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Show Notes
In this episode of Startups For The Rest Of Us inspired by a Patrick McKenzie tweet, Rob and Mike talk about the science of why charging more works.
Items mentioned in this episode:
- Patrick McKenzie Tweet
- MicroConf
- FounderCafe
- TinySeed
- Joel Spolsky ” Camels and Rubber Duckies”
- Joel Spolsky ” Price as Signal”
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about the science of why charge more works. This is Startups For The Rest Of Us episode 421.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Mike.
Rob: And I’m the guy that knows the intro.
Mike: Oh, be quiet! And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Rob?
Rob: I’m doing good. By my calculation, you’ve done the intro 210 times because we tend to trade off back and forth. How is it that you haven’t memorized it yet?
Mike: I was distracted. You know what, the thing is, I missed last episode. It was episode 420. Marijuana just became legal in Massachusetts. I must have been high.
Rob: That’s what we’re doing? Alright. This is going to be a good show today folks. For me, weeks are going well. MicroConf tickets are on sale inside Founder Café and then when this goes live, it will be on sale to our email launch list.
Mike: Yes.
Rob: Head over to microconf.com if you are interested, get on that launch list. You may have missed the first email, but they’ll get a subsequent one I suppose if they get on the list today.
Mike: Yeah. I think that the episode that comes out today, the people who will be getting that email for MicroConf tickets are going to be previous attendees and then next Tuesday it’s going to be going out to the rest of the list.
Rob: There you go. Growth Edition sales out every year so you want to get on that email list if you’re interested in it. How about you?
Mike: Well, I received my Scotch Advent Calendar yesterday. December is looking fantastic at the moment.
Rob: It’s a family tradition isn’t it?
Mike: Well, it just started last year.
Rob: Two years? In this day and age, I think that’s a tradition.
Mike: Sure. Aside from that, just working on the MicroConf sponsorship. That’s in the works. If you’re interested in any of the MicroConf sponsorship options, drop me an email at sponsors@microconf.com and I’ll send you over the break card and we’ll schedule a time to chat about it and see if it’s a good fit for you.
Rob: Other than that, I am continuing to push forward on TinySeed. Did you listen to the episode last week?
Mike: I have not had a chance to. I was high, remember?
Rob: Yeah, that’s right. All week. That was fun. Einar and I just talked it through, talked about what we’re up to, and why we’re up to it, and just the course we take on the funding landscape and even the landscape of what it takes to bootstrap a SaaS these days. Continuing to move it forward. There’s not so much I can talk about publicly but definitely meeting with a lot of founders and just discussing ideas, and thoughts, and stuff.
It’s a fun time. You know how it is. It’s like the early days of anything. This is literally a startup and we’re kind of bootstrapping it even though it’s weird. It’s like we don’t have any funding for Einar Vollset and I at this point. Eventually, once we raise the fund to actually back TinySeed, we’ll have a small stipend or something coming out of it. But it’s not like, “Oh, yeah. You’re doing a startup and you’re going to raise 5 or 10 million and crank it up.” It really is that, it’s the ethos of everything I’ve ever done where you’re capital-efficient, and you’re scrappy, and you’re just trying to hack your way through it. It’s fun.
I enjoy these days of it. There’s just so much creativity involved. It’s a problem that we’re looking at from a new angle and we so there aren’t overt solutions that others have tried and so we’re really trying to figure it out and to innovate on something that I think we believe needs some innovation.
Mike: You know why I think it’s so fun? It’s because you’re so early on that you haven’t actually run into any real problems yet.
Rob: That’s exactly it. It’s like any startup. It’s fun until you have to actually start writing code or you have to actually start selling to customers or supporting them in whatever. All the headaches crop up.
Mike: I do want to point out that you and I had an “argument” over whether or not it was a startup that you kept denying it and you’ve referred to it as a startup several times already.
Rob: Dang it. Right. Because I said I’d never do another startup again and then I was like, “Well, I’ll never do another SaaS app again from scratch.” and then I have all these caveats. Just never say never—that’s my advice.
Mike: I should get you a new bike so you can backpedal faster.
Rob: That’s right. That’s exactly right. What are we talking about this week?
Mike: Today’s podcast episode is inspired by a tweet that I saw on Twitter from Patrick McKenzie. The episode is titled, The Science of Why Charge More Works. Obviously, we’ll link this up in the show notes exactly where that tweet was.
Patrick has been talking about essentially, charging more for as long as I can remember. His tweet said, “Hacker News comment: I moved into a low-wage area and started freelancing. My clients likely think I’m too cheap, but I’m making double what I did before and overwhelmed with work. Suggestions?” and the second commenter said, “patio11 would tell you to charge more.” and he says, “Well, my work for today is done.”
It’s just interesting to see and I even commented on this that it’s funny how just repeating the same two words over and over could practically make you a career for the rest of your life and just say charge more, that’s your advice in almost any situation. Inevitably, in a lot of them, it’s going to work. I thought we’ve talked through a little bit about, one, why does it work? But also we talked through the science and mindset of this as well.
Rob: Yeah, talk through some specifics because you can’t always just charge more, eventually it stops working. There’s ways to charge more and do you grandfather. There’s specifics on that and that’s what we’ll talk about today.
I hear you, he’s developed the brand. He just said it so much because there are other people saying it. If you look back at MicroConf talks for example, really early on it was like Jason Cohen said it, Hiten Shah said it, I said it in two of my talks, but Patrick McKenzie has said it over and over and over and it becomes a brand and I think it’s a cool thing to have. Each of us develops our own little corners of the startup ecosystem I think.
Mike: The other comment that he had made in that tweet stream was that, “I think that Gmail folder where I keep my thank you for a salary negotiation post is in the upper seven figures in mostly $25,000 chunks, and given that salary is a vector not a scalar and compounds, that blog post has probably moved $X0 million around.” Basically, eight figures.
Rob: He’s saying eight figures.
Mike: Yup which is huge. To be able to have solid data that you can point to that has shown that you have been able to increase personal revenue for salaries for people is just amazing. But there’s also correlations between what he said in terms of charge more, not just as a person who’s employed for a company, but also in terms of raising prices for your software products.
Rob: Yeah, it’s like charge more for your skills. Charge more if you’re salaried employ by negotiating and I liked that post is really good. We should find it and link to it, but he writes a really good post about negotiation. It’s stuff that I had done intuitively, but I hadn’t put it into words in a framework like he did.
I negotiated every job I ever had. I made more money than the people around me. I was just doing it because I was like, “Well, I know that I’m valuable.” It was this internal thing of, “I know that I have chops at whatever it was” being a developer, or project manager, or a tech leader, whatever the role was. I tend to be, in these environments, a little better than the people around me.
Salary negotiation is something that you should do if you have not. And then when you become a contractor then you’ll learn you can just ratchet that rate up especially once you have referrals coming in. When you launch any type of product or service then you’ll learn to do the same thing. It’s all in line with the same idea of it’s not even charging what you’re worth. No, really figure out how to maximize this and charge based on the value that you or your product provides.
Mike: Yeah and that leads to a blogpost that I recalled reading years and years ago, it’s more than a decade ago from Joel Spolsky. We’ll link this up in the show notes as well, but it’s called, “Camels and Rubber Duckies”. In this blogpost, he essentially talks a little bit about economic theory and how to identify pricing for a product and how do you maximize revenue.
Of course, it has a bunch of different charge and as matrix there says, “If you charge this you’re going to make X amount of money and if you charge this other thing over here you’re going to make Y amount of money. It’s that more or less and are you more profitable as a result.” It’s like, “Well, it depends on whether or not you are able to sell just as many as you where before if you’re charging more.” If you charge more and you’re selling more then, if the math works out, yes, you’ll make more money. But at some point you’re going to raise the prices and the number of units that you sell starts dropping as a result and at some point further than that you’re going to start making less money. Where is that point? How do you figure that out?
One of the interesting pieces of Patrick’s charge more philosophy is just the fact that it forces you into situations where you are price testing. You’re checking to see if charging that higher amount of money is going to make you more or if you’re not going to get as many sales.
Rob: Here’s the thing, there are multiple stages of startups. We’ve talk about this over and over. There’s super early days and then there’s right before product market fit, and there’s after product market fit, and then there’s the growth stage. In each of those, you have to approach things differently, your thought process is a little different. In the very, very early days literally, your first 5 or 10 customers, I don’t know that you want to charge more but you should charge something.
I’ve seen startup founders be like, “Yeah, I’m going to comp the first 10 early access users just as thanks for whatever and they get lifetime account.” And I’m like, “That is a terrible idea.” Because those ten people are the people that are most eager to use your product and they’re going to get value from it. Why should they get that for free? Maybe give them a discount, maybe. Maybe. Maybe not.
As you’re getting to product market fit, you should be trying to push that price up. Once you’ve hit it, then that’s where you go every six months or every year your product is getting better. It’s SaaS app, I’m going to assume or something that you’re developing. People are using on-going that you’re developing features for, and it’s becoming more valuable to them, so they should pay more. Unless, the only time you can’t necessarily do that all the time is if you have a bunch of competitors and you’re kind of commoditized or they’re implementing these features that have similar rate to what you are, and you don’t have enough differentiation to basically be able to raise prices for that. Someone’s saying, “Well, I can just switch over here.” Switching customer involve then.
As you scale up, you’ll see these companies once you do become, you’ll look at HubSpot or Salesforce, someone who goes beyond that, their pricing just gets crazy where it’s crazy from our little B to SMB perspective when we typically think, “Yeah, we’ll charge someone $50 or $100 a month.” And they’re charging $5,000, $10,000, $20,000 a month that depending on plans.
All that to say, I like this as a sentiment. I think most people, especially early stages, especially beginners, they just don’t charge enough. I think we’re going to talk about a little perspective here of how to do this or how to increase prices without just making that your default because at a certain point—as you’ve said from Camel’s and Rubber Duckies—it’s a losing proposition.
Mike: I think one of the reasons why see larger companies like HubSpot charging so much more and in amounts that founders of smaller companies look at and say that’s just a ridiculous and absurd amount of money to charge, we’re a little disconnected from large companies purchasing decisions. Me, personally, I’ve worked at an extremely large company that’s 25,000 employees—that was almost 20 years ago at this point—and I was not in any way shape or form involved with any purchasing decision ever at the company.
By the time I’ve moved on, I’ve never really worked for what I would say a large company or been in this position where I’m involved in those purchasing decisions. I don’t have the experience or the mindset of how those decisions are made, and I think that contributes to why we don’t necessarily understand it as well.
If you try to put that in perspective, how big is the company and how much money do they make on an annual basis? If you’re a one-person or two-person company, you’re probably making less than $500,000 a year. If you are a 300-person company or 500-person company, you’re making a heck of a lot more than that, probably talking $50 million or $100 million a year.
For them to spend a couple of $1000 a month is not that big a deal, to you it is because that’s a huge chunk of your budget. To them, it’s a really super tiny percentage and they, for the most part, just don’t care.
Rob: That’s right. Especially if you’re going up market into companies of any kind of size, they’re not price comparing nearly as much as we think they are because they’re not consumers and they’re not anywhere closer. Further you move up the chain from consumers, the less price comparison that goes on, the more I don’t know–it’s like politics in getting this person on board and convincing this whole team to do things and there’s just so many other factors in it. Their price is one but there’s many others. But when you’re working with consumers, price tends to be the highest factors. A lot of price sensitivity selling that.
I met with someone who’s selling software to PC gamers and it’s like, “Ouch.” If someone comes in offering that is $1 less than yours, you’re going to lose people. They will go to the pain of switching to save a dollar or two a month. It’s just a totally different ball game when you’re dealing that.
Mike: I think that the mistake a lot of people make is when you say consumer I would almost lump in like freelancers and companies with less than two or three employees. I know that’s not a direct comparison because if you’re selling consumer products versus business products there, is a very big difference between the actual person who’s purchasing it. But in terms of mindset, those very small business owners have a very close mindset to the consumer. It’s not about what they do, it’s about how they approach their buying decisions.
Rob: I would agree with that. I was talking with Einar the other day and I have the mental classifications for business type or customer type and obviously B2C is one a lot of us think of. Literally, it’s Verizon or if you’re selling software, FTP software to the masses, and then I was like, “You know, there’s this B to Prosumer which is kind of hobbyist.” Let’s say you’re selling to photographers who do it on the side or most or not full time, but it’s this hobby they do on the weekend and they most to it to pay for their gear. They charge people so that they can afford more gear because there’s not so much money in it. It’s a B to Prosumer.
