ask. Do you still have business cards? No. None of us do. Unless you’re literally in person with people at conventions and you don’t want to do the exchange of your conferences, events, or whatever. You don’t want to do that type this into your phone type of thing. There’s just not a ton of reason to do it these days.
I read through several interviews that you’ve done over the years. I like to do that to prepare for these interviews. There’s something you said and one of them struck me. It’s something I wanted to dig into. You said, “So much of what people consider conventional has never felt right to me and our company.” Could you expand on that and maybe talk about one or two conventional things that you guys don’t do or maybe some unconventional things that you do at Customer.io?
Colin: I think there’s really a balance here. There are things that you want to innovate on and there are things that you should try to find best practices for. The things that felt wrong to me was certainly venture scaling a company didn’t feel right to me. Typically, what I would see is most venture-funded startups fail for one. The approach that I would see founders take when they were scaling a company with venture money was that it was really undisciplined and they were just spending cash all over the place. But at the end of the day, it didn’t matter because they would end up crashing the company and landing a job, working as an investor, as an entrepreneur in residence, or whatever, something like that.
It just bugs me that essentially irresponsible behavior can end up with a positive outcome for people but that’s how that world works. I didn’t feel like I wanted to participate in that. Trying to straddle the line between bootstrapping a company and raising money is something that I never felt like we wanted to do either of those things, the conventional way that people do those things.
We’ve explored things like how to organize the company and how to run the company. Holacracy is something that people have experimented with. That somewhere where maybe at this time we want to explore things like that, but I’ve realized that that’s not a place you want to be innovative and challenge the norm. Unless your company is all about how companies work, you should probably not challenge the norm there and just use the tried and true methods that have worked over the years.
Certainly on stuff like running a remote company, we faced a lot of skepticism from early customers. Our now CMO once told me that he worked at a publicly-traded company back then and he had to go to bat for us internally to say that we’re actually a legitimate business because we made this choice to build a remote company and we didn’t have physical office places.
There’s a bunch of decisions like that. I think I’m a contrarian by nature. I typically feel like an outsider and I like being an outsider. I like the challenge that that creates for people. For me personally, I think the struggle is important. Feeling like an outsider means that it’s never the easy path when you look at technology companies.
I imagine a lot of bootstrappers feel like outsiders in technology but the happy path is you go to Stanford because you come from legacy or something like that. You have a legacy into Stanford. You graduate from Stanford. Maybe you work in consulting or you join a startup. Maybe you go to an investor and work at an investor for a while or you work in Google or Facebook. Out of your experience at Google and Facebook, you can go and raise a really big round of funding. None of those things felt right to me or particularly accessible to me. I resist all of it because I see how it works on the happy path if that makes sense.
Rob: That makes sense. I think that’s where the bootstrapper is in that indie-funded path. I think why it has so much traction is that most of us are outsiders. Most of us don’t go to Stanford. Most of us don’t know a venture capitalist who lives down the street from us. Most of us don’t grow up in the Bay Area. I think there’s a real appeal to having a path where you don’t need to know someone to break into it, where it feels like this, where you are an outsider that you can’t break through those doors. What you and John did is you didn’t go the bootstrap route and you didn’t go to that funded route. You pick the third path that so few had gone down at that point.
Now, there are more companies. There’s EDBC now that is effectively funding companies to become profitable. There’s a Tiny Seed Accelerator I run that is funding companies with the option to become profitable. Even though I’ve done about a dozen angel investments on my own, half of those are in essentially fund-strapped companies. Part of the Startups for the Rest of Us’ drinking game is when I say fund strapping. I always say it’s a term coined by Colin from Customer.io. It’s always the same thing. People have given me crap about it because they’re like why do you say that every time? It was this really novel concept back then. I can imagine that trying to stay away from dogma is almost what it sounds like. You didn’t want to go down the dogma of the VC nor the dogma of bootstrap necessarily. We’re thinking, is there another path.
I think remote is another big thing that in 2012–2013 (as you’re saying), people wouldn’t take you seriously if you didn’t have an office. Was that a decision from the start like this is just what we’re going to do? Have you ever regretted that? I’ve had remote companies. I’ve had a non-remote. I’ve had half remote companies. I know the value of being in an office with someone. Talk to me through that.
Colin: It’s hard. There are many things which are harder when you’re a remote company. We didn’t set out to be remote but we knew the value of deep work at that point. When it was just two of us, we were sitting next to each other, communicating with each other in a campfire chat, because I knew that if I had an idea and I wanted to share that idea with John but he was deep in work, I could just type it in the chat. He would ignore it, continue doing what he was doing, and he’d get back to me later. We definitely knew the value of deep work. We set up to support asynchronous and remote really early on.
We chose to do remote out of necessity because I couldn’t see a path forward building the company in New York City, trying to find the people that we needed and be able to attract them at the salaries we needed to pay to compete against other venture-funded startups in New York City, the investment banks, and all of the people who could pay way more than we could. We had to find a thing that we could offer that none of those people could offer.
To me the value of working for Customer.io as a developer or anyone on the team is you get to do the type of work that you would do if you were in San Francisco or New York, except you can be anywhere. Let’s say you get a co-located job in Cincinnati, Ohio, chances are the engineering problems you’re going to be working on there are not that interesting but we have really interesting engineering problems. That appeals to the flexibility of the work. The interest of the work is what was exciting to me and what was our competitive advantage, essentially, to hire quality people wherever they were in the world.
Rob: That’s the promise and the beauty of hiring remote. You don’t have to pay Berry or New York salaries. You can hire in whatever, the Midwest, the South, in the middle of nowhere, in Washington. You’re able to pay to give someone a higher standard of living without them having to have a long commute.
Colin: We couldn’t afford New York and San Francisco salaries out of necessity at that point, but it was never the goal to spend less on salaries. One of the things that we do now, we increase salaries as soon as we could, 2014–2015, we pay market rates now. We benchmark to the US national average. I think it’s the 75th percentile of the US national average for all of our roles. One of the things we’re still figuring out is how to make adjustments against that for international. My philosophy on this is that if you live in a less expensive place, I want to share in that benefit with you, the benefit of a cheaper cost of living. If you live in a more expensive place, we’ll share in the cost as well, but we won’t fully adjust the salary for that more expensive place.
Rob: I think I want to ask one question. There’s so much to talk about because you’ve been doing this for eight years. There are a lot of aspects of the customer that I think are interesting to listeners. You had mentioned to me offline before we started that Customer.io is not necessarily ideal for bootstrappers as customers because of the pricing. It’s $150 a month to get started. You guys want to fix that. You would prefer to help bootstrappers out. Do you want to talk a little bit about what you want to offer folks who are listening today?
Colin: I personally think it’s a little unfair that there are all these offers and opportunities out there for venture-funded startups. AWS has credits you can get and all of the companies out there do that. I want to find a way for us to better give back to that community and better support the bootstrapper community.
I think as we talked about earlier, we started at $10 a month. Over time, we raised our prices. One of the things that we found by raising our prices is a lower churn because if you have a really low price point, many people will sign up but also many people will churn. We were pulled by our customers to make the product more and more sophisticated. Because of that, if you’re one person working on a company, the investment required to use Customer.io effectively is probably beyond what you want to do.
The sophistication in Customer.io is probably beyond what you want to do, but I think that not every bootstrapped company is really looking to be a solopreneur company in the long run. I think for those companies that want to grow, expand their team, and are looking for a high growth rate, we want Customer.io as a product to be accessible to those people so that they get the value that the companies that pay us thousands or $2000 a month. All of that sophistication, they get that available to them on day one of their company.
I think you shouldn’t have to use crappy tools, basically. We think Customer.io is a really amazing, flexible tool. We want more people to have access to it but it takes investment. If you’re a solopreneur, you probably don’t want to do the investment required to get the value out of Customer.io. We’re exploring this right now. If this sounds interesting to you after checking out Customer.io, if you go to customer.io/bootstrapper that will give you a little more information. We want to have a conversation with you and figure out how to give you an offer that really helps you get started in the product.
Rob: Circling back, I want to look at some marketing approaches that you guys used in the early days and how you got traction. Obviously, this whole journey is hard but I think you and I both know that the first three months, six months, nine months are really trying because you don’t know if you’ve built anything people want. People are giving you all different kinds of feedback. People are telling you you’re too expensive, you don’t have the features, whatever, and you’d have this fragile idea. You’ve been working on this for eight years, $11.5 million ARR now, much less fragile. In the early days, you’ve talked about Twitter actually being an early sales channel and that your word-of-mouth was very strong. Can you talk about how that came about, why that worked, and what worked at the time?
Colin: There were a couple of things that happened in the early days for us. One, this area that we were focused on became a pretty hot space for conversation in tech in general. I think this guy, Paul Stamatiou, wrote a blog post about User Retention as a Service. People were just talking about this in general.
What I would do before we had a product to sell, I would see people talking about the problems we were trying to solve on Twitter, I would reach out to them, and I would say, hey, I want to understand this better. Can we talk? I don’t have anything to sell you but we’re working on this problem. That was a way to gather information to figure out if we were building the right thing.
What I found is under the guise of not selling something, trick people into having a conversation with you but really you’re trying to sell them something. That’s happened to me a couple of times as CEO. It’s really annoying but we were genuinely not able to sell someone anything. That made for really useful conversations with future prospective customers.
I think at that time Rand Fishkin was talking about this problem. He introduced me to people on his team at Moz who were working on it. We did a customer development call. They never became a customer but I learned really useful information from that. It’s pretty typical. We had a signup page where people could register their interest. We would send people to that page and we’re getting a decent number of signups there.
The other thing that happened at this time is I think Patrick McKenzie introduced me to this guy Ramit Sethi. Ramit runs I Will Teach You To Be Rich. He agreed to meet us for coffee. He asked what we were doing to build an audience and communicate with people as we were building the audience. I said we’re collecting all these email addresses. In six months when we launch, we’re going to email them to let them know.
I don’t know if these are his exact words but it was something along the lines of you guys are idiots. You got to talk to the people whose email addresses that you’re collecting because in six months when you email them, they’re not going to remember you. Figure out how you can provide value for them in the meantime. They signed up for something. Give them what you can now that will help build your audience, then they’ll at least remember you when you launch the thing that you want to sell them. That was hugely valuable advice.
One of the things that we were able to do—I don’t know how easy or possible it is to do today, because there’s just so much content marketing out there—we built our newsletter list, we started writing about email copywriting like trigger messages, and had a pretty good following of early-stage companies and CEOs of startups basically, one- to five-person startups primarily. That really helped us in the early days. Over time, I wasn’t able to keep myself motivated to continue to write content and do content marketing. That fell off a little bit, but fortunately, we’ve built a bunch of evergreen content and still have a lot of inbound today. That’s really how the word-of-mouth engine got kicked off.
Rob: That makes sense. That really has become a playbook. It was emerging during that time. I’ll say 2011–2013, 2014 content marketing playbook. It sounds like you and your team by this point executed really well on the product, but you also got maybe a little lucky in terms of hitting this thing at an inflection point with targeted messaging event-based behavioral stuff. I think that’s something that I’ve been talking about. We’re really thinking about this concept of what do I think the keys to success are. I think there are just three things. I think it’s this simple. I think it’s skill, hard work, and luck. It’s a combination of those three. One plus one plus one equals success.
At varying times, if you have a lot more luck, you may need less skill and experience if you get lucky to hit it. If you don’t have a lot of luck and you want to just purely do something you can repeat over and over without having to make a billion-dollar bet, then you need skill/experience and a lot of adding. You need a lot of hard work. It sounds like you had a little of all of them because I’m just going to assume in knowing what I know about you that you guys work your asses off. The hard work was there and you had development skills for sure. It sounds as I just said, you get a little lucky with that thing, but it sounds like you’ve executed very well on that vision is an addition.
Colin: The way I think about luck is that it’s not evenly distributed. You can’t just go anywhere into any market. There’s some luck that you can tap into. There are some areas and there are some products that you could build today where you’d be extremely lucky relative to other products.
I think we were really fortunate in the space that we picked. We had a lot of interest at that time. We had a lot of competitors at that time but it was really nascent. We were able to build a very immature product and get some traction. Now, there’s a much larger moat where the expectations of what our product needs to do on day one are much higher.
When we had five customers paying us $10 a month, the reason we were limiting how many customers we could service and the way that all that stuff worked was my co-founder would write a MapReduce script behind the scenes when someone would set up a campaign. They would write in plain English what they wanted the campaign to do. We would manually look at the data that they were sending in to figure out if it was possible. If it was possible, we’d write a manual like MapReduce query to find the right people to match the campaign.
You could not launch a product today with that approach. Nobody would take you seriously. I think our experience working in tech helped us know that that was an interesting space to go after. Our luck in picking that space has helped us a lot to become successful and really just the luck of who we met along the way.
Rob: There’s always a little bit of that in all these stories especially when it’s folks like us coming from the outside who didn’t have some in this space. I’m curious. What’s the high point of building a customer? What’s a moment you can think over here like this is amazing, I love what I’m doing here, and I’m euphoric at this moment?
Colin: I don’t have a moment where everything was so amazing like I’m sitting there with a glass of champagne, I’m looking at some company dashboard, takes over, and then all of a sudden, I drink the champagne and feel just like pure joy. I don’t have that. Basically, every time one of the people on our team has a child, every time someone buys a house, every time one of our customers is really happy with us and gives us the feedback that our support was amazing or they were able to accomplish something in their job that they hadn’t been able to accomplish before, it’s those micro-moments that make me feel a great degree of satisfaction just deep inside. It’s not revenue-driven. It’s what having this company and what having this product allows us to do and allows the people touched by it to do in their lives that create the lasting feeling of success, if you can even call it that, but really just satisfaction.
Rob: How about on the flip side? What’s been the hardest part?
Colin: There have been moments, knock on wood can’t really happen to us anymore, but we made some decisions early on technology choices. I think in 2015, we had an outage that lasted 24 hours. Basically what had happened was we were using this database technology called FoundationDB. It was acquired by Apple. Apple would not let FoundationDB renew any service contracts and they took the product off the market. We were in production with this thing with no migration path. The service went down. We were hosting the database ourselves but our database went down. We couldn’t recover it and we couldn’t get any help.
I thought that was it. I thought we were going to have to call our customers and say, sorry but we can’t get your data back. We can’t bring the service up. You’re gonna have to take emergency action to migrate away from Customer.io. That’s the lowest point I’ve personally experienced in the company. If you can imagine as a business how you could fail your customers in the most dramatic way, that is it. If service goes down all of a sudden and there’s no recovery, no migration path, no time, that’s it.
Rob: That is devastating. My palms are literally sweaty thinking about it because we never had outages that long but I know exactly. I’ve been in your shoes. How did you get out of this? Don’t leave us hanging. How did you figure it out?