Then there’s B to A. It’s B to Aspirational folks. Frankly, it’s the smart passive in [00:15:08] or it’s folks who aspire to be something. People negatively used the term ‘wannapreneur’ which I feel like it’s a negative thing to say about someone, but it’s folks who want to be entrepreneurs. They’re really aspiring so they are willing to spend some money, but the churn is really high, and they definitely are consumer, but their behavior is different than someone buying a cellphone or cable service because they are trying to invest in a business. I actually think the behaviors of those three are different.
I like what you’re saying, there’s this B to VSB—very small business—which is basically the one that one- or two- or three-person company. They’re still going to have price sensitivity, but I don’t think as much as a consumer. Then there’s B to probably just regular small business and then B to Enterprise. There’s a mid-market in there so you can go all types of categories in there but each of those going to have their own pros and cons in terms of price sensitivity as well as churn, sale cycle, all that stuff.
Mike: I think you can debate all day about exactly where the different levels are whether it’s five employees or ten employees or whatever, but the reality is, as you move from the general consumer upmarket you traverse through that spectrum of purchasers, price sensitivity is a lot less. Going back to the Camel’s and Rubber Duckies trying to optimize your revenue is about doing price testing to see where the different breaking points are.
The simple explanation for charge more is, you increase prices, you’ve measured the total revenue and you repeat doing that until revenue starts to climb. Then you find out why it declined and try to solve that particular problem because it could be that you got your revenue to a certain point and then you try to charge more, and you come to find out that, “Oh! There’s a credit card limit for a maximum purchase on a monthly basis from a single vendor.” Maybe it’s $500 or $1000. Joel talks about in his blogpost, but they’re not just allowed to purchase something that costs more than that without a signature and maybe that’s why your revenue decline. It may not necessarily be directly because your price bar them from, but it could be something ancillary to that. You just have to figure out, why is that? Are you not provided the value? Or is there some other external factor. Once you’ve find out those, see if you can try to solve the problem and if you can raise prices and charge more.
Rob: Again, the mistakes some founders make is people will cancel especially in the early days. You’re trying to find product market fit. I’m trying to get people to use it. People are cancelling saying, “Ah! It’s not worth the money.” That’s not to say it’s too expensive. What they’re saying is you haven’t built something that they actually want to use. If you built something killer that they really need in their day-to-day or really change their workflow, it would be worth that money plus more. This is something I talk about—it’s aspirational pricing.
In the early days of Drip, Drip was very simple. It was before it was really an ESP, and automation, and all that stuff and people are cancelling saying, “Yeah, it’s just not worth the money or I can switch to Mailchimp and this and that.” I said, “Okay! It was $49 a month.” I said, “How can we make this into a product that people don’t say that about? That they say, “Oh! It’s totally worth $49 a month.” and that’s is the thread that I kept pulling to get us to product market fit is, “I don’t want to lower my prices because I don’t want another app that starts at $10 or $20 a month because the churn is high.” It’s so hard to find enough customers to make something worthwhile.
This is one of the big things when I looked at starting Drip, I had these lists of things I wanted with my next idea, it was after HitTail. My next app I want it to be $99 a month was the initial aspiration, but I want it to be in $49 by the time we launch. That was the most important one to be honest. I just wanted to move up market because I wanted to build an app that didn’t have the struggles and tap out because if your lowest plan is $10 a month it’s hard. People are moving up often to the higher plans. It’s hard to grow a SaaS app to the levels that I think a lot of us want to get to, the mid-six and seven figure levels.
Mike: The other blogpost that struck me has been highly relevant to this was also another one from Joel Spolsky that he wrote about a year later in 2005, it’s called, Price as a Signal. In this post, he basically talks about how the price that you put on something sends a signal to people about what the quality of it. Low price in relation to other things that are on the market that do the same type of thing, says that it’s a low quality. If it’s a much higher price, it signals that it’s a higher quality and it’s a better product, that does not necessarily mean it’s true. It’s simply the perception that you are putting forth as to why the pricing would be that way. Because there’s going to be some justification for the pricing and to the buyer, they don’t really have any of the inside knowledge so their natural assumption is, “Oh! Well, it must be better.”
They would really have to dig in and try your product and almost do a side-by-side comparison against other products. Not every customers’ going to have that kind of time on their hands. Some of them just need to make a decision and move on and they’re like, “I just want a better product so I’m just going to pay the higher price point for it.” That’s especially true when you get into the higher pricing tiers where those people are less price sensitive and they’re like, “I don’t care what the price is. We just need something. We need it to work, we need it to be good, so we’ll just buy the highest price thing we can find or something that’s reasonably high priced.” You don’t want to spend $50,000 a month when you can spend $5000, but if the pricing is listed on the website and its $300 a month, and you find something else that’s $900 a month, what are going to do? If you don’t care about price, you’d probably go with $900 a month because you’ve got the funds to spare. It’s probably not your money anyway and you need something to work. You don’t want to go to your boss and say, “Hey, this didn’t work because we went with the $300 product.”
Rob: Yup. I think it’s good. I think price signaling is definitely a real thing that folks should consider and being the premium offering. It’s an interesting marketing play; an interesting positioning play. I think WP Engine did this really well in the early days. They just said, “We’re going to be the expensive solution but we’re going to deliver on it.” You have to deliver on that.
Mike: The interesting about what you just said was that I think the price could send the opposite signal as well. If you price too low, it can tell people that your product is not just any good. You can look at a bunch of different industries for that. But I think one that pops-out of my head is the App Store. You look on there and there’s tons and tons of apps that are either free or for 0.99 cents. I personally look at them and say, “Well, if it’s 0.99 cents, how great can it be at this point?” because there’s a lot of things that charge more than 0.99 cents. There was kind of a standard thing to charge and now, it’s not. There’s a bunch of apps that I pay $10 for.
Rob: I still buy apps. I think the App Store is kind of a… How do you say?
Mike: Crap factory?
Rob: It is a crap factory. No. I was going to say it’s not a true market because Apple has artificially incentivized having cheaper apps. You know this thing, you want your complement to be free. Whatever product you have, if your complement is free then you become very valuable. Or you want your complement to be commoditized and as low priced as possible.
You think about Microsoft with Windows, what is their complement? What is the thing you need to use in order to use Microsoft Windows? Well, you need hardware, you need a box to run it on, and it was great for them that there wasn’t just one other provider. There was HP and there was Dell and there’s all these other providers now. It was like, “That’s the way to be.” And if you are a hardware maker, what you want is to have a specific hardware that no one else can use and you want basically the operating system to be commoditized. Your complement is free.
That’s where Apple with its App Store, what is the complement to an iPhone or an iPad? Well, the software component is obviously the operating system which they control, and then there’s apps. They want apps to be as cheap as possible because they want there to be a bazillion of them and they want to have the big ecosystem that everyone comes to. It’s same thing that Amazon has done with Kindles, with Kindles and Kindle books. They artificially depressed the pricing and they’ve had lawsuits about this where there’s class action lawsuits.
If you sell a Kindle book, I think you know, you can make it between 0.99 cents and is it $9.99 and they give you 70% of that. But if you make it $10 or $10.01 then they keep 70% of that. You only get 30% so in order to get the same amount, you have to jack your price up to whatever the math on that is—$30 or $25 bucks or something and it pissed people off because traditionally books have been, when they’re hardback, they’re $25 or $30, then soft cover $15 or $20. Amazon basically came in and said’ “Nope, we want the complement of the Kindle which is the content, which are the books, we want them to be inexpensive.” It’s not something I’m saying in theory, we see this happening.
Mike: But I think that’s a little bit different just because of the ecosystem of–somebody else really kind of controls the pricing in the marketplace. You’d have to go through somebody else. I think that’s the issue versus if you are selling a SaaS app where a book from your own website, you can price it whatever you want. There’s no outside influencers to essentially anchor your pricing or artificially influence it. I would say that it feels like that’s a little different. But I agree that that’s what they do.
Rob: It is different and that’s what I was saying about the App Store. You were saying, if I see an App Store app that’s 0.99 cents, I’d think this is probably crap, and I don’t because I know that’s artificially low because of what Apple has done. If that makes sense. Yes, on the open market, you don’t typically buy FTP apps or whatever it is for 0.99 cents. Before the App Store, they were $10, $20, $30 and then the Apps Store has driven a bunch of them down. That’s what I was saying is I think you can have artificially low pricing if there’s someone manipulating it.
Mike: Yeah. What I was saying was like, that’s my inclination to feel that way, but I also objectively know that it’s not true—is really what it comes down to. Because you can recognize something and feel a certain way, and that’s how I feel when I look at those things, but I objectively know that that’s also not true.
Rob: Right. Because I have plenty of 0.99 cent apps that I use all the time that are good apps
Mike: I do think this kind of brings about the question of, “How do you go about raising your prices if you’re already, I’ll say, entrenched in some customer base where you have traffic, sources coming in, and they’re already accustomed to seeing prices in a certain range?” Let me reframe that a little bit just because I want to be very clear on what I’m trying to say here. If you’re marketing to a certain demographic of people who are anywhere of that prosumer range that we talked about to like four or five employees in the company, how do you then increase your prices such that you can do this type of testing and still be attracting the right types of people? Because at some point, if you start changing your pricing enough, you’re going to put yourself in a position where the only people who would buy it is in this different demographic, but you don’t have the incoming traffic sources from that different demographic. Do you see what I’m saying?
Rob: Yeah. That’d be the hard part if you really want to double, triple, quadruple prices or something. That would be hard. Obviously, if you’re going to incrementally go up, let’s say 20% or 30%, you can email your whole customer base and you can say, “Look, we’re going to grandfather you for a certain amount of time,” and you can email all your trial users and go on social and promote it and say, “Hey, we are about to raise prices. If you’ve been waiting on this then sign-up now.” We did that with Drip a couple of times because we raised prices every 9-12 months. Then you’d get this big influx, you’re going to suck all the air out of the room and you’d get this you’d get this big influx of new trials and hopefully the convert because then it’s like, “Hey, you’re grandfathered in for this amount of time.”
But what you’re saying is different than that. You’re saying you’re going to double prices and the traffic that’s coming isn’t even associated with that. I would almost say if I really wanted to do that, oh, man, that’s be tough. If you’re going to do that, you’re almost pivoting or you’re repositioning as something different.
Mike: Yeah, that’s what I’m saying is like, yeah, you almost have to reposition yourself. If you’re changing pricing dramatically enough that you’re going into that, it’s a 5%, 10%, 20% increase is not a big deal, but when you’re doubling or tripling, if you’re anywhere within halfway to the point where it no longer makes sense for them to buy, you can really hurt yourself.
Rob: Yup, you could. I think it has to be very calculated. You can’t just go and do that one day. You have to probably need a new positioning, you need a new marketing message, you need to justify like, “What’s your reasoning that this is now worth twice what it was last week?” I would drill into that fact like, “It’s worth that because we are now built for plumbers and they should pay a lot of money for software.” Or, “We are now the most premium. We have this feature that no one else has.” You got to drill on what is the factor that is differentiating you that allows you to do that.
Mike: But do you have to justify it? Because if presumably the new market that we’re going into is not a current traffic source and they haven’t really seen your product or pricing before, then they wouldn’t necessarily know. There’s plenty of stories out there and actually it’s what people are saying, “Oh, I doubled my prices and I doubled my profit.” And people were like, “Why don’t you double your prices again or 10X them?” I think Jason Cohen talked about that at MicroConf one day where he was like, “Oh yeah, they 10X their prices.” He’s like, “Sales did not change where we make 10X more money.” He’s like, “Do it again.” They’re like, “What?” I definitely think it’s possible to do it, it’s just a question of do you have a plan for backing off if that goes wrong?
Rob: Yeah, that makes sense. I mean, you can always roll it back. I remember Intercom did this maybe three years ago. I believe they were either doubling or quadrupling. Pricing was huge jump. People got so mad that they just [29:08] it and then just backed away from it and they said, “we’re not going to do that.” Then recently, I think aren’t they doubling prices again? I had heard they’re going up 2 or 3X. I think they’re having the same backlash but they’re so big now, I don’t know if it matters.
Mike: Or they’re just measuring the response and saying, “Well, we’re going to double the pricing but only a quarter of our customer base is going to leave so, we have less strain on our servers and we don’t need to deal with as many customers and we’re making more money.”
Rob: I think they’re grandfathering for a year. I think they may just do it and hope they don’t lose as many.
Mike: That seems like the Netflix tragedy. They’ve announced it and then they grandfathered everybody in for two years and there was an initial uproar but they’re like, “Hey, but your price isn’t going to change for two years.” And then like, “Oh, okay.” And then two years later, it silently went up, and nobody cared.
Rob: Yeah. Was it two years? I think it was a year.
Mike: It might have been one year and then they changed it to two, I don’t remember. It seemed like a while.
Rob: Here’s the thing with Netflix though that’s different than most SaaS apps we would run across is, Netflix has—whatever it is, what is it—30-40 million subscribers? I don’t know. It’s tens of millions of subscribers for sure. They add new subscriber each quarter. Let’s say, “Hey, we have 1 or 2 or 3 million new.” But if they grandfathered everyone permanently that would seriously debilitate their business. This is where that B2C comes in. You’re dealing with such a volume play and you already have such a huge customer base that raising it by that $1 a month is again, let’s say, they have 30 million customers, that’s $30 million a month that they are making. If they piss a few people off and they leave, it’s worth it to them because they already have such a huge user base. It’s worth it to them to raise it upwards.
If you’re a SaaS app and you have 1000 customers and you plan to add another 500 this year or something, you got to think about the calculus there.
Mike: Yeah, totally. When you were saying there’s a difference between Netflix and the types of business we run, I was like, “Oh, it’s what, 30 million, 40 million customers.”
Rob: Totally. That’s the difference.
Mike: That’s the difference.
Rob: Our customer numbers are a rounding error to them.
Mike: Yup, basically. On this topic, we talked a little bit about it in terms of the App Store and low pricing, but what is charge more really mean for freemium? Does that mean get rid of freemium? I think you and I are probably in agreement that, “No, that’s not what that means.” Freemium is a distribution strategy not a pricing model.
Rob: That’s right. It’s a marketing approach.
Mike: Right. You’re not going to be able to sell at a zero which is technically a loss if you’re using server resources and be able to make it up on volume. It’s just not going to happen. But if you’re relying on converting people and using that as a way to attract attention to your app in order to acquire those people, that’s a totally different thing.
Rob: Yep, I would agree with that. By the way, the title of this episode is, The “Science” of Why “Charge More” Works. Science is in air quotes because it’s not true. It’s scientific but there’s a lot of data to back up the observations that we’ve made on this episode. Patrick Mackenzie has been saying it for six or seven years. First time I ever heard him say that was on MicroConf stage.
Mike: I think that’s the first time I had met him in person.
Rob: Yeah, 2011.
Mike: Well, special thanks to Patrick Mackenzie for speaking at MicroConf for all these years and also attending and for being part of the community. Also, thanks for the inspiration for this episode.
Rob: I think that wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Mike.
Rob: And I’m the guy that knows the intro.
Mike: Oh, be quiet! And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Rob?
Rob: I’m doing good. By my calculation, you’ve done the intro 210 times because we tend to trade off back and forth. How is it that you haven’t memorized it yet?
Mike: I was distracted. You know what, the thing is, I missed last episode. It was episode 420. Marijuana just became legal in Massachusetts. I must have been high.
Rob: That’s what we’re doing? Alright. This is going to be a good show today folks. For me, weeks are going well. MicroConf tickets are on sale inside Founder Café and then when this goes live, it will be on sale to our email launch list.
Mike: Yes.
Rob: Head over to microconf.com if you are interested, get on that launch list. You may have missed the first email, but they’ll get a subsequent one I suppose if they get on the list today.
Mike: Yeah. I think that the episode that comes out today, the people who will be getting that email for MicroConf tickets are going to be previous attendees and then next Tuesday it’s going to be going out to the rest of the list.
Rob: There you go. Growth Edition sales out every year so you want to get on that email list if you’re interested in it. How about you?
Mike: Well, I received my Scotch Advent Calendar yesterday. December is looking fantastic at the moment.
Rob: It’s a family tradition isn’t it?
Mike: Well, it just started last year.
Rob: Two years? In this day and age, I think that’s a tradition.
Mike: Sure. Aside from that, just working on the MicroConf sponsorship. That’s in the works. If you’re interested in any of the MicroConf sponsorship options, drop me an email at sponsors@microconf.com and I’ll send you over the break card and we’ll schedule a time to chat about it and see if it’s a good fit for you.
Rob: Other than that, I am continuing to push forward on TinySeed. Did you listen to the episode last week?
Mike: I have not had a chance to. I was high, remember?
Rob: Yeah, that’s right. All week. That was fun. Einar and I just talked it through, talked about what we’re up to, and why we’re up to it, and just the course we take on the funding landscape and even the landscape of what it takes to bootstrap a SaaS these days. Continuing to move it forward. There’s not so much I can talk about publicly but definitely meeting with a lot of founders and just discussing ideas, and thoughts, and stuff.
It’s a fun time. You know how it is. It’s like the early days of anything. This is literally a startup and we’re kind of bootstrapping it even though it’s weird. It’s like we don’t have any funding for Einar Vollset and I at this point. Eventually, once we raise the fund to actually back TinySeed, we’ll have a small stipend or something coming out of it. But it’s not like, “Oh, yeah. You’re doing a startup and you’re going to raise 5 or 10 million and crank it up.” It really is that, it’s the ethos of everything I’ve ever done where you’re capital-efficient, and you’re scrappy, and you’re just trying to hack your way through it. It’s fun.
I enjoy these days of it. There’s just so much creativity involved. It’s a problem that we’re looking at from a new angle and we so there aren’t overt solutions that others have tried and so we’re really trying to figure it out and to innovate on something that I think we believe needs some innovation.
Mike: You know why I think it’s so fun? It’s because you’re so early on that you haven’t actually run into any real problems yet.
Rob: That’s exactly it. It’s like any startup. It’s fun until you have to actually start writing code or you have to actually start selling to customers or supporting them in whatever. All the headaches crop up.
Mike: I do want to point out that you and I had an “argument” over whether or not it was a startup that you kept denying it and you’ve referred to it as a startup several times already.
Rob: Dang it. Right. Because I said I’d never do another startup again and then I was like, “Well, I’ll never do another SaaS app again from scratch.” and then I have all these caveats. Just never say never—that’s my advice.
Mike: I should get you a new bike so you can backpedal faster.
Rob: That’s right. That’s exactly right. What are we talking about this week?
Mike: Today’s podcast episode is inspired by a tweet that I saw on Twitter from Patrick McKenzie. The episode is titled, The Science of Why Charge More Works. Obviously, we’ll link this up in the show notes exactly where that tweet was.
Patrick has been talking about essentially, charging more for as long as I can remember. His tweet said, “Hacker News comment: I moved into a low-wage area and started freelancing. My clients likely think I’m too cheap, but I’m making double what I did before and overwhelmed with work. Suggestions?” and the second commenter said, “patio11 would tell you to charge more.” and he says, “Well, my work for today is done.”
It’s just interesting to see and I even commented on this that it’s funny how just repeating the same two words over and over could practically make you a career for the rest of your life and just say charge more, that’s your advice in almost any situation. Inevitably, in a lot of them, it’s going to work. I thought we’ve talked through a little bit about, one, why does it work? But also we talked through the science and mindset of this as well.
Rob: Yeah, talk through some specifics because you can’t always just charge more, eventually it stops working. There’s ways to charge more and do you grandfather. There’s specifics on that and that’s what we’ll talk about today.
I hear you, he’s developed the brand. He just said it so much because there are other people saying it. If you look back at MicroConf talks for example, really early on it was like Jason Cohen said it, Hiten Shah said it, I said it in two of my talks, but Patrick McKenzie has said it over and over and over and it becomes a brand and I think it’s a cool thing to have. Each of us develops our own little corners of the startup ecosystem I think.
Mike: The other comment that he had made in that tweet stream was that, “I think that Gmail folder where I keep my thank you for a salary negotiation post is in the upper seven figures in mostly $25,000 chunks, and given that salary is a vector not a scalar and compounds, that blog post has probably moved $X0 million around.” Basically, eight figures.
Rob: He’s saying eight figures.
Mike: Yup which is huge. To be able to have solid data that you can point to that has shown that you have been able to increase personal revenue for salaries for people is just amazing. But there’s also correlations between what he said in terms of charge more, not just as a person who’s employed for a company, but also in terms of raising prices for your software products.
Rob: Yeah, it’s like charge more for your skills. Charge more if you’re salaried employ by negotiating and I liked that post is really good. We should find it and link to it, but he writes a really good post about negotiation. It’s stuff that I had done intuitively, but I hadn’t put it into words in a framework like he did.
I negotiated every job I ever had. I made more money than the people around me. I was just doing it because I was like, “Well, I know that I’m valuable.” It was this internal thing of, “I know that I have chops at whatever it was” being a developer, or project manager, or a tech leader, whatever the role was. I tend to be, in these environments, a little better than the people around me.
Salary negotiation is something that you should do if you have not. And then when you become a contractor then you’ll learn you can just ratchet that rate up especially once you have referrals coming in. When you launch any type of product or service then you’ll learn to do the same thing. It’s all in line with the same idea of it’s not even charging what you’re worth. No, really figure out how to maximize this and charge based on the value that you or your product provides.
Mike: Yeah and that leads to a blogpost that I recalled reading years and years ago, it’s more than a decade ago from Joel Spolsky. We’ll link this up in the show notes as well, but it’s called, “Camels and Rubber Duckies”. In this blogpost, he essentially talks a little bit about economic theory and how to identify pricing for a product and how do you maximize revenue.
Of course, it has a bunch of different charge and as matrix there says, “If you charge this you’re going to make X amount of money and if you charge this other thing over here you’re going to make Y amount of money. It’s that more or less and are you more profitable as a result.” It’s like, “Well, it depends on whether or not you are able to sell just as many as you where before if you’re charging more.” If you charge more and you’re selling more then, if the math works out, yes, you’ll make more money. But at some point you’re going to raise the prices and the number of units that you sell starts dropping as a result and at some point further than that you’re going to start making less money. Where is that point? How do you figure that out?
One of the interesting pieces of Patrick’s charge more philosophy is just the fact that it forces you into situations where you are price testing. You’re checking to see if charging that higher amount of money is going to make you more or if you’re not going to get as many sales.
Rob: Here’s the thing, there are multiple stages of startups. We’ve talk about this over and over. There’s super early days and then there’s right before product market fit, and there’s after product market fit, and then there’s the growth stage. In each of those, you have to approach things differently, your thought process is a little different. In the very, very early days literally, your first 5 or 10 customers, I don’t know that you want to charge more but you should charge something.
I’ve seen startup founders be like, “Yeah, I’m going to comp the first 10 early access users just as thanks for whatever and they get lifetime account.” And I’m like, “That is a terrible idea.” Because those ten people are the people that are most eager to use your product and they’re going to get value from it. Why should they get that for free? Maybe give them a discount, maybe. Maybe. Maybe not.
As you’re getting to product market fit, you should be trying to push that price up. Once you’ve hit it, then that’s where you go every six months or every year your product is getting better. It’s SaaS app, I’m going to assume or something that you’re developing. People are using on-going that you’re developing features for, and it’s becoming more valuable to them, so they should pay more. Unless, the only time you can’t necessarily do that all the time is if you have a bunch of competitors and you’re kind of commoditized or they’re implementing these features that have similar rate to what you are, and you don’t have enough differentiation to basically be able to raise prices for that. Someone’s saying, “Well, I can just switch over here.” Switching customer involve then.
As you scale up, you’ll see these companies once you do become, you’ll look at HubSpot or Salesforce, someone who goes beyond that, their pricing just gets crazy where it’s crazy from our little B to SMB perspective when we typically think, “Yeah, we’ll charge someone $50 or $100 a month.” And they’re charging $5,000, $10,000, $20,000 a month that depending on plans.
All that to say, I like this as a sentiment. I think most people, especially early stages, especially beginners, they just don’t charge enough. I think we’re going to talk about a little perspective here of how to do this or how to increase prices without just making that your default because at a certain point—as you’ve said from Camel’s and Rubber Duckies—it’s a losing proposition.
Mike: I think one of the reasons why see larger companies like HubSpot charging so much more and in amounts that founders of smaller companies look at and say that’s just a ridiculous and absurd amount of money to charge, we’re a little disconnected from large companies purchasing decisions. Me, personally, I’ve worked at an extremely large company that’s 25,000 employees—that was almost 20 years ago at this point—and I was not in any way shape or form involved with any purchasing decision ever at the company.