Colin: My co-founder was trying a bunch of things. I think we had someone else on the engineering team or maybe a couple more people on the engineering team who were helping him with this. We’re just trying things, trying to figure out how to recover the database. One of the key aspects of this is this was a distributed data store. There were lots of machines essentially running one underlying database.
The big problem with that is one, it wasn’t necessary for the type of business that we had. Customer data doesn’t relate to any other customer data. There was no need to have a big distributed data store to run our business. Basically there was one single point of failure again. The idea of these things is that a server can go down and the database will stay up but the problem is you still have this single point of failure. When a server goes down, there’s data that needs to get moved around and it overwhelms the network.
We receive a ton of data all the time from our customers sending us data. That made it even harder to recover. It got bad enough that on Twitter I was like, “Hey, we really need some help. If anyone knows anyone who worked at FoundationDB, please can you connect us?” I reached out on LinkedIn to a bunch of people who had worked at that company and were now working in Apple. Some people responded to us. I think we got some help from one or two people there.
We were ultimately able to recover this whole time. As soon as the acquisition happened, we were immediately trying to figure out how to migrate away but it was too much data. We couldn’t do it fast enough, but we ended up getting things back up and running and had to really massage that database every single day to keep it running while we created a migration path.
Rob: Wow. These are the kinds of stories that don’t make it to the front page of TechCrunch. It’s the growth curve of Slack and Zoom that you’ve mentioned offline, how Zoom goes public, Uber and all this, but how many people are talking about the realities of what it feels like to grow up.
Colin, we’re coming up on time. If folks want to hear more about you, they can go to @alphacolin on Twitter. Thanks so much for joining me.
Colin: Thanks, Rob.
Rob: Thanks again to Colin for coming on the show. As we wrap up, I have a couple of emails that came in that I just wanted to mention here before I take us out. I got an email from Adam. He was responding to episode 479 where we talked quite a bit about marketplaces. I think there may have been a question about who’s talking about building marketplaces. He says that they have a podcast that covers building their marketplace called Menyu. The podcast covers their bootstrapping journey. If that sounds interesting to you, check that out.
The other email I received was from Justin. He said, “I just wanted to say thank you. Your show has been invaluable to me and my co-founders over the years. We’ve built a tool. We’re revamping and launching in a few months, but everything from figuring out what LTV for our customers will be to evaluate whether a free model could work for us. You shed insight on a lot of issues we’re going through. I hope we can buy you a beer sometime in appreciation.” Thanks for that, Justin. I really appreciate that. Justin is with forekast.com.
If you have feedback or questions for the show, you can do what Justin did and email questions@startupsfortherestofus.com. I read every email that comes into that inbox.
If you haven’t left us a five-star review in whatever podcast app that you listen to, I’d really appreciate it. We’re in Spotify, Downcast, Overcast, iTunes, and all the Apple podcasts. We’re in all the places. Every five-star review that you leave puts a big smile on my face. It also helps keep me motivated to keep doing the show and it helps us to find new listeners. Thanks for tuning in this week. I’ll see you next time.
Episode 495 | Advice, Competition, Marketing, and Managing Developers (A Rob Solo Adventure)
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Today, Rob flies solo to talk about 7 different things that he has learned in his 20 years of entrepreneurship. He also offers some feedback about what he is seeing in the startup communities today, advice on how to deal with competition, marketing tips, and how to build a team of developers.
The finer points of the episode:
- 2:35 – Be careful about over-generalizing from one win
- 3:33 – The three things you need in order to succeed in building a startup
- 8:10 – How to handle feedback you get on your product
- 12:48 – Rob’s personal experience and opinion on dealing with competition in the startup space
- 15:35 – Why word-of-mouth is not the right answer for where your leads are coming from
- 18:40 – The real reason why some startups are “transparent”
- 21:05 – Advice on how to build a team of developers
Items mentioned in this episode:
Welcome to this week’s episode of Startups for the Rest of Us. As always I’m your host, Rob Walling. Every week on this show I get on the mic, I often have a guest or sometimes do an entire round table of guests. Today, I’m flying solo and I do this two, maybe three times a year when I either have trouble finding a guest or I find that I have stuff on my mind that I’ve been thinking about and developing a framework for, and I just want to get it out there in a way that I don’t have time to spend four, six, eight hours trying to blog post.
I think it’s more substantive and perhaps will reach more people in a deep fashion than posting it into Twitter. Today’s episode is going to be walking through seven different, I would almost call them advice but it’s more like these are things that I’ve learned in my 20 years of entrepreneurship and some things that are going on in the world today that I feel like I have commentary on.
When I say in the world, I don’t mean COVID-19. I mean more in our startup communities. I’m going to be talking about advice and feedback, a little bit about how to give a little bit, a little bit about taking it, and we’re going to be talking about competition and some specific experiences I’ve had around it. Talk a little bit about some marketing stuff and it’s not going to be high-level, this is how you market. It’s just some specific advice and mistakes. I think antipatterns in ways that I think people have been thinking about marketing as well as managing developers.
This all revolves around sometimes just one, but often it’s 5, 10, 20 conversations that I’ve had with colleagues, founders, or aspiring founders. When I start hearing the same thing over and over and I realize that I’m thinking about this in a different way than perhaps the early stage founder or just someone who hasn’t been in our space for a long time. I just like to bring these things up and talk them through.
One thing I want to say before I start is that it’s such a trip. Probably once a month I get an email that says, “I’ve been listening to your podcast for years and I had bought Start Small, Stay Small years ago. I had no idea that you were the same Rob.” Every couple of months, I’m going to say that I wrote Start Small, Stay Small. If you’ve read the book, thanks. I appreciate it, but just to clear the air so that you know that I’m one the same. I wanted to do that.
Let’s dive in. I have three things that I wanted to say about advice and feedback. The first one is something that I think has always happened, but it definitely has gotten more and more prevalent in the startup space. The more people that are just online and doing social stuff trying to build personal brands. I just want to ask if you are a founder who has had some modicum of success, please be really careful about overgeneralizing from one win.
I think of it the first time you launch a product and you have some success, suddenly you feel like you know exactly how to launch a product and that your experience applies to every product everywhere for all eternity. I’ve seen folks grow an app to 10,000, 30,000, 50,000 a month with no employees and they typically admit that they got pretty lucky. They found a niche that happened to grow, they rode a wave, or maybe they didn’t. Maybe they really just worked hard and it took them five, six, seven years to get there.
But then, going out and giving advice on this is how to start a startup and this is how everyone should do it is really dangerous. I had this mental model and I brought it up in the podcast in the past about the three things that you need to succeed in (let’s say) building a startup. One is hard work, the second is luck, and the third is skill.
You might have these in varying degrees. If you have tremendous skill in marketing, or tremendous skill in building an audience or building a network, or tremendous skill on choosing niches and building a great product, you may need less luck and I personally always think you should put hard work in because that’s the one you control the easiest in the short term is to work hard. I don’t mean 90-hour weeks, of course. If you listen to this podcast, you know that my entire entrepreneurial career, I’ve worked 40 hours a week or less except for some very short stints where I did work 60 hours a week for 6 weeks at a time, 8 weeks at a time to get some hard stuff done.
Hard work and focus (I think) is table stakes in my opinion, although if you are really lucky, I do know a founder who happened to be at the right place at the right time and just stumbled into a hobby, became something that was really popular. He got really lucky and sold the company for tens of millions of dollars. He didn’t actually work that hard. Self admittedly, he never really worked that hard but he did have the skill to build a team and he did really get lucky in the right place at the right time so it’s totally possible.
Then of course, there are folks who don’t get lucky at all. They just put tons of hard work and they build skills, and it takes them five or ten years to get where someone who got lucky maybe would have gotten to in one year. Those three things I think make up the building blocks, but to build a SaaS app or any company to $3000, $4000, $5000, $6000 is hard. Typically, you need to put in some hard work. Typically, you probably need a little bit of luck although not at that scale. I do think that to get to tens of millions or hundreds of millions, that you do need all these things to fall into place.
Oftentimes, after your first one, you just don’t know. You don’t know what made it work. You think you do, but after your second one, your third one, your fourth one, you start to see the patterns. I’ve grown seven businesses to at least six figures in revenue. Seven six-figured businesses I’ve created in the past of about 15 years. Actually, some of those weren’t six; they were at least six. There are few that are seven figures. Seven six- and seven-figured businesses is probably a better way to put it.
After the first one, I really did think that I’d do it all and it’s such a natural thing to want to go out and tell everyone about. When I did the second one, I realized nope. The things that I thought made it successful, some of them were right but about half of them were wrong, and when I go back and read writings that I did 10 years ago, it’s a little painful for me. I think most folks are not doing this intentionally. I think it’s a natural human desire to want to teach and I think it’s a natural human desire to want to talk about how you have the right answers.
Just consider this, most people giving advice are doing it to build a personal brand so they can sell you a book, or a course, or they’re even some investors who do that, and a lot of Silicon Valley folks like the venture capitalist would blog in order to get followers and then people will say they know what they’re doing. But really consider a question that I often ask myself when I see a new expert or a new name come on the scene. I typically ask myself have they done it at least twice? Obviously there are exemptions.
Jeff Bezos has not built two Amazons. The Collison brothers, actually I think they did have a startup before Stripe that was successful. Most founders I know really who know their stuff, they have done multiple. I look at Eaton Shaw, Jason Cohen, David Cancel, Dan Martell, people who have done it two, three, four, five times and there’s definitely a learned experience and definitely a different communication of their learnings as they get further along.
That’s the big question I ask myself. If someone is giving advice, I think, have they done it at least twice or three times that they can start seeing patterns. I also ask, are they giving advice on something that they really are expert in? Because again if you grow an app to $30,000 a month then you’re working on your own, that is so different than building a team, building a startup, and knowing how to build a team culture, knowing how to hire people, knowing how to cross a million dollars in ARR, knowing how to cross $2, $3, $4 million. It becomes such a different experience.
As I’ve watched founders who I’ve invested in or I’ve worked with or just known through MicroConf in this podcast. Each step you’re learning a lot and overtime I think that you’re really building that corpus and that wisdom so to speak so that you can share with others. I’ll stop there on the advice and I want to switch to this topic of feedback.
What I mean here is if you’re building a product, you’re trying to build something that people want, maybe you do have product/market fit, and things are growing. There’s always going to be someone who wants to give you feedback about your product, who doesn’t tend to know what they’re talking about but thinks they do. It’s often hard to tell. So, the thing that I have started doing because when we were growing Drip and frankly every business I’ve ever grown has this whether it’s a MicroConf, TinySeed, Drip, HitTail, or stuff that I grew before, someone wants to give you feedback.
In the early days when someone gave me feedback, I thought they must be an expert because I don’t give feedback to someone unless I feel like I really know what I’m talking about. Other people don’t necessarily have that bar. I would get an email when we were running Drip and we’re literally doing millions of dollars in revenue. Someone would say you really need to change this font color, change this button, or this tab in the interface. Just these really small things that are nitpicks and frankly are not going to change the business. They’re not going to change the business. The UX was really good and really solid. Could you find one pixel out of place? Of course you could. Does that change the business? Should we be focused on that?
It comes from people who I think are not entrepreneurs. They’re not founders. They’re not thinking about the business. They’re thinking about their particular expertise. That’s where it has gotten to a point where I really need someone to have some type of credentials before I listen to them and I don’t mean academic credentials, but when someone emails me out of the blue, if it’s Eaton Shaw, Ruben Gomez, Brennan Dunn, or Jordan Gal in the email and saying, “Hey, there’s something in your product I think you should fix,” I’m going to listen to it because they’re a founder. They are product-focused people who know how to build a good product and their feedback is very likely coming from a place of I’m trying to help you build a better product versus feedback coming from someone I don’t know and when I go to look at them, either they are not a UX designer at all and they just have an opinion or they are a developer and designer and they’re trying to sell me their services.
I just don’t know their motivation and frankly making changes that random people on the internet suggest about your writing, your product, your podcast, your blog, or your conference, it’s dangerous. Now taking it in aggregate, of course, is great. If you fear the same thing from all the people especially if you have thousands of customers, when you start hearing the same thing you have to look for patterns, yes you should do that. I’m not saying don’t listen to anyone. I’m saying be wary of the individual who feels like they are so confident in their advice, but how do you know if they know anything? And oftentimes they don’t.
This is different than someone coming in your app and saying, “Hey, I’m confused by this. I’m confused by this onboarding. I don’t know what to do here.” That’s bad. You don’t want people to be confused. It’s different than someone sending you a screencast and saying, “You really need to change this,” because it’s always like that’s your opinion. That’s your opinion and one person has said this and since I have 3000 customers, I’m going to go with my opinion on this one and not chase down a rabbit hole. That’s number two. That’s be wary of product feedback from people without credentials.
Third thing is something that Sarah Hatter said. Sarah Hatter runs CoSupport and she said on a MicroConf talk once and it resonated with me, was years ago, probably five or six years ago now, and keeping on the topic of advice and feedback, this is the last piece of this. She said, “Don’t take business advice from people who have crappy personal lives.” Let that sink in. A lot of people who give business advice have crappy personal lives. Oftentimes you don’t know, but if you do know, it’s a really interesting thing to think about how someone treats people and I’ve added this to the end.
“Don’t take business advice from people who have crappy personal lives,” and my addition is, “or who treat people in a way you don’t want to treat people.” The reason I’ve added that is because from what I’ve seen, you can be successful in business and treat people right or you can be successful in business and treat people like […].
If you don’t want to do the latter, then don’t take advice from people who do because I do think that it’s a contributing factor to their success. If you try to replicate their success with their advice, but you treat people right, you treat them fairly and you’re nice to them, I think there’s just a disconnect there. I’m not sure that advice is going to translate into what you think it’s going to do.
Let’s move on from advice and feedback to talk about competition. This is an interesting one. Again, this is one that has happened to me several times. I think three maybe more and it’s happened over the course of 15 years. I’ve been an entrepreneur for 20 although I was a consultant early on and really started building products 2003, 2004 and started. I think about 15-17 years is really my entrepreneurial career, but I’ve had three people say almost this exact sentence to me over the course of this time and I want you to hear it.
The sentence is, “There’s plenty of room in the market for all of us.” The first time I heard it, it was from someone who had essentially seen that I was having success in a space and proceeded to copy what I was doing in a way that was really obviously a copy. As we talked about it, the person said, “There’s plenty of market for all of us,” with a smile and a pat on the back because they didn’t want to make an enemy.
The first time I was like, “Oh yeah. No, that’s a really good point,” then I watched him replicate pieces of our positioning, a bunch of features, start to try to take our customers, and just on and on. The second time I heard it, I knew what it was. It was years later and I knew exactly it was someone trying not to make me mad and trying to be friendly with a competitor but that they were going to screw me again. They’re going to backstab me, but I didn’t say anything. The third time I called someone on it and I said, “I’m not sure that that’s the case,” and it really put this person on their heels because they didn’t expect that. But it’s just a fascinating sentiment.