By the time I’ve moved on, I’ve never really worked for what I would say a large company or been in this position where I’m involved in those purchasing decisions. I don’t have the experience or the mindset of how those decisions are made, and I think that contributes to why we don’t necessarily understand it as well.
If you try to put that in perspective, how big is the company and how much money do they make on an annual basis? If you’re a one-person or two-person company, you’re probably making less than $500,000 a year. If you are a 300-person company or 500-person company, you’re making a heck of a lot more than that, probably talking $50 million or $100 million a year.
For them to spend a couple of $1000 a month is not that big a deal, to you it is because that’s a huge chunk of your budget. To them, it’s a really super tiny percentage and they, for the most part, just don’t care.
Rob: That’s right. Especially if you’re going up market into companies of any kind of size, they’re not price comparing nearly as much as we think they are because they’re not consumers and they’re not anywhere closer. Further you move up the chain from consumers, the less price comparison that goes on, the more I don’t know–it’s like politics in getting this person on board and convincing this whole team to do things and there’s just so many other factors in it. Their price is one but there’s many others. But when you’re working with consumers, price tends to be the highest factors. A lot of price sensitivity selling that.
I met with someone who’s selling software to PC gamers and it’s like, “Ouch.” If someone comes in offering that is $1 less than yours, you’re going to lose people. They will go to the pain of switching to save a dollar or two a month. It’s just a totally different ball game when you’re dealing that.
Mike: I think that the mistake a lot of people make is when you say consumer I would almost lump in like freelancers and companies with less than two or three employees. I know that’s not a direct comparison because if you’re selling consumer products versus business products there, is a very big difference between the actual person who’s purchasing it. But in terms of mindset, those very small business owners have a very close mindset to the consumer. It’s not about what they do, it’s about how they approach their buying decisions.
Rob: I would agree with that. I was talking with Einar the other day and I have the mental classifications for business type or customer type and obviously B2C is one a lot of us think of. Literally, it’s Verizon or if you’re selling software, FTP software to the masses, and then I was like, “You know, there’s this B to Prosumer which is kind of hobbyist.” Let’s say you’re selling to photographers who do it on the side or most or not full time, but it’s this hobby they do on the weekend and they most to it to pay for their gear. They charge people so that they can afford more gear because there’s not so much money in it. It’s a B to Prosumer.
Then there’s B to A. It’s B to Aspirational folks. Frankly, it’s the smart passive in [00:15:08] or it’s folks who aspire to be something. People negatively used the term ‘wannapreneur’ which I feel like it’s a negative thing to say about someone, but it’s folks who want to be entrepreneurs. They’re really aspiring so they are willing to spend some money, but the churn is really high, and they definitely are consumer, but their behavior is different than someone buying a cellphone or cable service because they are trying to invest in a business. I actually think the behaviors of those three are different.
I like what you’re saying, there’s this B to VSB—very small business—which is basically the one that one- or two- or three-person company. They’re still going to have price sensitivity, but I don’t think as much as a consumer. Then there’s B to probably just regular small business and then B to Enterprise. There’s a mid-market in there so you can go all types of categories in there but each of those going to have their own pros and cons in terms of price sensitivity as well as churn, sale cycle, all that stuff.
Mike: I think you can debate all day about exactly where the different levels are whether it’s five employees or ten employees or whatever, but the reality is, as you move from the general consumer upmarket you traverse through that spectrum of purchasers, price sensitivity is a lot less. Going back to the Camel’s and Rubber Duckies trying to optimize your revenue is about doing price testing to see where the different breaking points are.
The simple explanation for charge more is, you increase prices, you’ve measured the total revenue and you repeat doing that until revenue starts to climb. Then you find out why it declined and try to solve that particular problem because it could be that you got your revenue to a certain point and then you try to charge more, and you come to find out that, “Oh! There’s a credit card limit for a maximum purchase on a monthly basis from a single vendor.” Maybe it’s $500 or $1000. Joel talks about in his blogpost, but they’re not just allowed to purchase something that costs more than that without a signature and maybe that’s why your revenue decline. It may not necessarily be directly because your price bar them from, but it could be something ancillary to that. You just have to figure out, why is that? Are you not provided the value? Or is there some other external factor. Once you’ve find out those, see if you can try to solve the problem and if you can raise prices and charge more.
Rob: Again, the mistakes some founders make is people will cancel especially in the early days. You’re trying to find product market fit. I’m trying to get people to use it. People are cancelling saying, “Ah! It’s not worth the money.” That’s not to say it’s too expensive. What they’re saying is you haven’t built something that they actually want to use. If you built something killer that they really need in their day-to-day or really change their workflow, it would be worth that money plus more. This is something I talk about—it’s aspirational pricing.
In the early days of Drip, Drip was very simple. It was before it was really an ESP, and automation, and all that stuff and people are cancelling saying, “Yeah, it’s just not worth the money or I can switch to Mailchimp and this and that.” I said, “Okay! It was $49 a month.” I said, “How can we make this into a product that people don’t say that about? That they say, “Oh! It’s totally worth $49 a month.” and that’s is the thread that I kept pulling to get us to product market fit is, “I don’t want to lower my prices because I don’t want another app that starts at $10 or $20 a month because the churn is high.” It’s so hard to find enough customers to make something worthwhile.
This is one of the big things when I looked at starting Drip, I had these lists of things I wanted with my next idea, it was after HitTail. My next app I want it to be $99 a month was the initial aspiration, but I want it to be in $49 by the time we launch. That was the most important one to be honest. I just wanted to move up market because I wanted to build an app that didn’t have the struggles and tap out because if your lowest plan is $10 a month it’s hard. People are moving up often to the higher plans. It’s hard to grow a SaaS app to the levels that I think a lot of us want to get to, the mid-six and seven figure levels.
Mike: The other blogpost that struck me has been highly relevant to this was also another one from Joel Spolsky that he wrote about a year later in 2005, it’s called, Price as a Signal. In this post, he basically talks about how the price that you put on something sends a signal to people about what the quality of it. Low price in relation to other things that are on the market that do the same type of thing, says that it’s a low quality. If it’s a much higher price, it signals that it’s a higher quality and it’s a better product, that does not necessarily mean it’s true. It’s simply the perception that you are putting forth as to why the pricing would be that way. Because there’s going to be some justification for the pricing and to the buyer, they don’t really have any of the inside knowledge so their natural assumption is, “Oh! Well, it must be better.”
They would really have to dig in and try your product and almost do a side-by-side comparison against other products. Not every customers’ going to have that kind of time on their hands. Some of them just need to make a decision and move on and they’re like, “I just want a better product so I’m just going to pay the higher price point for it.” That’s especially true when you get into the higher pricing tiers where those people are less price sensitive and they’re like, “I don’t care what the price is. We just need something. We need it to work, we need it to be good, so we’ll just buy the highest price thing we can find or something that’s reasonably high priced.” You don’t want to spend $50,000 a month when you can spend $5000, but if the pricing is listed on the website and its $300 a month, and you find something else that’s $900 a month, what are going to do? If you don’t care about price, you’d probably go with $900 a month because you’ve got the funds to spare. It’s probably not your money anyway and you need something to work. You don’t want to go to your boss and say, “Hey, this didn’t work because we went with the $300 product.”
Rob: Yup. I think it’s good. I think price signaling is definitely a real thing that folks should consider and being the premium offering. It’s an interesting marketing play; an interesting positioning play. I think WP Engine did this really well in the early days. They just said, “We’re going to be the expensive solution but we’re going to deliver on it.” You have to deliver on that.
Mike: The interesting about what you just said was that I think the price could send the opposite signal as well. If you price too low, it can tell people that your product is not just any good. You can look at a bunch of different industries for that. But I think one that pops-out of my head is the App Store. You look on there and there’s tons and tons of apps that are either free or for 0.99 cents. I personally look at them and say, “Well, if it’s 0.99 cents, how great can it be at this point?” because there’s a lot of things that charge more than 0.99 cents. There was kind of a standard thing to charge and now, it’s not. There’s a bunch of apps that I pay $10 for.
Rob: I still buy apps. I think the App Store is kind of a… How do you say?
Mike: Crap factory?
Rob: It is a crap factory. No. I was going to say it’s not a true market because Apple has artificially incentivized having cheaper apps. You know this thing, you want your complement to be free. Whatever product you have, if your complement is free then you become very valuable. Or you want your complement to be commoditized and as low priced as possible.
You think about Microsoft with Windows, what is their complement? What is the thing you need to use in order to use Microsoft Windows? Well, you need hardware, you need a box to run it on, and it was great for them that there wasn’t just one other provider. There was HP and there was Dell and there’s all these other providers now. It was like, “That’s the way to be.” And if you are a hardware maker, what you want is to have a specific hardware that no one else can use and you want basically the operating system to be commoditized. Your complement is free.
That’s where Apple with its App Store, what is the complement to an iPhone or an iPad? Well, the software component is obviously the operating system which they control, and then there’s apps. They want apps to be as cheap as possible because they want there to be a bazillion of them and they want to have the big ecosystem that everyone comes to. It’s same thing that Amazon has done with Kindles, with Kindles and Kindle books. They artificially depressed the pricing and they’ve had lawsuits about this where there’s class action lawsuits.
If you sell a Kindle book, I think you know, you can make it between 0.99 cents and is it $9.99 and they give you 70% of that. But if you make it $10 or $10.01 then they keep 70% of that. You only get 30% so in order to get the same amount, you have to jack your price up to whatever the math on that is—$30 or $25 bucks or something and it pissed people off because traditionally books have been, when they’re hardback, they’re $25 or $30, then soft cover $15 or $20. Amazon basically came in and said’ “Nope, we want the complement of the Kindle which is the content, which are the books, we want them to be inexpensive.” It’s not something I’m saying in theory, we see this happening.
Mike: But I think that’s a little bit different just because of the ecosystem of–somebody else really kind of controls the pricing in the marketplace. You’d have to go through somebody else. I think that’s the issue versus if you are selling a SaaS app where a book from your own website, you can price it whatever you want. There’s no outside influencers to essentially anchor your pricing or artificially influence it. I would say that it feels like that’s a little different. But I agree that that’s what they do.
Rob: It is different and that’s what I was saying about the App Store. You were saying, if I see an App Store app that’s 0.99 cents, I’d think this is probably crap, and I don’t because I know that’s artificially low because of what Apple has done. If that makes sense. Yes, on the open market, you don’t typically buy FTP apps or whatever it is for 0.99 cents. Before the App Store, they were $10, $20, $30 and then the Apps Store has driven a bunch of them down. That’s what I was saying is I think you can have artificially low pricing if there’s someone manipulating it.
Mike: Yeah. What I was saying was like, that’s my inclination to feel that way, but I also objectively know that it’s not true—is really what it comes down to. Because you can recognize something and feel a certain way, and that’s how I feel when I look at those things, but I objectively know that that’s also not true.
Rob: Right. Because I have plenty of 0.99 cent apps that I use all the time that are good apps
Mike: I do think this kind of brings about the question of, “How do you go about raising your prices if you’re already, I’ll say, entrenched in some customer base where you have traffic, sources coming in, and they’re already accustomed to seeing prices in a certain range?” Let me reframe that a little bit just because I want to be very clear on what I’m trying to say here. If you’re marketing to a certain demographic of people who are anywhere of that prosumer range that we talked about to like four or five employees in the company, how do you then increase your prices such that you can do this type of testing and still be attracting the right types of people? Because at some point, if you start changing your pricing enough, you’re going to put yourself in a position where the only people who would buy it is in this different demographic, but you don’t have the incoming traffic sources from that different demographic. Do you see what I’m saying?
Rob: Yeah. That’d be the hard part if you really want to double, triple, quadruple prices or something. That would be hard. Obviously, if you’re going to incrementally go up, let’s say 20% or 30%, you can email your whole customer base and you can say, “Look, we’re going to grandfather you for a certain amount of time,” and you can email all your trial users and go on social and promote it and say, “Hey, we are about to raise prices. If you’ve been waiting on this then sign-up now.” We did that with Drip a couple of times because we raised prices every 9-12 months. Then you’d get this big influx, you’re going to suck all the air out of the room and you’d get this you’d get this big influx of new trials and hopefully the convert because then it’s like, “Hey, you’re grandfathered in for this amount of time.”