I do believe that markets are big and the free market is fine, but don’t sit there and look me in the eye and tell me that we’re buds, that we’re friends, right before you stab me in the back. If you feel like you have this conversation and someone ever tells you, “Hey, there’s plenty of market for both of us,” just expect them to start drafting off you if they’re not already. What will be interesting is that you’ll be able to tell their next three moves by looking at the last three moves that you made. It becomes painfully, painfully obvious with folks like this who are copying you.
I’m not saying don’t worry about competition. I do think that you should focus on your customers and your audience, but I do think that competition, especially people like this who try to act like that they’re not competing with you but they are effectively ripping off what you’re doing, sometimes even the same naming, I do think it’s something that can be upsetting, to be honest. Frankly, when I talk to people who do have competition who are basically copying them—you’re the innovator, you spend time to do it, you prove it out, and then someone just starts copying it piece by piece—it’s frustrating on a personal level.
There’s something about it as a maker having someone replicate it and typically they claim that it’s their own and claim that they came up with it. That’s the frustrating part. Just be wary of that when you’re in a space and someone tells you that there’s plenty of market for all of us.
Next, I want to talk a little bit about marketing. I have two thoughts here. I’ve heard entrepreneurs who launch a business, business growing relatively well, and when I ask them where your leads or where you’re new customers are coming from, they say word-of-mouth. When I dig into that, the real answer is I don’t know where they’re coming from. So if you don’t know, don’t say word-of-mouth. Say you don’t know or find out because I think it’s really dangerous not to know where your customers are coming from.
I bought a business at one point where the founder told me that customers come from word-of-mouth. I said, “Why is that?” and she said, “It keeps going up to the right. It’s growing slowly,” but in Google it just says direct traffic and it turns out it’s not word-of-mouth. There were a number of factors. I’m going to point to a number of things that would be really hard to track.
You can go on podcast and mention the URL. You can talk from the stage. Someone could read about it in a book. They could read about it in a newspaper or magazine. They can have their referral being cleared out when they click through. They can be on a different device than when they originally heard about it. It could be a returning visit. There are just all these things that can lead to you not knowing where they’re coming from and you’re not going to be able to attribute 100%. You can’t do it.
But having an idea and frankly asking customers tends to be the best way. Asking where they first heard about you or where they heard about you right before they signed up for first touch and last touch attribution, and then of course looking at Google Analytics or whatever analytics you use, these are all good approaches. But the right answer to where my customers are coming from is almost never word-of-mouth.
Word-of-mouth is a component. I remember with Drip, word-of-mouth as far as we could measure it was 15%, 20%, 25% depending on how you measure it. Word-of-mouth is when someone else mentions me on a podcast or is that podcast marketing, it’d be that kind of stuff. But it was somewhere in the teens to the twenties of growth and that’s great.
Once you get to the seven figures of revenue, you build this thing that Jason Lemkin calls a mini brand, were not a brand like Coca-Cola or Chevrolet, but you are a small brand in a small niche and the conversation goes from marketing automation to Infusionsoft and Ontraport. When we started Drip, that’s what it was. Infusionsoft and Ontraport, and I wanted to be the third. I wanted it to be Infusionsoft, Ontraport, and Drip. Then quickly, Ontraport went on its way out it seemed then it was Infusionsoft, ActiveCampaign, and Drip, and those were the three.
We built this mini brand and yes, did we have word-of-mouth? Absolutely. Did we have a mini brand? Absolutely. But I knew that 30% of our new users came from integrations. I knew that X% came from organic search traffic. I knew that X% come from the podcasts that I was on. You can always pinpoint it but while you can build good word-of-mouth, it’s often less than you think it is. Just be wary.
If you don’t know where your customers are coming from, that’s something you’ll see me push my table on often. Where they’re coming from, how you can find more of them, because if you don’t know where they’re coming from, it’s just people referring to one another, your growth will always be capped. It will be capped at the rate that people will tell one another about them. This is different from affiliate marketing. I’m not going down that whole thing. I don’t consider that word-of-mouth because it tends to be very intentional when that works.
The second thing about marketing and then I’ll move on to managing developers. My second thought here is (and this may be obvious to you) to some folks whom I’ve talked to, it’s not, so I’ll just say it and move on. It’s not that big of a deal. Transparency in the startup space is mostly about marketing. Most transparency, I’d say 90% maybe 95%, is just spreading the word so that people will talk about them and that’s okay. Marketing is fine, but I don’t have a problem with marketing. I have a problem with disingenuous marketing in all honesty.
When a big name, huge affiliate marketer, blogger, podcaster that we all know always says yes, I have affiliate commissions but doesn’t talk about how most of the products that he promotes, he gets shares in the company. He has an ownership stake in the company, but you never hear him disclose that. That to me is disingenuous and I don’t like that kind of stuff.
I feel the same way about transparency and I don’t know that people realize that again, I would say 9 out of 10, or 19 out of 20 folks doing transparency are doing it to spread the word for marketing or to brag. I think there’s a lot of bragging about how much money I made, look at me, or frankly to get attention for a personal brand so they can sell you something like a course.
Again, I don’t think this is bad on its own. Just think about this the next time you see a company being transparent with all the good things that happen to them. It can be a range of things. It’s whether having all your revenue dashboard public or whether it’s publishing all your salaries or your internal thought processes or income, whatever. There’s a bunch of ways to be transparent. You just really think about why this person is doing it. Are they doing it to help you or are they doing it to draw attention to themselves?
As savvy consumers of a lot of things in 2020, I do think we need to be aware of whose advertising to us, whose marketing to us, what the messages are, and what the thoughts are behind it. Whether it’s Apple putting a billboard up or whether it’s a commercial, you got to teach your kids how to interpret commercials and say, “Wow, the toys aren’t actually going to be that fun. It looks fun because the kids on there are making it look fun but really once you get it home, it’s going to be kind of boring.” Same thing with transparency. Just know the thought process behind it and be aware of that.
Again, I’m not saying no one should be transparent. I’m not saying it’s a terrible thing and I’m not saying that marketing is bad. To be really clear, just know what’s going on behind a lot of the transparency that you see.
Last topic for today, it’s on managing developers and this one comes from I think only two conversations maybe three that I’ve had during my career and it’s typically what it’s always been when I worked at a larger organization. My advice is don’t try to quantify software development. Software development is a craft. Software development is not manufacturing.
The difference is building really good software, you need crafts people and you can’t do this by building an assembly line. You can build […] software by building an assembly line. You can build a car on a manufacturing line, but it’s much harder to build an amazingly intricate piece of art or a piece of furniture on an assembly line. That takes a craftsperson. There’s just a certain element of creativity and craft that you need and software development can be either.
It can be manufacturing, but good software development is a craft and what I’ve seen manufacturing lines at big companies of 20, 30, 40 developers and they want to quantify stuff like lines of code written, bugs fixed, that’s when you go down this line of (a) building crappy software, and (b) all your good developers are going to leave.
This really comes up when I’m talking to someone who has never written code or who has actually just wasn’t a developer. They were managers and they could quantify at a high level the support team, it’s ticket resolved and time to answer the ticket and the happiness of the customer. They can look at sales and they can say leads talk to, close time, and how much money they brought in. Then they will look at the development and they will say I want to do the same thing there.
I always told them that doesn’t work. There’s no number. There’s no set of numbers. No, we can look at some OKRs and KPIs, two acronyms that I despise and hopefully I never have to use them at another company again, but we can put some things down and we’re shipping features. What’s our velocity? There are ways to quantify this.
There are agile development and sprints, and all this stuff. Yes, it’s cool. It’s good and we can have estimates and try to hit them. Yes, I believe all that. But to purely try to quantify things like I’ve seen people try to do, it doesn’t work in a way that you wanted to, and it backfires, and you’re going to lose your best developers. If you want to build A+ or A software, you need really good developers and you need to treat it like a craft.
If you want to build C- or D+ software, then that’s fine treat it like manufacturing. It really is this thought of how we can not treat every department as if it were an MBA, that we got a degree and we think we can middle manage all the departments because software development is not the same as customer support.
Those are my thoughts for today. You might think of them as if I was blogging. That would have been the last six months of blog posts and instead of condensed them into audio format, hopefully, you get some nuggets of wisdom out of these thoughts that I’ve been having over the past several months.
I’ll be back next Tuesday morning with another episode of Startups for the Rest of Us. As always, if you have thoughts or feedback, you can head up to startupsfortherestofus.com. Post a comment on each episode. I read all the comments or you can tweet me at @robwalling. Thank you for listening this week. I’ll see you next time.
I think it’s more substantive and perhaps will reach more people in a deep fashion than posting it into Twitter. Today’s episode is going to be walking through seven different, I would almost call them advice but it’s more like these are things that I’ve learned in my 20 years of entrepreneurship and some things that are going on in the world today that I feel like I have commentary on.
When I say in the world, I don’t mean COVID-19. I mean more in our startup communities. I’m going to be talking about advice and feedback, a little bit about how to give a little bit, a little bit about taking it, and we’re going to be talking about competition and some specific experiences I’ve had around it. Talk a little bit about some marketing stuff and it’s not going to be high-level, this is how you market. It’s just some specific advice and mistakes. I think antipatterns in ways that I think people have been thinking about marketing as well as managing developers.
This all revolves around sometimes just one, but often it’s 5, 10, 20 conversations that I’ve had with colleagues, founders, or aspiring founders. When I start hearing the same thing over and over and I realize that I’m thinking about this in a different way than perhaps the early stage founder or just someone who hasn’t been in our space for a long time. I just like to bring these things up and talk them through.
One thing I want to say before I start is that it’s such a trip. Probably once a month I get an email that says, “I’ve been listening to your podcast for years and I had bought Start Small, Stay Small years ago. I had no idea that you were the same Rob.” Every couple of months, I’m going to say that I wrote Start Small, Stay Small. If you’ve read the book, thanks. I appreciate it, but just to clear the air so that you know that I’m one the same. I wanted to do that.
Let’s dive in. I have three things that I wanted to say about advice and feedback. The first one is something that I think has always happened, but it definitely has gotten more and more prevalent in the startup space. The more people that are just online and doing social stuff trying to build personal brands. I just want to ask if you are a founder who has had some modicum of success, please be really careful about overgeneralizing from one win.
I think of it the first time you launch a product and you have some success, suddenly you feel like you know exactly how to launch a product and that your experience applies to every product everywhere for all eternity. I’ve seen folks grow an app to 10,000, 30,000, 50,000 a month with no employees and they typically admit that they got pretty lucky. They found a niche that happened to grow, they rode a wave, or maybe they didn’t. Maybe they really just worked hard and it took them five, six, seven years to get there.
But then, going out and giving advice on this is how to start a startup and this is how everyone should do it is really dangerous. I had this mental model and I brought it up in the podcast in the past about the three things that you need to succeed in (let’s say) building a startup. One is hard work, the second is luck, and the third is skill.
You might have these in varying degrees. If you have tremendous skill in marketing, or tremendous skill in building an audience or building a network, or tremendous skill on choosing niches and building a great product, you may need less luck and I personally always think you should put hard work in because that’s the one you control the easiest in the short term is to work hard. I don’t mean 90-hour weeks, of course. If you listen to this podcast, you know that my entire entrepreneurial career, I’ve worked 40 hours a week or less except for some very short stints where I did work 60 hours a week for 6 weeks at a time, 8 weeks at a time to get some hard stuff done.
Hard work and focus (I think) is table stakes in my opinion, although if you are really lucky, I do know a founder who happened to be at the right place at the right time and just stumbled into a hobby, became something that was really popular. He got really lucky and sold the company for tens of millions of dollars. He didn’t actually work that hard. Self admittedly, he never really worked that hard but he did have the skill to build a team and he did really get lucky in the right place at the right time so it’s totally possible.
Then of course, there are folks who don’t get lucky at all. They just put tons of hard work and they build skills, and it takes them five or ten years to get where someone who got lucky maybe would have gotten to in one year. Those three things I think make up the building blocks, but to build a SaaS app or any company to $3000, $4000, $5000, $6000 is hard. Typically, you need to put in some hard work. Typically, you probably need a little bit of luck although not at that scale. I do think that to get to tens of millions or hundreds of millions, that you do need all these things to fall into place.
Oftentimes, after your first one, you just don’t know. You don’t know what made it work. You think you do, but after your second one, your third one, your fourth one, you start to see the patterns. I’ve grown seven businesses to at least six figures in revenue. Seven six-figured businesses I’ve created in the past of about 15 years. Actually, some of those weren’t six; they were at least six. There are few that are seven figures. Seven six- and seven-figured businesses is probably a better way to put it.
After the first one, I really did think that I’d do it all and it’s such a natural thing to want to go out and tell everyone about. When I did the second one, I realized nope. The things that I thought made it successful, some of them were right but about half of them were wrong, and when I go back and read writings that I did 10 years ago, it’s a little painful for me. I think most folks are not doing this intentionally. I think it’s a natural human desire to want to teach and I think it’s a natural human desire to want to talk about how you have the right answers.
Just consider this, most people giving advice are doing it to build a personal brand so they can sell you a book, or a course, or they’re even some investors who do that, and a lot of Silicon Valley folks like the venture capitalist would blog in order to get followers and then people will say they know what they’re doing. But really consider a question that I often ask myself when I see a new expert or a new name come on the scene. I typically ask myself have they done it at least twice? Obviously there are exemptions.
Jeff Bezos has not built two Amazons. The Collison brothers, actually I think they did have a startup before Stripe that was successful. Most founders I know really who know their stuff, they have done multiple. I look at Eaton Shaw, Jason Cohen, David Cancel, Dan Martell, people who have done it two, three, four, five times and there’s definitely a learned experience and definitely a different communication of their learnings as they get further along.
That’s the big question I ask myself. If someone is giving advice, I think, have they done it at least twice or three times that they can start seeing patterns. I also ask, are they giving advice on something that they really are expert in? Because again if you grow an app to $30,000 a month then you’re working on your own, that is so different than building a team, building a startup, and knowing how to build a team culture, knowing how to hire people, knowing how to cross a million dollars in ARR, knowing how to cross $2, $3, $4 million. It becomes such a different experience.
As I’ve watched founders who I’ve invested in or I’ve worked with or just known through MicroConf in this podcast. Each step you’re learning a lot and overtime I think that you’re really building that corpus and that wisdom so to speak so that you can share with others. I’ll stop there on the advice and I want to switch to this topic of feedback.