But what you’re saying is different than that. You’re saying you’re going to double prices and the traffic that’s coming isn’t even associated with that. I would almost say if I really wanted to do that, oh, man, that’s be tough. If you’re going to do that, you’re almost pivoting or you’re repositioning as something different.
Mike: Yeah, that’s what I’m saying is like, yeah, you almost have to reposition yourself. If you’re changing pricing dramatically enough that you’re going into that, it’s a 5%, 10%, 20% increase is not a big deal, but when you’re doubling or tripling, if you’re anywhere within halfway to the point where it no longer makes sense for them to buy, you can really hurt yourself.
Rob: Yup, you could. I think it has to be very calculated. You can’t just go and do that one day. You have to probably need a new positioning, you need a new marketing message, you need to justify like, “What’s your reasoning that this is now worth twice what it was last week?” I would drill into that fact like, “It’s worth that because we are now built for plumbers and they should pay a lot of money for software.” Or, “We are now the most premium. We have this feature that no one else has.” You got to drill on what is the factor that is differentiating you that allows you to do that.
Mike: But do you have to justify it? Because if presumably the new market that we’re going into is not a current traffic source and they haven’t really seen your product or pricing before, then they wouldn’t necessarily know. There’s plenty of stories out there and actually it’s what people are saying, “Oh, I doubled my prices and I doubled my profit.” And people were like, “Why don’t you double your prices again or 10X them?” I think Jason Cohen talked about that at MicroConf one day where he was like, “Oh yeah, they 10X their prices.” He’s like, “Sales did not change where we make 10X more money.” He’s like, “Do it again.” They’re like, “What?” I definitely think it’s possible to do it, it’s just a question of do you have a plan for backing off if that goes wrong?
Rob: Yeah, that makes sense. I mean, you can always roll it back. I remember Intercom did this maybe three years ago. I believe they were either doubling or quadrupling. Pricing was huge jump. People got so mad that they just [29:08] it and then just backed away from it and they said, “we’re not going to do that.” Then recently, I think aren’t they doubling prices again? I had heard they’re going up 2 or 3X. I think they’re having the same backlash but they’re so big now, I don’t know if it matters.
Mike: Or they’re just measuring the response and saying, “Well, we’re going to double the pricing but only a quarter of our customer base is going to leave so, we have less strain on our servers and we don’t need to deal with as many customers and we’re making more money.”
Rob: I think they’re grandfathering for a year. I think they may just do it and hope they don’t lose as many.
Mike: That seems like the Netflix tragedy. They’ve announced it and then they grandfathered everybody in for two years and there was an initial uproar but they’re like, “Hey, but your price isn’t going to change for two years.” And then like, “Oh, okay.” And then two years later, it silently went up, and nobody cared.
Rob: Yeah. Was it two years? I think it was a year.
Mike: It might have been one year and then they changed it to two, I don’t remember. It seemed like a while.
Rob: Here’s the thing with Netflix though that’s different than most SaaS apps we would run across is, Netflix has—whatever it is, what is it—30-40 million subscribers? I don’t know. It’s tens of millions of subscribers for sure. They add new subscriber each quarter. Let’s say, “Hey, we have 1 or 2 or 3 million new.” But if they grandfathered everyone permanently that would seriously debilitate their business. This is where that B2C comes in. You’re dealing with such a volume play and you already have such a huge customer base that raising it by that $1 a month is again, let’s say, they have 30 million customers, that’s $30 million a month that they are making. If they piss a few people off and they leave, it’s worth it to them because they already have such a huge user base. It’s worth it to them to raise it upwards.
If you’re a SaaS app and you have 1000 customers and you plan to add another 500 this year or something, you got to think about the calculus there.
Mike: Yeah, totally. When you were saying there’s a difference between Netflix and the types of business we run, I was like, “Oh, it’s what, 30 million, 40 million customers.”
Rob: Totally. That’s the difference.
Mike: That’s the difference.
Rob: Our customer numbers are a rounding error to them.
Mike: Yup, basically. On this topic, we talked a little bit about it in terms of the App Store and low pricing, but what is charge more really mean for freemium? Does that mean get rid of freemium? I think you and I are probably in agreement that, “No, that’s not what that means.” Freemium is a distribution strategy not a pricing model.
Rob: That’s right. It’s a marketing approach.
Mike: Right. You’re not going to be able to sell at a zero which is technically a loss if you’re using server resources and be able to make it up on volume. It’s just not going to happen. But if you’re relying on converting people and using that as a way to attract attention to your app in order to acquire those people, that’s a totally different thing.
Rob: Yep, I would agree with that. By the way, the title of this episode is, The “Science” of Why “Charge More” Works. Science is in air quotes because it’s not true. It’s scientific but there’s a lot of data to back up the observations that we’ve made on this episode. Patrick Mackenzie has been saying it for six or seven years. First time I ever heard him say that was on MicroConf stage.
Mike: I think that’s the first time I had met him in person.
Rob: Yeah, 2011.
Mike: Well, special thanks to Patrick Mackenzie for speaking at MicroConf for all these years and also attending and for being part of the community. Also, thanks for the inspiration for this episode.
Rob: I think that wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 420 | An Alternative Form of Startup Funding
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Einar Vollset talk about their alternative form of startup funding, Tiny Seed. They talk about why they started an accelerator, and some of the key differentiators that separates them from typical accelerators.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest of Us, Einar Vollset and I talk about an alternative form of startup funding as well as run through the history of startup funding as we see it. This is Startups For The Rest of Us episode 420.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Rob.
Einar: And I’m Einar.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Nice job catching that man. I didn’t brief you in advance that you had to say your name, huh?
Einar: […] is Mike supposed to say something on or not?
Rob: Mike’s not on. For listeners out there, who don’t know you. Your name is E-Y-N-A-R. I call you A-Y-N-A-R.
Einar: It’s close as my wife gets. I think that’s fair.
Rob: Good. You and I have started–we’ve co-founded Tiny Seed together. That’s at tinyseed.com. But folks may not have heard of you. I know that you are a multi-time founder. You went through YCombinator in 2009. You’re a developer as well. You’re a CS professor at Cornell. You’ve done quite a bit of stuff and you, these days, you kind of work in private equity, right? You’re like a private equity scout?
Einar: Yeah, kind of. I sort of got into that space after my last exit and actually have what I jokingly call a service startup investment banker. Most of the stuff I do is help fund their exits when they’ve got a SaaS business or a tech-enabled service business between […], $2 million, and $15 million as ARR, something like that.
Rob: Right. That’s where you and I have connected on Tiny Seed. Folks listening to the podcast kind of already know a little bit of Tiny Seed, it’s the first startup accelerator designed for bootstrappers. We try to give founders a year of runway, it’s a remote accelerator. It’s an idea that has been floating around for years and I never wanted to do a lot of the investor side and didn’t really have the expertise to raise a funding round and that kind of stuff. And then you and I connected back in April at MicroConf in Vegas and this was something that intrigued you to start what became Tiny Seed.
I think folks who listened know why I’m doing it. This is just a continuation of everything I’ve done for the past 15 years or whatever, it’s me putting more money where my mouth has been. But for you, what’s your interest in being part of something like Tiny Seeds?
Einar: I think there’s just a gap in the market there for those kinds of companies. I think in terms of funding structure and in terms of support. The way that I think about this base is it’s very similar to where companies like Y Combinator or First Round were in 2005, 2006. It’s becoming more and more clear to me that there are incredible businesses to be built which can be super profitable and sort of take care of their investors, and their founders, and their employees and everything that sort of fall outside the traditional VC sort of funding structure with a series of pre-seeds, and seed, and A, and B, and C.
I really think that given what you’ve built on MicroConf and your community and the fact that the institutional capital is coming in or interested in buying those kinds of companies potentially, I think that’s an exciting opportunity, and honestly, yeah, I just want to help people be able to take their business from just a sidebar project to something they can dedicate their time, full-time toward.
Rob: Yeah. You came up with a really good example early on. You said, “How many founders do meet at MicroConf or at other conferences who are basically trying to do it on the side?” A lot of folks have a spouse, they have house, they might have a kid, they have a full-time job, they have responsibilities…
Einar: Mortgage.
Rob: …and they have mortgage, yup. They just can’t—I say, can’t—but it’s really, really hard to offset that and either move to the Bay area with some other tech center for three months to do an accelerator or to try to raise a round of funding in the side or they’re tooling away on an idea and three months later, it’s no better off when they started.
Einar: I think the standard pro-typical YC startup founder—at least that’s the way it used to be, maybe it’s a little bit different now—but it’s like, you’ve got to be 23, willing to work 80-, 90-hour weeks and just give up everything else. Of course, I don’t think that’s the only way to build a profitable business and I’d really like to support that.
Rob: That makes sense. I kind of jokingly have called what we’re starting with Tiny Seed, I’ve been calling it Startup Funding For The Rest of Us because it kind of fits in the model. Startups For The Rest of Us, the whole point of the name of this podcast is that folks who listen to it want to build startups but we aren’t in that mainstream, “Let’s raise venture funding.” Like you said, 90-hour weeks, series A, series B, $100 million or $100 billion valuation, some of us don’t want to do that, and it’s that alternative.
I think the key thing is, a lot of us have noticed, you noticed, I’ve noticed, we have other folks that are launching similar things that are similar to Tiny Seeds. It’s like we’re all noticing this tectonic shift in both bootstrapping in that bootstrapping is getting harder especially SaaS because it’s getting more competitive. It’s not impossible but it’s harder than it was two, three, four, five years ago, so it’s getting harder. Funding sources are becoming more prevalent. There’s more money being thrown at things and in fact, so much money being thrown into venture capital and private equity that it’s spilling over and looking for either places to go, where is the opportunity for that money to go. I’ll speak for myself here, I believe this is a great opportunity, a great place for it to go that is virtually untapped today.
Einar: Yeah, I think so. I think I get super hard if you have a SaaS business that’s doing $2000-$3000, $4000-$5000 a month, it’s not enough to live on in most places. Certainly not where I live, in the Bay area. But going out and raising funding for those kinds of businesses is also impossible if you’re not giving it the time of the day from a traditional VC because they’ll look at the business and say, “Oh, it’s a nice lifestyle business you have there.” Your other sources of funding tend to be, “Okay, friends and family.” If you have wealthy friends and family that’s great but on the other end you often end up with kind of a ad hoc set of angels and it’s hard to do. That’s actually aligned incentives for founders and investors that are trying to operate in the space.
Rob: Yeah, that’s right. What’s interesting is that something I don’t think, if you’re not in the space, then you don’t realize how quickly things have changed and that they are constantly changing. I grew up in the Bay area until—I’m trying to think—it was the mid-90s and then I went to college in Sacramento and I still have ties to the place, I never did a startup there, but I very much know how the Bay area works.
I remember, in the 90s, when I was, let’s say, late teens, early 20s, and just thirsting to do a startup it was like, you could have friends and family contribute money and I had no friends and family with any money so that was off the plate for me. You could try to find angels and of course, there was no angel list back then, so it was literally going to meetings. There was meetings and such and there were angel groups and then there was venture capital obviously, because a lot of cheques were written in the late ‘90s. But as far as I know that was kind of it.
If you wanted to start a software startup at the time, there were no accelerators until 2005, that’s only 13 years ago, and we were just talking, there was no debt financing for SaaS until maybe two years ago. There was Lidar Capital, Bigfoot Capital and a few others, but you couldn’t get freaking debt financing from a bank.
Einar: No, you couldn’t go to a bank and say, “Hey, I have this SaaS business. It’s maybe making freaking $20,000, $30,000 a year. Can you lend me enough money to do anything?” that was never going to work. I did YC in 2008 and even then, people were still like, at the time, the original terms were like $5000 + $5000 x the number of founders for 6% or 7%, something like that.
The people who were in the angel and VC investing world, they laughed at that. They were like, “What are you talking about? Of course, that’s nowhere near enough money to do anything with. What are you even bothering about?” But I think YC really proved that that model that, “You know what, yeah, with a little bit of money and some grit you can go after this.” I sort of think the opportunity is similar but in a different place where what we’re going after is not the next Facebook or Instagram or whatever, it is the next $20-$50 million SaaS business that you probably haven’t heard of unless you work in the industry where it’s prevalent or is being used.
Rob: Even in our financial models, having SaaS apps grow into a $3-, $4-, $5-million business is still a pretty nice win. It’s a nice win from an investor perspective but it’s also really good win for the founder or founders themselves because they can either, they’re given the profit margin. You’re experienced with quite a few SaaS apps, the next profit on these things is substantial, and so whether a founder decides to exit and sell the business or whether they decide to just pull distributions off of it, there’s a lot of—I think there’s rewards to be had that would almost be laughed at or at least chuckled at in the Bay area because it’s like, “Oh, lifestyle business right? $5 million a year?” But man, if you’re pulling $2 million off that, that’s life-changing for a lot of us.
Einar: I think the margins, once you get to a certain size and you decide to focus on cash flow instead of necessarily growing at all cost, again, the margins will be at 30%-50%. I think the fundamental shift that we’re seeing and trying to leave behind is you can align both investors and founders in a better way. Instead of saying, “Okay, the only way anyone gets paid is by exits.” In that case, the VC or whatever who’s private funding you will sort of try to push you to try to grow as quickly as possible and have a biggest exit as possible. But if you could have a bigger structure that’s supported by the fact that this SaaS app business often throw off this kind of cash then you could do a profit share as well as an equity piece. It sort of aligns the founders and the investors and I think in a good, nice way.
Rob: I think all that to say, while we are talking about Tiny Seed today, you and I both think we foresee that as the future moves forward that this is a shift and that there will obviously, there’ll still be venture capital and accelerators the way we know it today but it’s like this new market opens up and this alternative funding where we’ve traditionally had bootstrapping, and venture capital, and there was angel along the way, and you could self-fund. We did talk about how self-funding is different or the same as bootstrapping but there’s this new kind of third option that I believe has viability. Half of my angel investments are essentially in startups like this. They’re in these SaaS apps that I never thought or hoped would become unicorns but if they get to 5 million, 10 million ARR—annual run rate or annual recurring revenue, whichever you prefer—it’s a win for all of us.
Einar: Yeah, absolutely. I think there’s are just a lot more business like that out there. I think, even just from United States but even worldwide, there are industries that has so many things left to automate and basically turn into a SaaS process that they could be an order of magnitude more of this kind of businesses than there are fees […] firms and business ideas.
Rob: Yeah, it’s like the long tail of startup funding, isn’t it?
Einar: Yeah.
Rob: Totally interesting.
Einar: It’s not like people aren’t raising money to go out and build these kinds of businesses, they are, it’s just that certainly, the way I think this can be done in the Valley now is you basically, towards the end of your decks, throw up, “Oh,” you know, and two slides that says, “And now when we go to the moon, we’d become $1 billion company.” Even if you don’t necessarily believe it. For the founder that can raise money that way, that’s great. But it doesn’t necessarily then align with the investor. Because the investor, in the traditional structure, if you put in $500,000 in the say, non-cap safe or something, then you’ll end up, even if the company gets to say, $10 million and they’re starting at $5 million in cash every year, and the founder just decide to hold on to it then as an investor you get nothing. Even in acquisition you might just get your $500,000 back with interest. It’s easy to look at it from the founder side and say, “These are founder family terms.” But in order to make this really a growth market, you need to align both the investors and the founders in a good way.
Rob: That’s a good point you bring up. I think we’re seeing different models. [12:56] VC has their model in the way they structure it. You see the debt financing, like I said, Lidar Capital and Bigfoot Capital, I think there’s a few others, and that’s different and those require a personal guarantee on the part of the founder.
Einar: In some cases, yeah. I don’t want to speak for every single debt financing deal but a lot of them do, yeah.
Rob: Alright. What you and I have arrived at through conversations with both investor side and the founder side is this model is really pioneered by Rand Fishkin with SparkToro. He essentially open sourced the terms. If you search SparkToro fundraising terms. I’m an angel investor in SparkToro, full disclosure, but we adopted those or something very close to it because it makes sense from an investor perspective. The return is there and you’re not going to have that safe situation you just talked about where you put in $500k and you get nothing back if they hold onto it. But at the same time, it’s almost by definition is founder-friendly because Rand came up with it. Maybe he and his cofounder but it’s like, he wouldn’t have accomplished something that wasn’t in his interest.
Einar: Exactly. I think the model that he came up with is pretty brilliant. It’s sort of what we were looking for and trying to structure and it’s been super helpful to talk to him and talk why he did it and get his thoughts on it. But I think fundamentally, what it does is, it essentially allows the founder to decide to reinvest upgrade operating cost into the company as it’s growing if that’s what they want to do. Then only when they decide, “Okay, I’m going to start taking cash distributions and taking more capital off the company, only at that point does the investor start to dissipate. I think that aligns investor and founder incentives really well.
Rob: That makes sense. One question I have for you, I know the answer but I’m going to ask it, so we can talk it through. You and I could’ve just started a seed fund which is, for the listeners, you raise some money and you write some cheques to some founders, to some companies and maybe you fund one this month and one in three months. You build a portfolio but that’s kind of how a fund works but we have opted to start an accelerator which is having a cohort or a group of companies that come together and they go through it. It’s similar to the YC or the Tech Stars or 500 Startups model and there’s a lot more mentorship and it’s like a program.
Typical accelerator, you move to a location and it’s three months long. We’re going to do a remote accelerator and it’s going to be 12 months long, assuming that you hit some milestones and such, but why did we do that? Why are you interested in doing that instead of just doing the traditional kind of seed fund approach?
Einar: I think the key difference is that having done YC, I know how powerful it is to have a cohort that can support you, that are basically going through the same stuff that you’re doing, and I think that it and of itself is super valuable. Of course, there’s always some bound to be some sort of an internal competition among the founders which that’s also helpful in some way. I think having a defined structure around it and saying, “Okay, we’re also going to come in and provide world-class mentorship.” that’s honestly, probably pretty opinionated about, “This is the best way how to do 80% of what you need to do with content. This is how you do 80% of what you need to do with paid advertising or SEO or whatever.” I think that sort of structure adds more value to the founders themselves and make them more likely to succeed which is ultimately what we’re looking for.
As you know, we’ve had inbound interest from founders which have probably companies that are too big to really make sense in the current structure and they just wanted mostly for the mentorship. I think that’s valuable in and of itself and just makes the companies more likely to succeed.
Rob: Yep, good answer. It’s like you’ve been asked that question before or something.
Einar: It’s almost like I’ve been on the phone and told that story a number of times already.
Rob: Yeah, it’s well-rehearsed at this point. Obviously, we’ve talked about how—I guess we haven’t said this explicitly—but I don’t think something like Tiny Seed would have worked or could have worked 10 years ago. I don’t think SaaS […] true enough and I think the community was there, I don’t think there are other places for the money to go. I think there’s a bunch of reasons, oftentimes we hear about three or four startups all going after the same thing at once, like when Fitbit and, what was the watch, Pebble was on Kickstarter, and the Apple watch—why is everyone coming up with watches? Because it was a confluence of factors. It was, finally, the stuff was cheap enough; the hardware, finally the screens were good enough. There’s stuff that comes together where suddenly it’s like, “You couldn’t have done this three years ago.” I don’t know if Tiny Seed would have been successful a few years back, but I feel like the reception and the response we’ve gotten so far both from investors and companies, it kind of indicates to me that hopefully, this is the right time for this.
Einar: Yeah, I think so. I mean, obviously […].
Rob: I know. That’s the thing I’ve been trying to be careful with is, I certainly want to blog or when I talk in the podcast, I don’t want to sound like, “Hey,” I’m just tooting my own horn and saying, “Yeah, this is a tectonic shift, so you should buy into this.” But the whole reason that you and I are basically going all in on this thing when we have a bunch of other things we could be doing, is that we believe, by definition, we believe it’s a tectonic shift, that this is what’s happening. That’s how we can justify going all in on it, right?
Einar: Yup, yup.
Rob: One question that I’ve been asked about Tiny Seed is how it’s different than a typical accelerator. Why would they go with Tiny Seed versus any of the others 500 Startups or YCombinator, any of the others you could find, and we have six here—I’m guessing over time there’d be more—but one I mentioned already is that we’re going to be remote by default. We’ve talked about doing probably three in-person gathering where we get everybody together. Imagine we do one early on because having that facetime with people kind of starts to solidify a cohort. It is remote.
The advantage that it has—obviously, it’s advantages and disadvantages. Because the disadvantage is you don’t have that face-to-face time all the time like you would with a typical accelerator, the advantage is much like starting your fully-remote company is our talent pull and our essentially, the companies we can back are much more far reaching. It’s folks that you and I run into at MicroConf that perhaps can’t…
Einar: I think in part is it’s a more scalable model. Not to disparage accelerators but to be honest with you, some accelerators are in part seem to be more geared towards being a booster for the city they’re in rather than trying to help the companies in an optimal fashion. Really, I think with a remote model, basically, you keep the social support network that you need for founders going through this anyway. They already have that in place with their family and friends. You also keep expenses low, that’s a big part of it as you go through it. If you have the years’ worth of runway, it’s better to not have to move somewhere, or not to have to uproot your family and friends and your expenses to have a journey […].
Rob: You touched on differentiator number two is that, unlike most accelerators that are three months long, we look to do it for a year basically, to have this cohort and this community built over the course of a year. You get 10 companies or 12 companies or whatever and they’re on 2-4 calls a month, there’s some office hour calls, it’s all Zoom video stuff, but they build that mastermind relationship, that friendly competition or even just that friendly, the you-have-my-back kind of relationship. It gives you runway to quit that day job because that’s what the funding is for, but it gives you that 12 months, we know how long SaaS takes.
I was just talking to someone, and I realized that venture capitalist gives you a lot of money and then they want your timetable to compress. They want you to do more in a shorter amount of time, but they can get fed up by saying, “Well you have a bunch of money. Go do that.” If you’re running Instagram or Twitter or whatever else, maybe that can happen but SaaS, traditionally doesn’t work like that. Slack, it works like that. There’s a couple of other SaaS apps. Most SaaS apps, we’ve seen it over and over, years and years and years. It takes 6 months, 12 months to get traction and then it takes years over time to compound and grow. Our view is that the longer we are able to allow people to build this, the better off the results will be.
Einar: I think it also ties into, “What is the nature of most accelerators? What is the goal that comes out of it?” The goal on […] YC is that you raise your next funding and that takes about three months and you have enough things to show that you can raise the next series of funding versus what we’re hoping to do is you don’t necessarily have to step on that venture track. You can basically build a profitable, sustainable business. We think 12 months is probably what it takes to go from something small to something that potentially can cover your expenses, so you don’t have to go back to your day job or start consulting.
Rob: Yup. The third differentiator really is this lack of series A pressure. Series A is the first venture round people raise. We’re giving multiple options. These founders, as we’ve said, can pull dividends out and they’ll get a percentage and the investors are going to get a percentage. Over time, I’m sure some will exit at some point, it’s not something that we’re going to force or push people into but sometimes getting […] event is really the right choice for the founder. Obviously, they and the investors would make out there.
Einar: I think it’s probably misunderstood by people who aren’t in sort of the Silicon Valley VC world. Like, how much a part of the founder’s job on the venture track is to raise money? There’s is series A, but now there’s a series pre-seed and then a series seed, and then a series A, and then series B, and the series whatever. Essentially, most of the time, you raise just enough money so that you run out of money in 18 months. Then once you’re done fundraising, you maybe have six months, and then you have to start fundraising again for the next round because you’re trying, like you said, to compress as much as possible and go as fast as possible in order to grow as fast as you probably can. Because that is the only model that works for that kind of venture investment.
Rob: Yep. As I was saying. Tiny Seed companies, they just have to pay dividends, they could exit, or some may decide that they could raise another round. This is not something that we would say, “No, don’t do that.” It’s going to be the right option for some companies. But it’s just having the optionality to do it or not do it. It’s like, “Make a good choice.”
Einar: Exactly. Probably maybe six months in you’re like, “Oh, holy crap. This is a much bigger opportunity than I thought.” in which case, okay, we’ll be supportive. We will say, “Okay. We’ll help you re-enter the VCs. We’re excited about being part of the next round.” That’s fine too but there’s no expectation about you wither do that or die trying.
Rob: Yup. I have six investments that I would essentially call this model, this more sustainable, sane, startup model and one of them has done exactly that. They have raised subsequent round because the opportunity got big really quick and it was unexpected at the start. Certainly, the right choice for them.
The fourth key differentiator is, this one’s interesting. I’m wondering if this going to be controversial, but I don’t have a bias against single founders and I know that a lot of accelerators do. I think the phrase I’ve heard is like, “The journey is hard. The journey is long to get to $1 billion. Most single founders aren’t able to do it.” In my experience, I’ve seen a lot of single founders be very successful at sustainably building these seven and low eight figure businesses.