What I mean here is if you’re building a product, you’re trying to build something that people want, maybe you do have product/market fit, and things are growing. There’s always going to be someone who wants to give you feedback about your product, who doesn’t tend to know what they’re talking about but thinks they do. It’s often hard to tell. So, the thing that I have started doing because when we were growing Drip and frankly every business I’ve ever grown has this whether it’s a MicroConf, TinySeed, Drip, HitTail, or stuff that I grew before, someone wants to give you feedback.
In the early days when someone gave me feedback, I thought they must be an expert because I don’t give feedback to someone unless I feel like I really know what I’m talking about. Other people don’t necessarily have that bar. I would get an email when we were running Drip and we’re literally doing millions of dollars in revenue. Someone would say you really need to change this font color, change this button, or this tab in the interface. Just these really small things that are nitpicks and frankly are not going to change the business. They’re not going to change the business. The UX was really good and really solid. Could you find one pixel out of place? Of course you could. Does that change the business? Should we be focused on that?
It comes from people who I think are not entrepreneurs. They’re not founders. They’re not thinking about the business. They’re thinking about their particular expertise. That’s where it has gotten to a point where I really need someone to have some type of credentials before I listen to them and I don’t mean academic credentials, but when someone emails me out of the blue, if it’s Eaton Shaw, Ruben Gomez, Brennan Dunn, or Jordan Gal in the email and saying, “Hey, there’s something in your product I think you should fix,” I’m going to listen to it because they’re a founder. They are product-focused people who know how to build a good product and their feedback is very likely coming from a place of I’m trying to help you build a better product versus feedback coming from someone I don’t know and when I go to look at them, either they are not a UX designer at all and they just have an opinion or they are a developer and designer and they’re trying to sell me their services.
I just don’t know their motivation and frankly making changes that random people on the internet suggest about your writing, your product, your podcast, your blog, or your conference, it’s dangerous. Now taking it in aggregate, of course, is great. If you fear the same thing from all the people especially if you have thousands of customers, when you start hearing the same thing you have to look for patterns, yes you should do that. I’m not saying don’t listen to anyone. I’m saying be wary of the individual who feels like they are so confident in their advice, but how do you know if they know anything? And oftentimes they don’t.
This is different than someone coming in your app and saying, “Hey, I’m confused by this. I’m confused by this onboarding. I don’t know what to do here.” That’s bad. You don’t want people to be confused. It’s different than someone sending you a screencast and saying, “You really need to change this,” because it’s always like that’s your opinion. That’s your opinion and one person has said this and since I have 3000 customers, I’m going to go with my opinion on this one and not chase down a rabbit hole. That’s number two. That’s be wary of product feedback from people without credentials.
Third thing is something that Sarah Hatter said. Sarah Hatter runs CoSupport and she said on a MicroConf talk once and it resonated with me, was years ago, probably five or six years ago now, and keeping on the topic of advice and feedback, this is the last piece of this. She said, “Don’t take business advice from people who have crappy personal lives.” Let that sink in. A lot of people who give business advice have crappy personal lives. Oftentimes you don’t know, but if you do know, it’s a really interesting thing to think about how someone treats people and I’ve added this to the end.
“Don’t take business advice from people who have crappy personal lives,” and my addition is, “or who treat people in a way you don’t want to treat people.” The reason I’ve added that is because from what I’ve seen, you can be successful in business and treat people right or you can be successful in business and treat people like […].
If you don’t want to do the latter, then don’t take advice from people who do because I do think that it’s a contributing factor to their success. If you try to replicate their success with their advice, but you treat people right, you treat them fairly and you’re nice to them, I think there’s just a disconnect there. I’m not sure that advice is going to translate into what you think it’s going to do.
Let’s move on from advice and feedback to talk about competition. This is an interesting one. Again, this is one that has happened to me several times. I think three maybe more and it’s happened over the course of 15 years. I’ve been an entrepreneur for 20 although I was a consultant early on and really started building products 2003, 2004 and started. I think about 15-17 years is really my entrepreneurial career, but I’ve had three people say almost this exact sentence to me over the course of this time and I want you to hear it.
The sentence is, “There’s plenty of room in the market for all of us.” The first time I heard it, it was from someone who had essentially seen that I was having success in a space and proceeded to copy what I was doing in a way that was really obviously a copy. As we talked about it, the person said, “There’s plenty of market for all of us,” with a smile and a pat on the back because they didn’t want to make an enemy.
The first time I was like, “Oh yeah. No, that’s a really good point,” then I watched him replicate pieces of our positioning, a bunch of features, start to try to take our customers, and just on and on. The second time I heard it, I knew what it was. It was years later and I knew exactly it was someone trying not to make me mad and trying to be friendly with a competitor but that they were going to screw me again. They’re going to backstab me, but I didn’t say anything. The third time I called someone on it and I said, “I’m not sure that that’s the case,” and it really put this person on their heels because they didn’t expect that. But it’s just a fascinating sentiment.
I do believe that markets are big and the free market is fine, but don’t sit there and look me in the eye and tell me that we’re buds, that we’re friends, right before you stab me in the back. If you feel like you have this conversation and someone ever tells you, “Hey, there’s plenty of market for both of us,” just expect them to start drafting off you if they’re not already. What will be interesting is that you’ll be able to tell their next three moves by looking at the last three moves that you made. It becomes painfully, painfully obvious with folks like this who are copying you.
I’m not saying don’t worry about competition. I do think that you should focus on your customers and your audience, but I do think that competition, especially people like this who try to act like that they’re not competing with you but they are effectively ripping off what you’re doing, sometimes even the same naming, I do think it’s something that can be upsetting, to be honest. Frankly, when I talk to people who do have competition who are basically copying them—you’re the innovator, you spend time to do it, you prove it out, and then someone just starts copying it piece by piece—it’s frustrating on a personal level.
There’s something about it as a maker having someone replicate it and typically they claim that it’s their own and claim that they came up with it. That’s the frustrating part. Just be wary of that when you’re in a space and someone tells you that there’s plenty of market for all of us.
Next, I want to talk a little bit about marketing. I have two thoughts here. I’ve heard entrepreneurs who launch a business, business growing relatively well, and when I ask them where your leads or where you’re new customers are coming from, they say word-of-mouth. When I dig into that, the real answer is I don’t know where they’re coming from. So if you don’t know, don’t say word-of-mouth. Say you don’t know or find out because I think it’s really dangerous not to know where your customers are coming from.
I bought a business at one point where the founder told me that customers come from word-of-mouth. I said, “Why is that?” and she said, “It keeps going up to the right. It’s growing slowly,” but in Google it just says direct traffic and it turns out it’s not word-of-mouth. There were a number of factors. I’m going to point to a number of things that would be really hard to track.
You can go on podcast and mention the URL. You can talk from the stage. Someone could read about it in a book. They could read about it in a newspaper or magazine. They can have their referral being cleared out when they click through. They can be on a different device than when they originally heard about it. It could be a returning visit. There are just all these things that can lead to you not knowing where they’re coming from and you’re not going to be able to attribute 100%. You can’t do it.
But having an idea and frankly asking customers tends to be the best way. Asking where they first heard about you or where they heard about you right before they signed up for first touch and last touch attribution, and then of course looking at Google Analytics or whatever analytics you use, these are all good approaches. But the right answer to where my customers are coming from is almost never word-of-mouth.
Word-of-mouth is a component. I remember with Drip, word-of-mouth as far as we could measure it was 15%, 20%, 25% depending on how you measure it. Word-of-mouth is when someone else mentions me on a podcast or is that podcast marketing, it’d be that kind of stuff. But it was somewhere in the teens to the twenties of growth and that’s great.
Once you get to the seven figures of revenue, you build this thing that Jason Lemkin calls a mini brand, were not a brand like Coca-Cola or Chevrolet, but you are a small brand in a small niche and the conversation goes from marketing automation to Infusionsoft and Ontraport. When we started Drip, that’s what it was. Infusionsoft and Ontraport, and I wanted to be the third. I wanted it to be Infusionsoft, Ontraport, and Drip. Then quickly, Ontraport went on its way out it seemed then it was Infusionsoft, ActiveCampaign, and Drip, and those were the three.
We built this mini brand and yes, did we have word-of-mouth? Absolutely. Did we have a mini brand? Absolutely. But I knew that 30% of our new users came from integrations. I knew that X% came from organic search traffic. I knew that X% come from the podcasts that I was on. You can always pinpoint it but while you can build good word-of-mouth, it’s often less than you think it is. Just be wary.
If you don’t know where your customers are coming from, that’s something you’ll see me push my table on often. Where they’re coming from, how you can find more of them, because if you don’t know where they’re coming from, it’s just people referring to one another, your growth will always be capped. It will be capped at the rate that people will tell one another about them. This is different from affiliate marketing. I’m not going down that whole thing. I don’t consider that word-of-mouth because it tends to be very intentional when that works.
The second thing about marketing and then I’ll move on to managing developers. My second thought here is (and this may be obvious to you) to some folks whom I’ve talked to, it’s not, so I’ll just say it and move on. It’s not that big of a deal. Transparency in the startup space is mostly about marketing. Most transparency, I’d say 90% maybe 95%, is just spreading the word so that people will talk about them and that’s okay. Marketing is fine, but I don’t have a problem with marketing. I have a problem with disingenuous marketing in all honesty.
When a big name, huge affiliate marketer, blogger, podcaster that we all know always says yes, I have affiliate commissions but doesn’t talk about how most of the products that he promotes, he gets shares in the company. He has an ownership stake in the company, but you never hear him disclose that. That to me is disingenuous and I don’t like that kind of stuff.
I feel the same way about transparency and I don’t know that people realize that again, I would say 9 out of 10, or 19 out of 20 folks doing transparency are doing it to spread the word for marketing or to brag. I think there’s a lot of bragging about how much money I made, look at me, or frankly to get attention for a personal brand so they can sell you something like a course.
Again, I don’t think this is bad on its own. Just think about this the next time you see a company being transparent with all the good things that happen to them. It can be a range of things. It’s whether having all your revenue dashboard public or whether it’s publishing all your salaries or your internal thought processes or income, whatever. There’s a bunch of ways to be transparent. You just really think about why this person is doing it. Are they doing it to help you or are they doing it to draw attention to themselves?
As savvy consumers of a lot of things in 2020, I do think we need to be aware of whose advertising to us, whose marketing to us, what the messages are, and what the thoughts are behind it. Whether it’s Apple putting a billboard up or whether it’s a commercial, you got to teach your kids how to interpret commercials and say, “Wow, the toys aren’t actually going to be that fun. It looks fun because the kids on there are making it look fun but really once you get it home, it’s going to be kind of boring.” Same thing with transparency. Just know the thought process behind it and be aware of that.
Again, I’m not saying no one should be transparent. I’m not saying it’s a terrible thing and I’m not saying that marketing is bad. To be really clear, just know what’s going on behind a lot of the transparency that you see.
Last topic for today, it’s on managing developers and this one comes from I think only two conversations maybe three that I’ve had during my career and it’s typically what it’s always been when I worked at a larger organization. My advice is don’t try to quantify software development. Software development is a craft. Software development is not manufacturing.
The difference is building really good software, you need crafts people and you can’t do this by building an assembly line. You can build […] software by building an assembly line. You can build a car on a manufacturing line, but it’s much harder to build an amazingly intricate piece of art or a piece of furniture on an assembly line. That takes a craftsperson. There’s just a certain element of creativity and craft that you need and software development can be either.
It can be manufacturing, but good software development is a craft and what I’ve seen manufacturing lines at big companies of 20, 30, 40 developers and they want to quantify stuff like lines of code written, bugs fixed, that’s when you go down this line of (a) building crappy software, and (b) all your good developers are going to leave.
This really comes up when I’m talking to someone who has never written code or who has actually just wasn’t a developer. They were managers and they could quantify at a high level the support team, it’s ticket resolved and time to answer the ticket and the happiness of the customer. They can look at sales and they can say leads talk to, close time, and how much money they brought in. Then they will look at the development and they will say I want to do the same thing there.
I always told them that doesn’t work. There’s no number. There’s no set of numbers. No, we can look at some OKRs and KPIs, two acronyms that I despise and hopefully I never have to use them at another company again, but we can put some things down and we’re shipping features. What’s our velocity? There are ways to quantify this.
There are agile development and sprints, and all this stuff. Yes, it’s cool. It’s good and we can have estimates and try to hit them. Yes, I believe all that. But to purely try to quantify things like I’ve seen people try to do, it doesn’t work in a way that you wanted to, and it backfires, and you’re going to lose your best developers. If you want to build A+ or A software, you need really good developers and you need to treat it like a craft.
If you want to build C- or D+ software, then that’s fine treat it like manufacturing. It really is this thought of how we can not treat every department as if it were an MBA, that we got a degree and we think we can middle manage all the departments because software development is not the same as customer support.
Those are my thoughts for today. You might think of them as if I was blogging. That would have been the last six months of blog posts and instead of condensed them into audio format, hopefully, you get some nuggets of wisdom out of these thoughts that I’ve been having over the past several months.
I’ll be back next Tuesday morning with another episode of Startups for the Rest of Us. As always, if you have thoughts or feedback, you can head up to startupsfortherestofus.com. Post a comment on each episode. I read all the comments or you can tweet me at @robwalling. Thank you for listening this week. I’ll see you next time.
Episode 494 | A Bluetick Update From Mike Taber
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This week we catch up with Mike Taber, he comes on the show every once in a while to share his progress as he grows his SaaS App, Bluetick. We haven’t checked in with Mike since before the quarantine, and the last time we spoke to him, he had more than doubled his revenue in the past 4-5 months. We will talk about how the COVID-19 crisis has affected Bluetick and other SaaS apps, some new insights that Mike has been learning about his customer base, and decisions he has made about the positioning and marketing of Bluetick.
It is difficult to try and land new customers when we are facing a global pandemic and a possible recession. If you are working on a startup, you might find it helpful to know how someone else is handling this crisis in their business.
The finer points of the episode:
- 5:00 – How Bluetick and other SAS apps have been affected by the COVID-19 crisis
- 8:35 – Mike’s biggest success and biggest defeat in the past 7 weeks
- 11:32 – Where Mike’s customers are finding him?
- 12:53 – What makes Bluetick different from its competitors
- 15:27 – An update on Mike’s email campaign to canceled customers
- 19:08 – Mike’s plans to change the positioning and copy on his website now that he understands how people are using Bluetick
- 25:28 – An update on Mike’s podcast tour
- 29:36 – What Mike is looking forward to over the next month
Items mentioned in this episode:
Rob: Hey, look. It’s Startups for the Rest of Us episode 494. As always, I’m your host, Rob Walling, and this week we catch up with Mike Taber. He comes to the show about once every month or two and updates us with his experience and progress growing his SaaS app, Bluetick.io.
Two things before we dive into that conversation. The first is we released the MicroConf Video Vault. Over 170 hours of talks across 194 different sessions recorded over almost a decade of events. We had previously sold some of these, some were accessible and some were not, but we took all of them.
They are on our YouTube Channel. It’s youtube.com/microconf. We’ve created several playlists for some serial speakers. There’s Patio11, a playlist of his talks. There’s one of mine. We have a playlist of the Top 5 Rated Microconf Talks of All Time as well as a brand new playlist called Building your First SaaS: The Ultimate Crash Course.
It’s ten videos and it’s like a course where it starts at the beginning with idea validation and it runs through most of the aspects of building and growing a SaaS. Check it out, youtube.com/microconf. I hope you enjoy it as most of us are sheltering into place. I think there’s some time to fit in some good marketing, growth, idea validation, and other MicroConf-type talks amid our Netflix binging and HBO watching.
The second thing is I’m trying something new this week. We have our very first sponsor. I do not plan to have ads run every week or anywhere near every week on this show, but intermittently a sponsor who’s particularly a good fit. I will entertain the idea of having an ad on the show. I’m proud to say that through a connection with MicroConf, Basecamp has sponsored Startups for the Rest of Us and they bought a handful of ad spots that will appear over the many coming months. With that let’s hear today from Basecamp.
Basecamp: We ask founders and entrepreneurs why they switched to Basecamp when their company started to grow. Cristina had just hired more people. When it came to internal communication, everything was all over the place. There was more work and more people than before and no way to keep track of it all.
Sometimes information was in an email. Sometimes in the chat room. They spent too much time on conference calls to figure out what was going on. Then one day, they almost missed the deadline for an important customer because the information was in the wrong place.
She knew they needed to get organized, but all the software she looked at seemed complicated and would take too long to train everybody, then she found Basecamp.
Basecamp puts all of your internal communication in one place so nothing slips through the cracks. Unlike other tools, Basecamp has an incredibly simple structure, organized around your teams and projects. Your team will immediately understand and start using it when they see the two-minute introduction video on our site. Go to basecamp.com to learn more and start a free trial.
Rob: With that, let’s dive in with my conversation with Mike Taber. Mike, thanks for coming back on the show.
Mike: Hey, how’s it going?
Rob: It’s going good, man. Kind of sheltering in place here in Minneapolis. You as well in the Boston area?
Mike: Quarantine Mike here over the Boston area.
Rob: Quarantine Mike, Indeed. Stay safe. We haven’t talked since before all the quarantine stuff happened, really before the COVID stuff.
Mike: Yeah. You know what’s interesting is that you know that you’re mostly an introvert when the vast majority of your life simply doesn’t change when the entire country shuts down.
Rob: Right. It’s like, wait the only thing that’s different is my kids are home all day. You texted me and said, “I’ve been planning for this moment my entire life.” It’s great.
Mike: Honestly, there’s not a lot in my life that has changed other than like I said, the kids being home all the time, and then little things like you go to the store. Now, you wear a mask when you go to the store. We don’t order out pizza on Friday nights anymore because everything’s shut down and my wife’s business is a little different, but by-and-large, the rest of the stuff for me is not a whole lot different.
Rob: Wait, so pizza places are shut down? Because we can get to-go food. We pull up to the curb, we can get stuff delivered from Bite Squad, Uber Eats, DoorDash and all that. Are you not able to do that?
Mike: We technically could, but I wouldn’t say it’s a debate in our household. We want to support local businesses, but at the same time, what precautions were they taking? We don’t really know and we’re trying to cut down on the amount of junk food we eat anyway.
Rob: Fair enough. Cool, man. It’s been almost seven weeks since we last spoke and the prior two calls to that, that covered six or seven weeks each, you were upbeat, things were working, you had more than doubled revenue than that previous about 4–5-month span. I’m curious as we start off—set the stage for us—has that revenue escalation continued or have you—like the other SaaS apps I’m seeing—been kind of hit by the COVID slow down?
Mike: It has not increased at that pace. I’ve had churns like most other businesses have and unfortunately, the churn that I’ve had has offset the gains. I have added customers and I’ve had people come to me and say hey, I can’t let go see people anymore or they want to be able to stay in touch with people so they switch over and use email.
But then, I’ve had a number of customers that have switched and put their accounts on hold. Last year, what I’ve done is I implemented this mechanism for people to put their account on hold instead of charging them $50 in a mailbox, I would charge them $10. What that would do is it will allow me to keep all their data, still synchronize their mailboxes; they just really couldn’t just log in and use the app.
I think the vast majority of my churn has been in the form of downgrades to pause accounts. It’s not that the people are leaving. They are just saying, let’s put things on hold until things settle down and we can come back and do this. I’m trying to remember if I had any outright cancellations. I don’t think that I have.
Rob: Cool. That sounds reasonable and that is one note. If you’re listening, that’s why we look at revenue churn, not customer churn. It’s one of the reasons. The other reason is if you have a customer paying you $10 a month and a customer paying you $1000 a month, then when those customers cancel, if you look at customer churn the numbers look the same but the revenue churn will be vastly different. For those two reasons, you can look at customer churn and it’s interesting, but it’s not nearly as accurate (I’ll say) to your business health as revenue churn is.
I’m bummed to hear. I’m not surprised to hear that you’re plateauing or whatever. Is that what it is? What’s it look like? It’s just a plateau of revenue?
Mike: Yeah. I’ve added customers, but it’s just when I add a customer and then somebody downgrades, it’s only adding a tenth of a customer.
Rob: It’s a net zero.
Mike: Close enough to net zero. The thing is that I haven’t really lost customers, I’ve just lost the revenue that would have been associated with those customers. I have had more people put them at pause than I have added.
Rob: Right, and that’s still churn. It’s not customer churn. It’s revenue churn, but again I’m not surprised by this. How many people right now are doubling down on cold outreach or doing a lot of warm outreach? It’s probably not as many as we were doing two months ago because as we head into a recession, people back off on things and they’re getting a little more concerned about marketing purchases not working right now. There’s a lot to it.
I’m curious to see as with a bunch of businesses. I have insight into direct financials of—it depends on how you count it—about 35–36 companies across TinySeed batches and angel investments I’ve made before TinySeed. The loose pattern I’m seeing is there’s about 20% of SaaS companies are doing really poorly. They are tanking because they are in an industry that’s directly impacted by this, whether it be travel, senior living, something like that. Then, 20% are doing extremely well because they’re for remote workers or they have to do podcasting. They have something that a lot of people now are diving into remote communications.
Then, there’s that 60% in the middle that is slowing down, it’s what it really is. They’re not falling off a cliff, but the growth is either not what it was or they’re plateauing quickly, and I’m curious to see over the next 2–3 months as businesses are reopening here and around the world, you know what happens with those, right? What that means for that 60% in the middle. I feel like you’re probably in that bucket where it’s a wait-and-see type thing. Over the past seven weeks since we last talked, tell me about your high point, the biggest win, and your low point, perhaps the biggest defeat.
Mike: One of the things that we talked about before was there was a fairly large customer that I was trying to get on board and I was trying to get them to go straight to buying Bluetick then they came back and asked if they could do a pilot program.
I’m about probably two-thirds to three-quarters of the way through that right now. They’ve sent me a few questions here and there and they are testing it out. They haven’t come up with anything major. There were two requests that they had. The first one was oh, can you add this font? Because our boss really likes this particular font, Mike? Yeah, I can do that. So that took like very little time to do.
The other thing was they came back and asked and said the email signatures weren’t showing up in the emails that they were sending, even though they had it set to the mailbox. Oh, that’s because you didn’t add in the shortcode and the reason why it’s not added in automatically at the end of the email is because some people like to put a PS at the end of it and they’re like, oh my God, I really love that feature.
Well, it’s nice to be able to explain that. Then I also added another pilot program that is actually a paid pilot program for a small company that could be worth anywhere from $500-$1000 a month.
We’ll see how that goes. They’re paying, I think, $100-$150 a month right now and they’re going to see how it goes. If it goes, well, then they’ll scale it up for other people in their company. But they’re kind of sidelined right now. They can’t go out and visit customers. That’s why they’re looking at Bluetick.
Rob: Cool, that’s exciting, Man. Congratulations. How about your low point?
Mike: I can’t point to anything where I’m like, oh, that was horrible or that was awful. I can’t think of anything off the top of my head that comes to mind. I wish that it hadn’t happened or that it was sucky to deal with. So I guess I would take that as a good sign.
Rob: Yeah, not having a low it just kind of like it just was going along. I’m happy to hear that.
Mike: The closest I could come up with if you were to put a gun to my head would be when I was outside trying to do yard work and I was trying to drill out a Rhododendron root in our yard. I have a power drill and I was a little too close to the roots. It caught on something and yanked my hand around and sliced my finger open. That’s the worst. It did hurt really badly for about two weeks. I don’t know if that’s ever gonna be the same, but it’s starting to heal now.
Rob: […] That’s not a business low, but it definitely is. I would qualify that in the low category. It sounds like I have another question here. You mentioned last time you had bigger prospects coming through the $500–$1000 a month.
The one that’s in the pilot was one you already had, but then you have another customer that’s approached you and I had commented like, this is a way to build a business fast. It’s large customers. I’m excited to follow that and I will definitely follow-up with you next time we chat to hear if they came through.
Once again, I’m gonna ask you, do you know where these people are finding you? Is it still word-of-mouth? You said it was one-on-one recommendations, word-of-mouth and there is an entrepreneur’s organization, EO Facebook group. Is that the gist or are there other places where people are finding you? You know why I ask this because if you can’t figure it out then how do you get more from there?
Mike: Yes. So, this one was the other prospect that I’m working on right now. They’re doing a pilot program, so the second one. They were a referral from somebody I know who has a SasS app. They’ve got a bunch of customers and their customers came to them and said, hey, do you know anything that could help us out?
So they essentially had pitched Bluetick to their customers and we worked out an arrangement to help figure out how that was going to play out. But they’ve got a customer base that I could potentially pitch Bluetick to if this works out for this one customer.
We’re trying to figure out how to make it work between that business and my business and if it works out great for this customer, then maybe they’ve got something that they can pitch to their other customers. If not, then, we’ll see how it goes but I might be able to leverage that relationship to help build Bluetick because they do have a customer base that could potentially use Bluetick.
Rob: That’s nice. It’s a good way to keep it moving forward. Let’s see. I’m glad you have stuff in the pipeline still even at times like these. Do you know why Bluetick? Why are these folks coming to you and not to one of your competitors? What’s the differentiation that they say, oh, this is why I need Bluetick rather than XYZ competitor.
Mike: It’s a few different reasons. For a couple of them, it’s the price, which I found odd because I looked around at the competitors that I tend to focus on are the ones that are in the $20-$50 range. I know that Bluetick is priced higher than those, but I have found that there are higher-end competitors that are serving larger companies. They’re looking at Bluetick because those vendors charge a lot more than Bluetick. I hadn’t realized that initially, but some of their prices are much, much higher, like a couple of hundred dollars. They look at it from that perspective, especially if they have like 10, 15, 20 mailboxes. They’re not going to spend $200 mailbox for that kind of stuff.
Rob: It’s nice to position yourself against those folks. I remember with Drip, we were like, oh, everyone’s comparing us to a Mailchimp and AWeber. They have a free plan and $15 a month, then $19. Then the moment where it’s like, wait, why don’t we try to position ourselves against Infusionsoft which starts at $2000 upfront and $300 a month? And we did.
We built enough features that I felt that we could position ourselves against and suddenly we were easier to use, less expensive version of some really expensive software. Infusionsoft was the cheapest. It was like Marketo, […] all these things are thousands a month. If you can tap into that, that’s awesome.
Mike: Yeah, that’s kind of what I’m doing at the moment. For others, it’s word-of-mouth or referrals. The person who came from the Entrepreneur Organization was actually recommended by somebody else who’s in there (at least I believe that). Both of us talked and he thought that he’s the one who recommended it, but we’re not absolutely sure. But that was another one. And then, just general recommendations from existing customers.
Rob: That’s interesting. Obviously, it’s good to have customers recommending you and referral carry such weight when people vouch for you. It means that hey, this good software. I’m going to use it. I’m probably not […] as much of a comparison as I would in other cases, but…
Mike: Well, that’s why they found it. There’s a difference between why they find it and why they choose it.
Rob: Right. That’s what I’m trying to get at because I’m concerned that if all of your new customers come from current referrals, that’s only scale so far and I think for now, as you’re doing things that don’t scale, scraping, and […], I think it’s fine but longer-term, I think in the back of my mind, how are you going to get outside? If you get outside the bubble or this fear of folks that know you and current customers, how can you take hold of traffic and still even win those deals? That’s when you can grow predictably and know that you’re going to grow each month.
Have you gone back at all? Had your warm email campaign that was going out to canceled customers, you had people from Linkedin, and it was connections you had. You had run it for a while, you got so much feedback, and you were only getting really not that many customers from it. I believe you had turned it off last time we spoke. Is that something you revisited? Do you plan to revisit it? Or is it just kind of done at this point?
Mike: I got to a point where I didn’t feel like I was really learning anything from the people that I was talking to.
Rob: Yeah, I remember you said that.
Mike: That is why I turned it off, but then with this whole COVID-19 thing, I would say it’s not a great time. I’ve kind of shelved it for the time being. Will I come back to it? I can definitely see myself coming back to it once things settle down a little bit, but I just don’t think that it’s the right time. One of the things I found was I was spending a lot of time on the phone, so I wasn’t getting nearly as much done on the other things that I wanted to move forward with. Right now, I wouldn’t say that it’s downtime but certainly have the ability to put more dedicated time into the things that need to get done. So I have a hard time justifying doing that now is all is what I’m saying.
Rob: I just don’t know if it would work that well right in this climate because people are just holding their breath, waiting to see what’s gonna happen next, and the fact that you said last time as well, you just stopped learning because at first you can learn or you can try to get prospects, try to get sales, but the learning becomes […] after you’ve had 10, 20, (I think you said you did) 30 calls or something like that. It gets old having the same conversation, so I get it.
Mike: The other thing is, I’d rather spend the time working with these customers who are doing the pilot programs in an effort to help make sure that that money eventually comes in than hold all these calls where I’m not learning something.
Rob: Right, because that’s the thing. You had mentioned that $1200 a month, the big pilot customer that they might need the sealed .NET component replaced. We’ve gone back and forth over the course of 12, that may have been 18 months now when you first brought it up. But last time we talked, it was kind of like, well, just leave it for now. You have the ability to roll it out to one mailbox at a time and if somebody needs it, you’ll bite the bullet, you’ll write the code. But if it’s not going to grow revenue, if it’s not holding back people from signing up, then just leave it over in the corner. Has that changed?
Mike: I did go in and I took the time to rewrite that stuff. I’ve been testing, rolling it out to a couple of mailboxes and I had so many volunteers say, yeah if you want a guinea pig, I’ll do it.