Einar: I think that’s true. I think in part, it’s sort of a historical artifact because of what happened in ’05, ’06. Basically, it was YCombinator and Paul Graham really there, who sort of espoused this almost hard-plan rule that you had to be two at least. You are never going to make it without being two founders. That actually, I think, impacted every single subsequent accelerator and seed investment around. But I’m with you. The people I see that are successful in the space are usually, it’s one person, at least one lead person then maybe later a cofounder that comes on board.
Rob: Yeah, it’s pretty interesting. The fifth differentiator is release seven-figure ARR, so millions, multiple millions and low eight-figures, so let’s say, 10 million to 20 million. I think you and I have kind of talked about, “Hey, if we think SaaS company has a potential and even non-SaaS,” We’re not going to be 100% SaaS, I bet we’ll have others that are not, but that is definitely an area of our expertise, if they can get between $1 and $20 million, that’s a win for a lot of people. It can be a win for the founders, it can be a win for employees if they have equity and certainly, it can be a win from our perspective as well.
Einar: I think that makes sense, that’s the key differentiator. You have to have an investment structure which I don’t think really fundamentally exist. Currently, you have to have an investment structure that can support those kinds of success.
Rob: Yeah, that’s right. That’s where we’ve had to go, I’ll say, go back to first principle and say, “What is founder-friendly? What also works from a financial model perspective?” Because we won’t get investors. The fund will not exist if we can show that, “Hey, there’s a good likelihood that there will be a really good return for you.” and for us, we’re putting in time, we’re putting in money, we have to believe that ourselves or else it’s not worth doing.
Einar: It’s a risk-reward thing. It’s easy to look at from the founder side and say, “Oh, this is the percentage. I’m giving up too much, too little,” whatever. But fundamentally, for most investors, the question isn’t like, “Do I do this or nothing?” It is, “Do I do this, or do I put this in my buddy’s real estate investment trust where okay, the return isn’t this high, or the potential return isn’t this high but it’s much less risky than backing a basically a small SaaS business?”
Rob: The last differentiator we’ll talk about today as we’re coming close on time. I’ve been talking with my wife, Sherry, for quite some time. A lot of folks know her as Zen founder and she’s a psychologist and also now, essentially a consultant to startup founders and executives and entrepreneurs about staying sane while building a company.
We’ve been throwing around this idea of the sane startup. It’s a startup that values people over results. It has reasonable work hours expectations, so it’s not 90-hour weeks. It’s a startup that allows you to build something interesting and fun and profitable and lucrative, but you avoid burnout while doing that. You maintain your family relationships, your friend relationships, that you grow at a healthy clip instead on a […]. Some startups out there, they grow at an unhealthy clip to the point where they’re doing shady things, they’re doing unlicensed insurance sales or they’re sacrificing their employees. Something a sane startup, I think has ample vacation time, and it just cares about people on general.
We’ve seen these, there’s examples up in Baremetrics I would say, Buffer, that’s how we grew Drip, SparkToro I imagine is going to be that way, Basecamp, Balsamiq. I love this idea, whatever we call it, whether we call it Sane Startup or not, it’s a company that cares about its people over the results but can be a successful and profitable company.
Einar: On top of that, it can do it in sort of the non-traditional places. It can do it in a mid-sized town somewhere that isn’t coastal. I think that’s a big part of it too is, you don’t have to be in Silicon Valley in order to have this kind of success from a business.
Rob: Yup. That’s a big piece to it. I think that’s where we’ve talked about is the untapped potential of this. There is a lot about location and then there’s a lot about kind of quality of life that I think we can have the best of both worlds. That’s our hypothesis here is, we can have the best of these worlds and yet still build profitable businesses that are interesting, fund to work on, and all that stuff.
Thanks so much, Einar, for joining me today. If folks want to keep up with you online, aside from going to tinyseed.com where they can follow you and I, where would they hit you up online?
Einar: You should check out @einarvolsett on Twitter. It’s probably the easiest. I sort of went off that for a bit but I’m seemingly back on now. That’s my […].
Rob: Oh, goodie. You can do that, and I will not argue with people on Twitter. That’s kind of my status quo. Your name is Einar Vollset and we will link that up on the show notes as well.
Einar: Cool.
Rob: If you have a question for us, you can call our voicemail number 1-888-801-9690 or you can email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Rob.
Einar: And I’m Einar.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Nice job catching that man. I didn’t brief you in advance that you had to say your name, huh?
Einar: […] is Mike supposed to say something on or not?
Rob: Mike’s not on. For listeners out there, who don’t know you. Your name is E-Y-N-A-R. I call you A-Y-N-A-R.
Einar: It’s close as my wife gets. I think that’s fair.
Rob: Good. You and I have started–we’ve co-founded Tiny Seed together. That’s at tinyseed.com. But folks may not have heard of you. I know that you are a multi-time founder. You went through YCombinator in 2009. You’re a developer as well. You’re a CS professor at Cornell. You’ve done quite a bit of stuff and you, these days, you kind of work in private equity, right? You’re like a private equity scout?
Einar: Yeah, kind of. I sort of got into that space after my last exit and actually have what I jokingly call a service startup investment banker. Most of the stuff I do is help fund their exits when they’ve got a SaaS business or a tech-enabled service business between […], $2 million, and $15 million as ARR, something like that.
Rob: Right. That’s where you and I have connected on Tiny Seed. Folks listening to the podcast kind of already know a little bit of Tiny Seed, it’s the first startup accelerator designed for bootstrappers. We try to give founders a year of runway, it’s a remote accelerator. It’s an idea that has been floating around for years and I never wanted to do a lot of the investor side and didn’t really have the expertise to raise a funding round and that kind of stuff. And then you and I connected back in April at MicroConf in Vegas and this was something that intrigued you to start what became Tiny Seed.
I think folks who listened know why I’m doing it. This is just a continuation of everything I’ve done for the past 15 years or whatever, it’s me putting more money where my mouth has been. But for you, what’s your interest in being part of something like Tiny Seeds?
Einar: I think there’s just a gap in the market there for those kinds of companies. I think in terms of funding structure and in terms of support. The way that I think about this base is it’s very similar to where companies like Y Combinator or First Round were in 2005, 2006. It’s becoming more and more clear to me that there are incredible businesses to be built which can be super profitable and sort of take care of their investors, and their founders, and their employees and everything that sort of fall outside the traditional VC sort of funding structure with a series of pre-seeds, and seed, and A, and B, and C.
I really think that given what you’ve built on MicroConf and your community and the fact that the institutional capital is coming in or interested in buying those kinds of companies potentially, I think that’s an exciting opportunity, and honestly, yeah, I just want to help people be able to take their business from just a sidebar project to something they can dedicate their time, full-time toward.
Rob: Yeah. You came up with a really good example early on. You said, “How many founders do meet at MicroConf or at other conferences who are basically trying to do it on the side?” A lot of folks have a spouse, they have house, they might have a kid, they have a full-time job, they have responsibilities…
Einar: Mortgage.
Rob: …and they have mortgage, yup. They just can’t—I say, can’t—but it’s really, really hard to offset that and either move to the Bay area with some other tech center for three months to do an accelerator or to try to raise a round of funding in the side or they’re tooling away on an idea and three months later, it’s no better off when they started.
Einar: I think the standard pro-typical YC startup founder—at least that’s the way it used to be, maybe it’s a little bit different now—but it’s like, you’ve got to be 23, willing to work 80-, 90-hour weeks and just give up everything else. Of course, I don’t think that’s the only way to build a profitable business and I’d really like to support that.
Rob: That makes sense. I kind of jokingly have called what we’re starting with Tiny Seed, I’ve been calling it Startup Funding For The Rest of Us because it kind of fits in the model. Startups For The Rest of Us, the whole point of the name of this podcast is that folks who listen to it want to build startups but we aren’t in that mainstream, “Let’s raise venture funding.” Like you said, 90-hour weeks, series A, series B, $100 million or $100 billion valuation, some of us don’t want to do that, and it’s that alternative.
I think the key thing is, a lot of us have noticed, you noticed, I’ve noticed, we have other folks that are launching similar things that are similar to Tiny Seeds. It’s like we’re all noticing this tectonic shift in both bootstrapping in that bootstrapping is getting harder especially SaaS because it’s getting more competitive. It’s not impossible but it’s harder than it was two, three, four, five years ago, so it’s getting harder. Funding sources are becoming more prevalent. There’s more money being thrown at things and in fact, so much money being thrown into venture capital and private equity that it’s spilling over and looking for either places to go, where is the opportunity for that money to go. I’ll speak for myself here, I believe this is a great opportunity, a great place for it to go that is virtually untapped today.
Einar: Yeah, I think so. I think I get super hard if you have a SaaS business that’s doing $2000-$3000, $4000-$5000 a month, it’s not enough to live on in most places. Certainly not where I live, in the Bay area. But going out and raising funding for those kinds of businesses is also impossible if you’re not giving it the time of the day from a traditional VC because they’ll look at the business and say, “Oh, it’s a nice lifestyle business you have there.” Your other sources of funding tend to be, “Okay, friends and family.” If you have wealthy friends and family that’s great but on the other end you often end up with kind of a ad hoc set of angels and it’s hard to do. That’s actually aligned incentives for founders and investors that are trying to operate in the space.
Rob: Yeah, that’s right. What’s interesting is that something I don’t think, if you’re not in the space, then you don’t realize how quickly things have changed and that they are constantly changing. I grew up in the Bay area until—I’m trying to think—it was the mid-90s and then I went to college in Sacramento and I still have ties to the place, I never did a startup there, but I very much know how the Bay area works.
I remember, in the 90s, when I was, let’s say, late teens, early 20s, and just thirsting to do a startup it was like, you could have friends and family contribute money and I had no friends and family with any money so that was off the plate for me. You could try to find angels and of course, there was no angel list back then, so it was literally going to meetings. There was meetings and such and there were angel groups and then there was venture capital obviously, because a lot of cheques were written in the late ‘90s. But as far as I know that was kind of it.
If you wanted to start a software startup at the time, there were no accelerators until 2005, that’s only 13 years ago, and we were just talking, there was no debt financing for SaaS until maybe two years ago. There was Lidar Capital, Bigfoot Capital and a few others, but you couldn’t get freaking debt financing from a bank.
Einar: No, you couldn’t go to a bank and say, “Hey, I have this SaaS business. It’s maybe making freaking $20,000, $30,000 a year. Can you lend me enough money to do anything?” that was never going to work. I did YC in 2008 and even then, people were still like, at the time, the original terms were like $5000 + $5000 x the number of founders for 6% or 7%, something like that.
The people who were in the angel and VC investing world, they laughed at that. They were like, “What are you talking about? Of course, that’s nowhere near enough money to do anything with. What are you even bothering about?” But I think YC really proved that that model that, “You know what, yeah, with a little bit of money and some grit you can go after this.” I sort of think the opportunity is similar but in a different place where what we’re going after is not the next Facebook or Instagram or whatever, it is the next $20-$50 million SaaS business that you probably haven’t heard of unless you work in the industry where it’s prevalent or is being used.
Rob: Even in our financial models, having SaaS apps grow into a $3-, $4-, $5-million business is still a pretty nice win. It’s a nice win from an investor perspective but it’s also really good win for the founder or founders themselves because they can either, they’re given the profit margin. You’re experienced with quite a few SaaS apps, the next profit on these things is substantial, and so whether a founder decides to exit and sell the business or whether they decide to just pull distributions off of it, there’s a lot of—I think there’s rewards to be had that would almost be laughed at or at least chuckled at in the Bay area because it’s like, “Oh, lifestyle business right? $5 million a year?” But man, if you’re pulling $2 million off that, that’s life-changing for a lot of us.
Einar: I think the margins, once you get to a certain size and you decide to focus on cash flow instead of necessarily growing at all cost, again, the margins will be at 30%-50%. I think the fundamental shift that we’re seeing and trying to leave behind is you can align both investors and founders in a better way. Instead of saying, “Okay, the only way anyone gets paid is by exits.” In that case, the VC or whatever who’s private funding you will sort of try to push you to try to grow as quickly as possible and have a biggest exit as possible. But if you could have a bigger structure that’s supported by the fact that this SaaS app business often throw off this kind of cash then you could do a profit share as well as an equity piece. It sort of aligns the founders and the investors and I think in a good, nice way.