I’m working on making sure that the transition from between the old storage system and the new storage system is functional and doesn’t break anything moving forward. But the sealed .NET component is in the process of being ripped out and I’d say it’s pretty close. I’m not done yet because I still have to resynchronize data for all the existing accounts but it’s getting closer.
Rob: It’s cool, that’s exciting. At least here, you have one-off accounts doing it and kind of in a beta phase because I know that was something that was on your mind for a while and we always talked about it. It’s gonna take a week or two weeks or whatever.
Mike: Two years.
Rob: Two years? Yeah. I took some mind space for a while.
Mike: I was more concerned about the amount of data that I would have to resynchronize. I wrote this script to go out and pull back the data and just say, oh, how big is this? And it was a lot bigger than I thought. There’s a lot more data out there than I had expected.
Rob: Last time we talked, I’ve kind of for a while been saying, what is Bluetick’s positioning? What are people using it for? And you had said it was mostly warm email that originally you thought, cold and warm. You didn’t want it to be cold, but a lot of this stuff is people using for in getting values. Mostly, warm email is moving people through a sales process, but there’s not much prospecting going on. With that in mind, are you going to change your positioning, your copy on your website to lean into that?
Mike: I will. I’m not sure where to start with some of it, to be honest. It’s like I’ve pushed off on prioritizing that as the thing to sit down and dedicate time to and think about, but it is something that I need to do. That’s on my list to do. I just haven’t made that a priority. It is something I have to do, though.
Rob: Right. The priority sounds like onboarding and sales of large customers, writing some code to keep those large customers moving through the pipeline. Is that pretty accurate? What else have you been up to? If you talk about it in a given week?
Mike: Honestly, that’s 90% of it. Just making sure that those things are moving forward and that existing customers have what they need. Some people are moving stuff around inside of Zapier or they have a problem because like, oh, I’ve got a couple of hundred email sequences in here. I’m having issues with this piece or that piece. What do I do? Can you implement a different search mechanism here? The current one just simply doesn’t scale for the data that I have.
Rob: Yeah. So it sounds like support plus plus.
Mike: Yeah, I would say so. Also thinking about how the application itself is going to scale out when somebody has 20, 50, or 100 different users under the same account. Right now, the way it’s designed and set up is you have a subscription and there’s an account associated with it, so a subscription is really just the billing information. Then underneath it, you can have all these different accounts.
That’s the way it was designed initially, but it was never implemented in such a way that you could have multiple users in those accounts and also how they met other accounts outside of your subscription. Does that make sense?
Rob: Yeah.
Mike: It’s hard to describe, but the backend storage system was not written to support that. The database and stuff were all designed properly, but there are certain things that I guess I just didn’t think about at the time or just hacked them together and just threw it out there and now I’m in the middle of saying, how do I get these larger customers on? I’m realizing there are certain ways that the data is stored that it fundamentally would break if I were to have multiple accounts for each of those. So, if they have 50 sales reps and each of them has their own account that breaks. It just doesn’t work.
Rob: Yeah. I’ve built so many things like that where you’re trying to get it out the door as an MVP or something that people can use in production. You don’t want to gold plate that from the start. That’s something that I would absolutely imagine needing to rework.
There’s gonna be code to rewrite. There’s gonna be database instances to upgrade. There’s going to be failovers and redundancy with stuff to add. That’s the thing that I don’t think if you’ve ever built or hosted a SaaS that does start to scale at a certain level, or you just start getting some larger customers even. If your use case to date has been 1–4 person teams and then you get somebody with 50 or 100 people in there, it’s bound to break something. So obviously, it’s a bummer to hear that you have to get into the code and constantly do that.
Mike: But honestly I’m pretty close to having those things dealt with as well. Actually the code is deployed to the point where new users are using the new storage system so they presumably would not have this problem. It’s the current existing users where I have to migrate their data and verify that everything’s going to move over properly.
Then there are a few switches I have to toggle in order to pull the lever to make sure to have everybody move over to the new storage system. I’m kind of doing it slowly because I don’t want to break things for existing customers. With new customers, if something’s broken, I’m not as worried about it because their business is not dependent on it yet, whereas old customers, I know that they’re using it and I don’t want to break stuff for them.
Rob: Yeah, and that’s the balance, right? That’s the dance of launching an app, having users, and then meeting. I was going to say having everything is great until pesky customers get involved, but you could feel me.
Mike: I knew you were going to say that. I knew you were going there.
Rob: But yeah, and then you’re trying to keep the train going while you’re changing one of the axles. That’s essentially what it winds up being.
Mike: And in the middle of a pandemic.
Rob: In the middle of a pandemic. Cool. Back to positioning, marketing. It hasn’t been top of your list. Again, it’s like we’re in the middle of this global chaos. I’m guessing your traffic’s not way high and people aren’t coming and leaving because you don’t have the exact right positioning on the home page.
To me, this is something you want to do in the next couple of months. If you do realize that there is a value prop here that really no other tool offers and that these big customers that’s really what they want, it’s not a cold/warm email tool, but it’s an email tool to move people through a sales process, that’s pretty interesting positioning because then, all the features on that home page are what are the actual features that do that, that the other tools that call themselves cold/warm email that they don’t do. You do have those, right? You have those features because you’ve built it to check every 10 minutes. You’ve built it to look in people’s trash folders. There’s a bunch of stuff that rattled off a couple of episodes ago. Everyone knows I don’t listen when you talk.
Mike: Are we married?
Rob: No, but you do have differentiators. I’ve been trying to find out if you just throw a bunch of your differentiators. These are our differences. Then it feels like a feature race or a feature competition. But if you start at the top and you’re like, this is our H1. This is our positioning and why we’re different than everyone in a headline. We move warm prospects through a sales process or whatever, and then follow up with the actual features in it. It feels more like this is similar to XYZ cold competitor.
But these folks are just one step into the process and if they’re designed for that and I need that, then it becomes a no brainer. That that’s all I’m thinking is it should probably change at some point. But again, it probably doesn’t need to happen in the next week or two.
How about the podcast tour? You had scaled that back because you had some emails sending out of BlueTick. You had scaled it, but you did it a little bit. Then you scaled it back because you got busy with sales and some development. Then you had ramped it back up. What’s the status of that?
Mike: I scaled it back down. More because of time than anything else. I more or less just got distracted with some other stuff. I’ve still got the email campaign set up that I could go out and kick those off again. I just haven’t done it.
Rob: I know I’m starting to sound like a broken record, but this is a time, during this pandemic, the sheltering in place, and the potential of on the precipice of a recession is like I think it’s great to really hand-hold prospects as they come in. I think it’s time to refactor code. It’s time to rewrite email sequences. It’s time to do some things. I’m not sure that right now is the best time to be reaching out to do a bunch of stuff.
Maybe a podcast is probably exceptional because there are a lot of podcasts being recorded. A lot of content being put out. But if it comes down to that balance of I can onboard expensive customers or I can be marketing myself on a podcast, it may be better to do in a month or two.
Mike: We’ve gone through a bunch of stuff where the way I look at it is I’m prioritizing, trying to land those large customers over, trying to go out do outreach and outbound marketing activities and things where it could lead to new customers. I don’t necessarily know if it will, but if I don’t buckle down and land the customers that are currently in the pipeline, then I’m not going to learn anything about that process, nor am I going to be able to put myself in a position where I can add more customers like that because I’ve learned what the problems are with the software, where it breaks down, and where it doesn’t do the things that those larger types of organizations need. Then, I’m back at square one where I’m just going after those small customers that are only one and two people. I don’t think that that’s doing me any favors. I really think that I need to learn the stuff about those large customers because if I can land more of them, it’s exponentially more profitable to land those types of customers than it is to go out and do a podcast for money which may or may not ever show up in the future.
Ron: I hear you and I agree with that. I do have a concern longer term, that if you’re just getting one or two prospects trickling in each month that you’re working with, you need to turn that into something sustainable and that has to be lead gen, it’s demand gen. Whether that’s through just marketing, doing podcast tours, whether it’s through the warm email outreach, whether it’s through all the other things we could rattle off, SEO, content marketing ads, blah-blah-blah, which you don’t want to get into right now.
But I do think that the podcast tour is something you already have set up and it could go on probably earlier than I think you want to because that’s going to take time to pick up. It’s going to take days or weeks for someone to get back to you, then to book it. and then for it to appear. If you push that plan out in 90 days, maybe start getting appearances after 100 days and 120 and 150 days. It just takes a long time. I had never thought the podcast tour was the end all be all and going to be your big lead gen, but if you’re able to land larger customers, then you don’t need that many and podcasts are easy for you, right?
It doesn’t take a lot of time assuming that the email sequence is totally automated. In your shoes, I would not be sending them right now, I think because of this current situation. But I think if we get back to our old normal or at least not back to but start approaching that old normal of the pre-Corona and things start opening up and people start feeling a little normal, I would hit start on that.
The interesting thing is it sounds like you’re doing a pretty good job of landing some of these big accounts. You had landed that $500 a month client who then upgraded to an annual plan. You have one or two pilots going on, in essence, right now. One about to start, one going on with. It’s a lot of revenue in terms of the state or the phase that the Bluetick’s at. Just getting a few more prospects into that pipeline (I think) could really continue to make a difference.
Mike: Yeah.
Rob: When we last spoke, I asked you, what are you most looking forward to over the next month? And you said two things. The first was to have you all the IMAP stuff fixed. There was an issue with that IMAP. Second is you were in the process of onboarding the $1200 a month customer and you were looking between our next call. You were hoping that that would be there. Obviously they’re in a pilot now. I’m going to assume one of the things you’re looking forward to is them actually you’re in the same boat with them. Talk to me about the IMAP.
Mike: Actually the step back for that, like I had wanted to get them on board as a customer, and what I think that I learned in going through that process was they said, can we do an unpaid pilot? They wanted to extend the trial, which was basically four weeks instead of two weeks and I said, yeah, just because of the size of it, which totally makes sense.
What I learned was like, if they’re switching from a competitor to use Bluetick instead, then chances are good they’re not just gonna jump in and get married to the products immediately and try switching everything over.
I put together a proposal for him and I said, look, I won’t charge you for four weeks so we can get you everybody moved over while you’re doing this. That way you’re not paying for two products at the same time. I set up this whole big proposal.
They looked at it and they thought it was great. They said, we’d like to do a pilot first and in retrospect, it’s obvious that that’s the next step. But before that, my mind was if I can get them on board as a paid customer, that’ll be great. I’ll have the revenue in about a month. But obviously that didn’t happen and what I learned from that is for these larger customers, they’re going to want to do a pilot first.
I still consider that a win because it’s still moving forward. They didn’t walk away. They didn’t decide to go do something else or say, no, this isn’t going to work for us. It moved forward just not to the level I realized because I didn’t think hard enough about knowing that there were extra steps in the middle there that we’re going to need to be taken.
Rob: Sure. It’s a win for a couple. I wouldn’t say a full win, but it’s an in-process potential win. It’s a win in the sense that they haven’t canceled and backed out. And it’s a plus because you learn something, right?
You learn that you should probably propose a pilot from here on out with these larger customers. Obviously you should pitch to pay and sign up, but if they bocker, if they like, we’ve got to think about it, then you know that next thing, the objection, the anti-objection is like, hey, what do you do? We do pilot. We’ll set it up for this much time. You now have that playbook down. So cool. That sounds good. How about the IMAP stuff?
Mike: As I said, the IMAP stuff is fixed and deployed and it’s not enabled for the current customer base. There’s a couple of accounts that it is enabled for, the other ones that it’s not. But anyone who adds a new mailbox, I believe as of now, actually like a week or two ago. Anyone who adds it at that point uses all of the new stuff as opposed to the old stuff. I’ve mostly ripped that stuff out and it’s just a matter of cleanup activity, to be honest. It’s converting all of the existing customers over onto that new mechanism.
Then I can rip out all that extra code because I basically have duplicated code because it’s like, oh, you’re using the storage version 4. You’re a “’legacy customer.” You’re using this stuff and go through this pathway. If you’re version 5, use this one. Then once I get everybody moved over, I can rip out all that old version code.
Rob: That’s the best feeling. Ripping out like 5000 or 10,000 lines of code. Oh, my gosh. It is like spring cleaning your house or something.
Mike: Yup.
Rob: Actually, not a spring cleaning house. Having someone else spring clean your house. That’s more what it’s like. Then talk to me about this. From now, looking forward, what are you most looking forward to? And I’m going to put one on the list, it’s to land this $1200 a month prospect. Do you have anything else?
Mike: I would say land the other prospect. They’re doing a small pilot with about 10–15 people, something like that. Then if they scale it up, it could be anywhere between like 50 and 100 people that they add. We’ll see how it goes. I want to find out more about what those people are using it for. It was interesting because when I was talking to them, they’re currently using Mailchimp, which…
Rob: It’s such a different tool.
Mike: It is and honestly, if I were to explain all the details of what they’re doing and how they’re doing it, you’d look at it and say you’re kind of crazy to be using Mailchimp in that way. You wouldn’t use Drip for that either. Like it’s just not built for what it is that they’re trying to do, but they’re using it for that because somebody found it and they decided to use it. So, learning more about their situation, seeing if there are other companies that are potentially like them in that similar situation would be great. But I really want to get through the process of selling Bluetick to those people. If I could land them as a customer, too, that would be fantastic.
Rob: Got to be honest, man. It’s so fun to hear in full sales form, just building the stuff, getting them in the pipeline, getting them into pilots, having these big deals come through. It’s just such a stark contrast to where you and the business were 8, 10, 12 months ago.
It’s cool. and I know that the percentages of prospects that you’re able to land are not 100%, so I would expect that you’d land one out of these two. I’d be super overjoyed for you if you land both of them. When we catch up again in a month or two, I’m also looking to hear about how this all plays out.
Mike: Yeah, I would consider it a win if I landed one of these two.
Rob: Very cool, man. We’re going to wrap for the day. If folks want to keep up with you, have you been on Twitter at all?
Mike: No.
Rob: Ok so we don’t do @SingleFounder. So bluetick.io folks want to see what’s going on and check out the app if they haven’t seen it since the last episode. I’m just in the habit of when I’m talking to people at the end of an episode, I say their website and their Twitter handle. Anyway, man, thanks for coming on. I think hopefully the listeners are enjoying the ongoing story and we’ll catch up with you again in a bit.
Mike: All right, sounds good. Take it easy.
Rob: Talk with you again. As always, thanks to Mike for coming on the show every once in a while and updating us on his story. If you’re listening, but you’re not subscribed to the show, you should head into your podcatcher and search for startups. We’re usually in the top three or four and we do have full transcripts of each episode that we put on startupsfortherestofus.com. As always, thank you for listening. I’ll see you next time.
Two things before we dive into that conversation. The first is we released the MicroConf Video Vault. Over 170 hours of talks across 194 different sessions recorded over almost a decade of events. We had previously sold some of these, some were accessible and some were not, but we took all of them.
They are on our YouTube Channel. It’s youtube.com/microconf. We’ve created several playlists for some serial speakers. There’s Patio11, a playlist of his talks. There’s one of mine. We have a playlist of the Top 5 Rated Microconf Talks of All Time as well as a brand new playlist called Building your First SaaS: The Ultimate Crash Course.
It’s ten videos and it’s like a course where it starts at the beginning with idea validation and it runs through most of the aspects of building and growing a SaaS. Check it out, youtube.com/microconf. I hope you enjoy it as most of us are sheltering into place. I think there’s some time to fit in some good marketing, growth, idea validation, and other MicroConf-type talks amid our Netflix binging and HBO watching.
The second thing is I’m trying something new this week. We have our very first sponsor. I do not plan to have ads run every week or anywhere near every week on this show, but intermittently a sponsor who’s particularly a good fit. I will entertain the idea of having an ad on the show. I’m proud to say that through a connection with MicroConf, Basecamp has sponsored Startups for the Rest of Us and they bought a handful of ad spots that will appear over the many coming months. With that let’s hear today from Basecamp.
Basecamp: We ask founders and entrepreneurs why they switched to Basecamp when their company started to grow. Cristina had just hired more people. When it came to internal communication, everything was all over the place. There was more work and more people than before and no way to keep track of it all.
Sometimes information was in an email. Sometimes in the chat room. They spent too much time on conference calls to figure out what was going on. Then one day, they almost missed the deadline for an important customer because the information was in the wrong place.
She knew they needed to get organized, but all the software she looked at seemed complicated and would take too long to train everybody, then she found Basecamp.
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Rob: With that, let’s dive in with my conversation with Mike Taber. Mike, thanks for coming back on the show.
Mike: Hey, how’s it going?
Rob: It’s going good, man. Kind of sheltering in place here in Minneapolis. You as well in the Boston area?
Mike: Quarantine Mike here over the Boston area.
Rob: Quarantine Mike, Indeed. Stay safe. We haven’t talked since before all the quarantine stuff happened, really before the COVID stuff.
Mike: Yeah. You know what’s interesting is that you know that you’re mostly an introvert when the vast majority of your life simply doesn’t change when the entire country shuts down.
Rob: Right. It’s like, wait the only thing that’s different is my kids are home all day. You texted me and said, “I’ve been planning for this moment my entire life.” It’s great.
Mike: Honestly, there’s not a lot in my life that has changed other than like I said, the kids being home all the time, and then little things like you go to the store. Now, you wear a mask when you go to the store. We don’t order out pizza on Friday nights anymore because everything’s shut down and my wife’s business is a little different, but by-and-large, the rest of the stuff for me is not a whole lot different.
Rob: Wait, so pizza places are shut down? Because we can get to-go food. We pull up to the curb, we can get stuff delivered from Bite Squad, Uber Eats, DoorDash and all that. Are you not able to do that?
Mike: We technically could, but I wouldn’t say it’s a debate in our household. We want to support local businesses, but at the same time, what precautions were they taking? We don’t really know and we’re trying to cut down on the amount of junk food we eat anyway.
Rob: Fair enough. Cool, man. It’s been almost seven weeks since we last spoke and the prior two calls to that, that covered six or seven weeks each, you were upbeat, things were working, you had more than doubled revenue than that previous about 4–5-month span. I’m curious as we start off—set the stage for us—has that revenue escalation continued or have you—like the other SaaS apps I’m seeing—been kind of hit by the COVID slow down?
Mike: It has not increased at that pace. I’ve had churns like most other businesses have and unfortunately, the churn that I’ve had has offset the gains. I have added customers and I’ve had people come to me and say hey, I can’t let go see people anymore or they want to be able to stay in touch with people so they switch over and use email.
But then, I’ve had a number of customers that have switched and put their accounts on hold. Last year, what I’ve done is I implemented this mechanism for people to put their account on hold instead of charging them $50 in a mailbox, I would charge them $10. What that would do is it will allow me to keep all their data, still synchronize their mailboxes; they just really couldn’t just log in and use the app.
I think the vast majority of my churn has been in the form of downgrades to pause accounts. It’s not that the people are leaving. They are just saying, let’s put things on hold until things settle down and we can come back and do this. I’m trying to remember if I had any outright cancellations. I don’t think that I have.
Rob: Cool. That sounds reasonable and that is one note. If you’re listening, that’s why we look at revenue churn, not customer churn. It’s one of the reasons. The other reason is if you have a customer paying you $10 a month and a customer paying you $1000 a month, then when those customers cancel, if you look at customer churn the numbers look the same but the revenue churn will be vastly different. For those two reasons, you can look at customer churn and it’s interesting, but it’s not nearly as accurate (I’ll say) to your business health as revenue churn is.
I’m bummed to hear. I’m not surprised to hear that you’re plateauing or whatever. Is that what it is? What’s it look like? It’s just a plateau of revenue?
Mike: Yeah. I’ve added customers, but it’s just when I add a customer and then somebody downgrades, it’s only adding a tenth of a customer.
Rob: It’s a net zero.
Mike: Close enough to net zero. The thing is that I haven’t really lost customers, I’ve just lost the revenue that would have been associated with those customers. I have had more people put them at pause than I have added.
Rob: Right, and that’s still churn. It’s not customer churn. It’s revenue churn, but again I’m not surprised by this. How many people right now are doubling down on cold outreach or doing a lot of warm outreach? It’s probably not as many as we were doing two months ago because as we head into a recession, people back off on things and they’re getting a little more concerned about marketing purchases not working right now. There’s a lot to it.
I’m curious to see as with a bunch of businesses. I have insight into direct financials of—it depends on how you count it—about 35–36 companies across TinySeed batches and angel investments I’ve made before TinySeed. The loose pattern I’m seeing is there’s about 20% of SaaS companies are doing really poorly. They are tanking because they are in an industry that’s directly impacted by this, whether it be travel, senior living, something like that. Then, 20% are doing extremely well because they’re for remote workers or they have to do podcasting. They have something that a lot of people now are diving into remote communications.
Then, there’s that 60% in the middle that is slowing down, it’s what it really is. They’re not falling off a cliff, but the growth is either not what it was or they’re plateauing quickly, and I’m curious to see over the next 2–3 months as businesses are reopening here and around the world, you know what happens with those, right? What that means for that 60% in the middle. I feel like you’re probably in that bucket where it’s a wait-and-see type thing. Over the past seven weeks since we last talked, tell me about your high point, the biggest win, and your low point, perhaps the biggest defeat.
Mike: One of the things that we talked about before was there was a fairly large customer that I was trying to get on board and I was trying to get them to go straight to buying Bluetick then they came back and asked if they could do a pilot program.
I’m about probably two-thirds to three-quarters of the way through that right now. They’ve sent me a few questions here and there and they are testing it out. They haven’t come up with anything major. There were two requests that they had. The first one was oh, can you add this font? Because our boss really likes this particular font, Mike? Yeah, I can do that. So that took like very little time to do.
The other thing was they came back and asked and said the email signatures weren’t showing up in the emails that they were sending, even though they had it set to the mailbox. Oh, that’s because you didn’t add in the shortcode and the reason why it’s not added in automatically at the end of the email is because some people like to put a PS at the end of it and they’re like, oh my God, I really love that feature.
Well, it’s nice to be able to explain that. Then I also added another pilot program that is actually a paid pilot program for a small company that could be worth anywhere from $500-$1000 a month.
We’ll see how that goes. They’re paying, I think, $100-$150 a month right now and they’re going to see how it goes. If it goes, well, then they’ll scale it up for other people in their company. But they’re kind of sidelined right now. They can’t go out and visit customers. That’s why they’re looking at Bluetick.
Rob: Cool, that’s exciting, Man. Congratulations. How about your low point?
Mike: I can’t point to anything where I’m like, oh, that was horrible or that was awful. I can’t think of anything off the top of my head that comes to mind. I wish that it hadn’t happened or that it was sucky to deal with. So I guess I would take that as a good sign.
Rob: Yeah, not having a low it just kind of like it just was going along. I’m happy to hear that.
Mike: The closest I could come up with if you were to put a gun to my head would be when I was outside trying to do yard work and I was trying to drill out a Rhododendron root in our yard. I have a power drill and I was a little too close to the roots. It caught on something and yanked my hand around and sliced my finger open. That’s the worst. It did hurt really badly for about two weeks. I don’t know if that’s ever gonna be the same, but it’s starting to heal now.
Rob: […] That’s not a business low, but it definitely is. I would qualify that in the low category. It sounds like I have another question here. You mentioned last time you had bigger prospects coming through the $500–$1000 a month.
The one that’s in the pilot was one you already had, but then you have another customer that’s approached you and I had commented like, this is a way to build a business fast. It’s large customers. I’m excited to follow that and I will definitely follow-up with you next time we chat to hear if they came through.
Once again, I’m gonna ask you, do you know where these people are finding you? Is it still word-of-mouth? You said it was one-on-one recommendations, word-of-mouth and there is an entrepreneur’s organization, EO Facebook group. Is that the gist or are there other places where people are finding you? You know why I ask this because if you can’t figure it out then how do you get more from there?
Mike: Yes. So, this one was the other prospect that I’m working on right now. They’re doing a pilot program, so the second one. They were a referral from somebody I know who has a SasS app. They’ve got a bunch of customers and their customers came to them and said, hey, do you know anything that could help us out?
So they essentially had pitched Bluetick to their customers and we worked out an arrangement to help figure out how that was going to play out. But they’ve got a customer base that I could potentially pitch Bluetick to if this works out for this one customer.
We’re trying to figure out how to make it work between that business and my business and if it works out great for this customer, then maybe they’ve got something that they can pitch to their other customers. If not, then, we’ll see how it goes but I might be able to leverage that relationship to help build Bluetick because they do have a customer base that could potentially use Bluetick.
Rob: That’s nice. It’s a good way to keep it moving forward. Let’s see. I’m glad you have stuff in the pipeline still even at times like these. Do you know why Bluetick? Why are these folks coming to you and not to one of your competitors? What’s the differentiation that they say, oh, this is why I need Bluetick rather than XYZ competitor.
Mike: It’s a few different reasons. For a couple of them, it’s the price, which I found odd because I looked around at the competitors that I tend to focus on are the ones that are in the $20-$50 range. I know that Bluetick is priced higher than those, but I have found that there are higher-end competitors that are serving larger companies. They’re looking at Bluetick because those vendors charge a lot more than Bluetick. I hadn’t realized that initially, but some of their prices are much, much higher, like a couple of hundred dollars. They look at it from that perspective, especially if they have like 10, 15, 20 mailboxes. They’re not going to spend $200 mailbox for that kind of stuff.
Rob: It’s nice to position yourself against those folks. I remember with Drip, we were like, oh, everyone’s comparing us to a Mailchimp and AWeber. They have a free plan and $15 a month, then $19. Then the moment where it’s like, wait, why don’t we try to position ourselves against Infusionsoft which starts at $2000 upfront and $300 a month? And we did.
We built enough features that I felt that we could position ourselves against and suddenly we were easier to use, less expensive version of some really expensive software. Infusionsoft was the cheapest. It was like Marketo, […] all these things are thousands a month. If you can tap into that, that’s awesome.
Mike: Yeah, that’s kind of what I’m doing at the moment. For others, it’s word-of-mouth or referrals. The person who came from the Entrepreneur Organization was actually recommended by somebody else who’s in there (at least I believe that). Both of us talked and he thought that he’s the one who recommended it, but we’re not absolutely sure. But that was another one. And then, just general recommendations from existing customers.
Rob: That’s interesting. Obviously, it’s good to have customers recommending you and referral carry such weight when people vouch for you. It means that hey, this good software. I’m going to use it. I’m probably not […] as much of a comparison as I would in other cases, but…
Mike: Well, that’s why they found it. There’s a difference between why they find it and why they choose it.
Rob: Right. That’s what I’m trying to get at because I’m concerned that if all of your new customers come from current referrals, that’s only scale so far and I think for now, as you’re doing things that don’t scale, scraping, and […], I think it’s fine but longer-term, I think in the back of my mind, how are you going to get outside? If you get outside the bubble or this fear of folks that know you and current customers, how can you take hold of traffic and still even win those deals? That’s when you can grow predictably and know that you’re going to grow each month.
Have you gone back at all? Had your warm email campaign that was going out to canceled customers, you had people from Linkedin, and it was connections you had. You had run it for a while, you got so much feedback, and you were only getting really not that many customers from it. I believe you had turned it off last time we spoke. Is that something you revisited? Do you plan to revisit it? Or is it just kind of done at this point?
Mike: I got to a point where I didn’t feel like I was really learning anything from the people that I was talking to.
Rob: Yeah, I remember you said that.
Mike: That is why I turned it off, but then with this whole COVID-19 thing, I would say it’s not a great time. I’ve kind of shelved it for the time being. Will I come back to it? I can definitely see myself coming back to it once things settle down a little bit, but I just don’t think that it’s the right time. One of the things I found was I was spending a lot of time on the phone, so I wasn’t getting nearly as much done on the other things that I wanted to move forward with. Right now, I wouldn’t say that it’s downtime but certainly have the ability to put more dedicated time into the things that need to get done. So I have a hard time justifying doing that now is all is what I’m saying.
Rob: I just don’t know if it would work that well right in this climate because people are just holding their breath, waiting to see what’s gonna happen next, and the fact that you said last time as well, you just stopped learning because at first you can learn or you can try to get prospects, try to get sales, but the learning becomes […] after you’ve had 10, 20, (I think you said you did) 30 calls or something like that. It gets old having the same conversation, so I get it.
Mike: The other thing is, I’d rather spend the time working with these customers who are doing the pilot programs in an effort to help make sure that that money eventually comes in than hold all these calls where I’m not learning something.
Rob: Right, because that’s the thing. You had mentioned that $1200 a month, the big pilot customer that they might need the sealed .NET component replaced. We’ve gone back and forth over the course of 12, that may have been 18 months now when you first brought it up. But last time we talked, it was kind of like, well, just leave it for now. You have the ability to roll it out to one mailbox at a time and if somebody needs it, you’ll bite the bullet, you’ll write the code. But if it’s not going to grow revenue, if it’s not holding back people from signing up, then just leave it over in the corner. Has that changed?
Mike: I did go in and I took the time to rewrite that stuff. I’ve been testing, rolling it out to a couple of mailboxes and I had so many volunteers say, yeah if you want a guinea pig, I’ll do it.
I’m working on making sure that the transition from between the old storage system and the new storage system is functional and doesn’t break anything moving forward. But the sealed .NET component is in the process of being ripped out and I’d say it’s pretty close. I’m not done yet because I still have to resynchronize data for all the existing accounts but it’s getting closer.
Rob: It’s cool, that’s exciting. At least here, you have one-off accounts doing it and kind of in a beta phase because I know that was something that was on your mind for a while and we always talked about it. It’s gonna take a week or two weeks or whatever.
Mike: Two years.
Rob: Two years? Yeah. I took some mind space for a while.
Mike: I was more concerned about the amount of data that I would have to resynchronize. I wrote this script to go out and pull back the data and just say, oh, how big is this? And it was a lot bigger than I thought. There’s a lot more data out there than I had expected.
Rob: Last time we talked, I’ve kind of for a while been saying, what is Bluetick’s positioning? What are people using it for? And you had said it was mostly warm email that originally you thought, cold and warm. You didn’t want it to be cold, but a lot of this stuff is people using for in getting values. Mostly, warm email is moving people through a sales process, but there’s not much prospecting going on. With that in mind, are you going to change your positioning, your copy on your website to lean into that?
Mike: I will. I’m not sure where to start with some of it, to be honest. It’s like I’ve pushed off on prioritizing that as the thing to sit down and dedicate time to and think about, but it is something that I need to do. That’s on my list to do. I just haven’t made that a priority. It is something I have to do, though.
Rob: Right. The priority sounds like onboarding and sales of large customers, writing some code to keep those large customers moving through the pipeline. Is that pretty accurate? What else have you been up to? If you talk about it in a given week?
Mike: Honestly, that’s 90% of it. Just making sure that those things are moving forward and that existing customers have what they need. Some people are moving stuff around inside of Zapier or they have a problem because like, oh, I’ve got a couple of hundred email sequences in here. I’m having issues with this piece or that piece. What do I do? Can you implement a different search mechanism here? The current one just simply doesn’t scale for the data that I have.
Rob: Yeah. So it sounds like support plus plus.
Mike: Yeah, I would say so. Also thinking about how the application itself is going to scale out when somebody has 20, 50, or 100 different users under the same account. Right now, the way it’s designed and set up is you have a subscription and there’s an account associated with it, so a subscription is really just the billing information. Then underneath it, you can have all these different accounts.
That’s the way it was designed initially, but it was never implemented in such a way that you could have multiple users in those accounts and also how they met other accounts outside of your subscription. Does that make sense?
Rob: Yeah.
Mike: It’s hard to describe, but the backend storage system was not written to support that. The database and stuff were all designed properly, but there are certain things that I guess I just didn’t think about at the time or just hacked them together and just threw it out there and now I’m in the middle of saying, how do I get these larger customers on? I’m realizing there are certain ways that the data is stored that it fundamentally would break if I were to have multiple accounts for each of those. So, if they have 50 sales reps and each of them has their own account that breaks. It just doesn’t work.
Rob: Yeah. I’ve built so many things like that where you’re trying to get it out the door as an MVP or something that people can use in production. You don’t want to gold plate that from the start. That’s something that I would absolutely imagine needing to rework.
There’s gonna be code to rewrite. There’s gonna be database instances to upgrade. There’s going to be failovers and redundancy with stuff to add. That’s the thing that I don’t think if you’ve ever built or hosted a SaaS that does start to scale at a certain level, or you just start getting some larger customers even. If your use case to date has been 1–4 person teams and then you get somebody with 50 or 100 people in there, it’s bound to break something. So obviously, it’s a bummer to hear that you have to get into the code and constantly do that.
Mike: But honestly I’m pretty close to having those things dealt with as well. Actually the code is deployed to the point where new users are using the new storage system so they presumably would not have this problem. It’s the current existing users where I have to migrate their data and verify that everything’s going to move over properly.
Then there are a few switches I have to toggle in order to pull the lever to make sure to have everybody move over to the new storage system. I’m kind of doing it slowly because I don’t want to break things for existing customers. With new customers, if something’s broken, I’m not as worried about it because their business is not dependent on it yet, whereas old customers, I know that they’re using it and I don’t want to break stuff for them.
Rob: Yeah, and that’s the balance, right? That’s the dance of launching an app, having users, and then meeting. I was going to say having everything is great until pesky customers get involved, but you could feel me.
Mike: I knew you were going to say that. I knew you were going there.
Rob: But yeah, and then you’re trying to keep the train going while you’re changing one of the axles. That’s essentially what it winds up being.
Mike: And in the middle of a pandemic.
Rob: In the middle of a pandemic. Cool. Back to positioning, marketing. It hasn’t been top of your list. Again, it’s like we’re in the middle of this global chaos. I’m guessing your traffic’s not way high and people aren’t coming and leaving because you don’t have the exact right positioning on the home page.
To me, this is something you want to do in the next couple of months. If you do realize that there is a value prop here that really no other tool offers and that these big customers that’s really what they want, it’s not a cold/warm email tool, but it’s an email tool to move people through a sales process, that’s pretty interesting positioning because then, all the features on that home page are what are the actual features that do that, that the other tools that call themselves cold/warm email that they don’t do. You do have those, right? You have those features because you’ve built it to check every 10 minutes. You’ve built it to look in people’s trash folders. There’s a bunch of stuff that rattled off a couple of episodes ago. Everyone knows I don’t listen when you talk.
Mike: Are we married?
Rob: No, but you do have differentiators. I’ve been trying to find out if you just throw a bunch of your differentiators. These are our differences. Then it feels like a feature race or a feature competition. But if you start at the top and you’re like, this is our H1. This is our positioning and why we’re different than everyone in a headline. We move warm prospects through a sales process or whatever, and then follow up with the actual features in it. It feels more like this is similar to XYZ cold competitor.
But these folks are just one step into the process and if they’re designed for that and I need that, then it becomes a no brainer. That that’s all I’m thinking is it should probably change at some point. But again, it probably doesn’t need to happen in the next week or two.
How about the podcast tour? You had scaled that back because you had some emails sending out of BlueTick. You had scaled it, but you did it a little bit. Then you scaled it back because you got busy with sales and some development. Then you had ramped it back up. What’s the status of that?
Mike: I scaled it back down. More because of time than anything else. I more or less just got distracted with some other stuff. I’ve still got the email campaign set up that I could go out and kick those off again. I just haven’t done it.
Rob: I know I’m starting to sound like a broken record, but this is a time, during this pandemic, the sheltering in place, and the potential of on the precipice of a recession is like I think it’s great to really hand-hold prospects as they come in. I think it’s time to refactor code. It’s time to rewrite email sequences. It’s time to do some things. I’m not sure that right now is the best time to be reaching out to do a bunch of stuff.
Maybe a podcast is probably exceptional because there are a lot of podcasts being recorded. A lot of content being put out. But if it comes down to that balance of I can onboard expensive customers or I can be marketing myself on a podcast, it may be better to do in a month or two.
Mike: We’ve gone through a bunch of stuff where the way I look at it is I’m prioritizing, trying to land those large customers over, trying to go out do outreach and outbound marketing activities and things where it could lead to new customers. I don’t necessarily know if it will, but if I don’t buckle down and land the customers that are currently in the pipeline, then I’m not going to learn anything about that process, nor am I going to be able to put myself in a position where I can add more customers like that because I’ve learned what the problems are with the software, where it breaks down, and where it doesn’t do the things that those larger types of organizations need. Then, I’m back at square one where I’m just going after those small customers that are only one and two people. I don’t think that that’s doing me any favors. I really think that I need to learn the stuff about those large customers because if I can land more of them, it’s exponentially more profitable to land those types of customers than it is to go out and do a podcast for money which may or may not ever show up in the future.
Ron: I hear you and I agree with that. I do have a concern longer term, that if you’re just getting one or two prospects trickling in each month that you’re working with, you need to turn that into something sustainable and that has to be lead gen, it’s demand gen. Whether that’s through just marketing, doing podcast tours, whether it’s through the warm email outreach, whether it’s through all the other things we could rattle off, SEO, content marketing ads, blah-blah-blah, which you don’t want to get into right now.
But I do think that the podcast tour is something you already have set up and it could go on probably earlier than I think you want to because that’s going to take time to pick up. It’s going to take days or weeks for someone to get back to you, then to book it. and then for it to appear. If you push that plan out in 90 days, maybe start getting appearances after 100 days and 120 and 150 days. It just takes a long time. I had never thought the podcast tour was the end all be all and going to be your big lead gen, but if you’re able to land larger customers, then you don’t need that many and podcasts are easy for you, right?
It doesn’t take a lot of time assuming that the email sequence is totally automated. In your shoes, I would not be sending them right now, I think because of this current situation. But I think if we get back to our old normal or at least not back to but start approaching that old normal of the pre-Corona and things start opening up and people start feeling a little normal, I would hit start on that.
The interesting thing is it sounds like you’re doing a pretty good job of landing some of these big accounts. You had landed that $500 a month client who then upgraded to an annual plan. You have one or two pilots going on, in essence, right now. One about to start, one going on with. It’s a lot of revenue in terms of the state or the phase that the Bluetick’s at. Just getting a few more prospects into that pipeline (I think) could really continue to make a difference.
Mike: Yeah.
Rob: When we last spoke, I asked you, what are you most looking forward to over the next month? And you said two things. The first was to have you all the IMAP stuff fixed. There was an issue with that IMAP. Second is you were in the process of onboarding the $1200 a month customer and you were looking between our next call. You were hoping that that would be there. Obviously they’re in a pilot now. I’m going to assume one of the things you’re looking forward to is them actually you’re in the same boat with them. Talk to me about the IMAP.
Mike: Actually the step back for that, like I had wanted to get them on board as a customer, and what I think that I learned in going through that process was they said, can we do an unpaid pilot? They wanted to extend the trial, which was basically four weeks instead of two weeks and I said, yeah, just because of the size of it, which totally makes sense.
What I learned was like, if they’re switching from a competitor to use Bluetick instead, then chances are good they’re not just gonna jump in and get married to the products immediately and try switching everything over.
I put together a proposal for him and I said, look, I won’t charge you for four weeks so we can get you everybody moved over while you’re doing this. That way you’re not paying for two products at the same time. I set up this whole big proposal.
They looked at it and they thought it was great. They said, we’d like to do a pilot first and in retrospect, it’s obvious that that’s the next step. But before that, my mind was if I can get them on board as a paid customer, that’ll be great. I’ll have the revenue in about a month. But obviously that didn’t happen and what I learned from that is for these larger customers, they’re going to want to do a pilot first.
I still consider that a win because it’s still moving forward. They didn’t walk away. They didn’t decide to go do something else or say, no, this isn’t going to work for us. It moved forward just not to the level I realized because I didn’t think hard enough about knowing that there were extra steps in the middle there that we’re going to need to be taken.
Rob: Sure. It’s a win for a couple. I wouldn’t say a full win, but it’s an in-process potential win. It’s a win in the sense that they haven’t canceled and backed out. And it’s a plus because you learn something, right?
You learn that you should probably propose a pilot from here on out with these larger customers. Obviously you should pitch to pay and sign up, but if they bocker, if they like, we’ve got to think about it, then you know that next thing, the objection, the anti-objection is like, hey, what do you do? We do pilot. We’ll set it up for this much time. You now have that playbook down. So cool. That sounds good. How about the IMAP stuff?
Mike: As I said, the IMAP stuff is fixed and deployed and it’s not enabled for the current customer base. There’s a couple of accounts that it is enabled for, the other ones that it’s not. But anyone who adds a new mailbox, I believe as of now, actually like a week or two ago. Anyone who adds it at that point uses all of the new stuff as opposed to the old stuff. I’ve mostly ripped that stuff out and it’s just a matter of cleanup activity, to be honest. It’s converting all of the existing customers over onto that new mechanism.
Then I can rip out all that extra code because I basically have duplicated code because it’s like, oh, you’re using the storage version 4. You’re a “’legacy customer.” You’re using this stuff and go through this pathway. If you’re version 5, use this one. Then once I get everybody moved over, I can rip out all that old version code.
Rob: That’s the best feeling. Ripping out like 5000 or 10,000 lines of code. Oh, my gosh. It is like spring cleaning your house or something.
Mike: Yup.
Rob: Actually, not a spring cleaning house. Having someone else spring clean your house. That’s more what it’s like. Then talk to me about this. From now, looking forward, what are you most looking forward to? And I’m going to put one on the list, it’s to land this $1200 a month prospect. Do you have anything else?
Mike: I would say land the other prospect. They’re doing a small pilot with about 10–15 people, something like that. Then if they scale it up, it could be anywhere between like 50 and 100 people that they add. We’ll see how it goes. I want to find out more about what those people are using it for. It was interesting because when I was talking to them, they’re currently using Mailchimp, which…
Rob: It’s such a different tool.
Mike: It is and honestly, if I were to explain all the details of what they’re doing and how they’re doing it, you’d look at it and say you’re kind of crazy to be using Mailchimp in that way. You wouldn’t use Drip for that either. Like it’s just not built for what it is that they’re trying to do, but they’re using it for that because somebody found it and they decided to use it. So, learning more about their situation, seeing if there are other companies that are potentially like them in that similar situation would be great. But I really want to get through the process of selling Bluetick to those people. If I could land them as a customer, too, that would be fantastic.
Rob: Got to be honest, man. It’s so fun to hear in full sales form, just building the stuff, getting them in the pipeline, getting them into pilots, having these big deals come through. It’s just such a stark contrast to where you and the business were 8, 10, 12 months ago.
It’s cool. and I know that the percentages of prospects that you’re able to land are not 100%, so I would expect that you’d land one out of these two. I’d be super overjoyed for you if you land both of them. When we catch up again in a month or two, I’m also looking to hear about how this all plays out.
Mike: Yeah, I would consider it a win if I landed one of these two.
Rob: Very cool, man. We’re going to wrap for the day. If folks want to keep up with you, have you been on Twitter at all?
Mike: No.
Rob: Ok so we don’t do @SingleFounder. So bluetick.io folks want to see what’s going on and check out the app if they haven’t seen it since the last episode. I’m just in the habit of when I’m talking to people at the end of an episode, I say their website and their Twitter handle. Anyway, man, thanks for coming on. I think hopefully the listeners are enjoying the ongoing story and we’ll catch up with you again in a bit.
Mike: All right, sounds good. Take it easy.
Rob: Talk with you again. As always, thanks to Mike for coming on the show every once in a while and updating us on his story. If you’re listening, but you’re not subscribed to the show, you should head into your podcatcher and search for startups. We’re usually in the top three or four and we do have full transcripts of each episode that we put on startupsfortherestofus.com. As always, thank you for listening. I’ll see you next time.
Episode 493 | A Roundtable Discussion about COVID-19, Working From Home, Payroll Protection and More
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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.
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