Rob: I think all that to say, while we are talking about Tiny Seed today, you and I both think we foresee that as the future moves forward that this is a shift and that there will obviously, there’ll still be venture capital and accelerators the way we know it today but it’s like this new market opens up and this alternative funding where we’ve traditionally had bootstrapping, and venture capital, and there was angel along the way, and you could self-fund. We did talk about how self-funding is different or the same as bootstrapping but there’s this new kind of third option that I believe has viability. Half of my angel investments are essentially in startups like this. They’re in these SaaS apps that I never thought or hoped would become unicorns but if they get to 5 million, 10 million ARR—annual run rate or annual recurring revenue, whichever you prefer—it’s a win for all of us.
Einar: Yeah, absolutely. I think there’s are just a lot more business like that out there. I think, even just from United States but even worldwide, there are industries that has so many things left to automate and basically turn into a SaaS process that they could be an order of magnitude more of this kind of businesses than there are fees […] firms and business ideas.
Rob: Yeah, it’s like the long tail of startup funding, isn’t it?
Einar: Yeah.
Rob: Totally interesting.
Einar: It’s not like people aren’t raising money to go out and build these kinds of businesses, they are, it’s just that certainly, the way I think this can be done in the Valley now is you basically, towards the end of your decks, throw up, “Oh,” you know, and two slides that says, “And now when we go to the moon, we’d become $1 billion company.” Even if you don’t necessarily believe it. For the founder that can raise money that way, that’s great. But it doesn’t necessarily then align with the investor. Because the investor, in the traditional structure, if you put in $500,000 in the say, non-cap safe or something, then you’ll end up, even if the company gets to say, $10 million and they’re starting at $5 million in cash every year, and the founder just decide to hold on to it then as an investor you get nothing. Even in acquisition you might just get your $500,000 back with interest. It’s easy to look at it from the founder side and say, “These are founder family terms.” But in order to make this really a growth market, you need to align both the investors and the founders in a good way.
Rob: That’s a good point you bring up. I think we’re seeing different models. [12:56] VC has their model in the way they structure it. You see the debt financing, like I said, Lidar Capital and Bigfoot Capital, I think there’s a few others, and that’s different and those require a personal guarantee on the part of the founder.
Einar: In some cases, yeah. I don’t want to speak for every single debt financing deal but a lot of them do, yeah.
Rob: Alright. What you and I have arrived at through conversations with both investor side and the founder side is this model is really pioneered by Rand Fishkin with SparkToro. He essentially open sourced the terms. If you search SparkToro fundraising terms. I’m an angel investor in SparkToro, full disclosure, but we adopted those or something very close to it because it makes sense from an investor perspective. The return is there and you’re not going to have that safe situation you just talked about where you put in $500k and you get nothing back if they hold onto it. But at the same time, it’s almost by definition is founder-friendly because Rand came up with it. Maybe he and his cofounder but it’s like, he wouldn’t have accomplished something that wasn’t in his interest.
Einar: Exactly. I think the model that he came up with is pretty brilliant. It’s sort of what we were looking for and trying to structure and it’s been super helpful to talk to him and talk why he did it and get his thoughts on it. But I think fundamentally, what it does is, it essentially allows the founder to decide to reinvest upgrade operating cost into the company as it’s growing if that’s what they want to do. Then only when they decide, “Okay, I’m going to start taking cash distributions and taking more capital off the company, only at that point does the investor start to dissipate. I think that aligns investor and founder incentives really well.
Rob: That makes sense. One question I have for you, I know the answer but I’m going to ask it, so we can talk it through. You and I could’ve just started a seed fund which is, for the listeners, you raise some money and you write some cheques to some founders, to some companies and maybe you fund one this month and one in three months. You build a portfolio but that’s kind of how a fund works but we have opted to start an accelerator which is having a cohort or a group of companies that come together and they go through it. It’s similar to the YC or the Tech Stars or 500 Startups model and there’s a lot more mentorship and it’s like a program.
Typical accelerator, you move to a location and it’s three months long. We’re going to do a remote accelerator and it’s going to be 12 months long, assuming that you hit some milestones and such, but why did we do that? Why are you interested in doing that instead of just doing the traditional kind of seed fund approach?
Einar: I think the key difference is that having done YC, I know how powerful it is to have a cohort that can support you, that are basically going through the same stuff that you’re doing, and I think that it and of itself is super valuable. Of course, there’s always some bound to be some sort of an internal competition among the founders which that’s also helpful in some way. I think having a defined structure around it and saying, “Okay, we’re also going to come in and provide world-class mentorship.” that’s honestly, probably pretty opinionated about, “This is the best way how to do 80% of what you need to do with content. This is how you do 80% of what you need to do with paid advertising or SEO or whatever.” I think that sort of structure adds more value to the founders themselves and make them more likely to succeed which is ultimately what we’re looking for.
As you know, we’ve had inbound interest from founders which have probably companies that are too big to really make sense in the current structure and they just wanted mostly for the mentorship. I think that’s valuable in and of itself and just makes the companies more likely to succeed.
Rob: Yep, good answer. It’s like you’ve been asked that question before or something.
Einar: It’s almost like I’ve been on the phone and told that story a number of times already.
Rob: Yeah, it’s well-rehearsed at this point. Obviously, we’ve talked about how—I guess we haven’t said this explicitly—but I don’t think something like Tiny Seed would have worked or could have worked 10 years ago. I don’t think SaaS […] true enough and I think the community was there, I don’t think there are other places for the money to go. I think there’s a bunch of reasons, oftentimes we hear about three or four startups all going after the same thing at once, like when Fitbit and, what was the watch, Pebble was on Kickstarter, and the Apple watch—why is everyone coming up with watches? Because it was a confluence of factors. It was, finally, the stuff was cheap enough; the hardware, finally the screens were good enough. There’s stuff that comes together where suddenly it’s like, “You couldn’t have done this three years ago.” I don’t know if Tiny Seed would have been successful a few years back, but I feel like the reception and the response we’ve gotten so far both from investors and companies, it kind of indicates to me that hopefully, this is the right time for this.
Einar: Yeah, I think so. I mean, obviously […].
Rob: I know. That’s the thing I’ve been trying to be careful with is, I certainly want to blog or when I talk in the podcast, I don’t want to sound like, “Hey,” I’m just tooting my own horn and saying, “Yeah, this is a tectonic shift, so you should buy into this.” But the whole reason that you and I are basically going all in on this thing when we have a bunch of other things we could be doing, is that we believe, by definition, we believe it’s a tectonic shift, that this is what’s happening. That’s how we can justify going all in on it, right?
Einar: Yup, yup.
Rob: One question that I’ve been asked about Tiny Seed is how it’s different than a typical accelerator. Why would they go with Tiny Seed versus any of the others 500 Startups or YCombinator, any of the others you could find, and we have six here—I’m guessing over time there’d be more—but one I mentioned already is that we’re going to be remote by default. We’ve talked about doing probably three in-person gathering where we get everybody together. Imagine we do one early on because having that facetime with people kind of starts to solidify a cohort. It is remote.
The advantage that it has—obviously, it’s advantages and disadvantages. Because the disadvantage is you don’t have that face-to-face time all the time like you would with a typical accelerator, the advantage is much like starting your fully-remote company is our talent pull and our essentially, the companies we can back are much more far reaching. It’s folks that you and I run into at MicroConf that perhaps can’t…
Einar: I think in part is it’s a more scalable model. Not to disparage accelerators but to be honest with you, some accelerators are in part seem to be more geared towards being a booster for the city they’re in rather than trying to help the companies in an optimal fashion. Really, I think with a remote model, basically, you keep the social support network that you need for founders going through this anyway. They already have that in place with their family and friends. You also keep expenses low, that’s a big part of it as you go through it. If you have the years’ worth of runway, it’s better to not have to move somewhere, or not to have to uproot your family and friends and your expenses to have a journey […].
Rob: You touched on differentiator number two is that, unlike most accelerators that are three months long, we look to do it for a year basically, to have this cohort and this community built over the course of a year. You get 10 companies or 12 companies or whatever and they’re on 2-4 calls a month, there’s some office hour calls, it’s all Zoom video stuff, but they build that mastermind relationship, that friendly competition or even just that friendly, the you-have-my-back kind of relationship. It gives you runway to quit that day job because that’s what the funding is for, but it gives you that 12 months, we know how long SaaS takes.
I was just talking to someone, and I realized that venture capitalist gives you a lot of money and then they want your timetable to compress. They want you to do more in a shorter amount of time, but they can get fed up by saying, “Well you have a bunch of money. Go do that.” If you’re running Instagram or Twitter or whatever else, maybe that can happen but SaaS, traditionally doesn’t work like that. Slack, it works like that. There’s a couple of other SaaS apps. Most SaaS apps, we’ve seen it over and over, years and years and years. It takes 6 months, 12 months to get traction and then it takes years over time to compound and grow. Our view is that the longer we are able to allow people to build this, the better off the results will be.
Einar: I think it also ties into, “What is the nature of most accelerators? What is the goal that comes out of it?” The goal on […] YC is that you raise your next funding and that takes about three months and you have enough things to show that you can raise the next series of funding versus what we’re hoping to do is you don’t necessarily have to step on that venture track. You can basically build a profitable, sustainable business. We think 12 months is probably what it takes to go from something small to something that potentially can cover your expenses, so you don’t have to go back to your day job or start consulting.
Rob: Yup. The third differentiator really is this lack of series A pressure. Series A is the first venture round people raise. We’re giving multiple options. These founders, as we’ve said, can pull dividends out and they’ll get a percentage and the investors are going to get a percentage. Over time, I’m sure some will exit at some point, it’s not something that we’re going to force or push people into but sometimes getting […] event is really the right choice for the founder. Obviously, they and the investors would make out there.
Einar: I think it’s probably misunderstood by people who aren’t in sort of the Silicon Valley VC world. Like, how much a part of the founder’s job on the venture track is to raise money? There’s is series A, but now there’s a series pre-seed and then a series seed, and then a series A, and then series B, and the series whatever. Essentially, most of the time, you raise just enough money so that you run out of money in 18 months. Then once you’re done fundraising, you maybe have six months, and then you have to start fundraising again for the next round because you’re trying, like you said, to compress as much as possible and go as fast as possible in order to grow as fast as you probably can. Because that is the only model that works for that kind of venture investment.
Rob: Yep. As I was saying. Tiny Seed companies, they just have to pay dividends, they could exit, or some may decide that they could raise another round. This is not something that we would say, “No, don’t do that.” It’s going to be the right option for some companies. But it’s just having the optionality to do it or not do it. It’s like, “Make a good choice.”
Einar: Exactly. Probably maybe six months in you’re like, “Oh, holy crap. This is a much bigger opportunity than I thought.” in which case, okay, we’ll be supportive. We will say, “Okay. We’ll help you re-enter the VCs. We’re excited about being part of the next round.” That’s fine too but there’s no expectation about you wither do that or die trying.
Rob: Yup. I have six investments that I would essentially call this model, this more sustainable, sane, startup model and one of them has done exactly that. They have raised subsequent round because the opportunity got big really quick and it was unexpected at the start. Certainly, the right choice for them.
The fourth key differentiator is, this one’s interesting. I’m wondering if this going to be controversial, but I don’t have a bias against single founders and I know that a lot of accelerators do. I think the phrase I’ve heard is like, “The journey is hard. The journey is long to get to $1 billion. Most single founders aren’t able to do it.” In my experience, I’ve seen a lot of single founders be very successful at sustainably building these seven and low eight figure businesses.
Einar: I think that’s true. I think in part, it’s sort of a historical artifact because of what happened in ’05, ’06. Basically, it was YCombinator and Paul Graham really there, who sort of espoused this almost hard-plan rule that you had to be two at least. You are never going to make it without being two founders. That actually, I think, impacted every single subsequent accelerator and seed investment around. But I’m with you. The people I see that are successful in the space are usually, it’s one person, at least one lead person then maybe later a cofounder that comes on board.
Rob: Yeah, it’s pretty interesting. The fifth differentiator is release seven-figure ARR, so millions, multiple millions and low eight-figures, so let’s say, 10 million to 20 million. I think you and I have kind of talked about, “Hey, if we think SaaS company has a potential and even non-SaaS,” We’re not going to be 100% SaaS, I bet we’ll have others that are not, but that is definitely an area of our expertise, if they can get between $1 and $20 million, that’s a win for a lot of people. It can be a win for the founders, it can be a win for employees if they have equity and certainly, it can be a win from our perspective as well.
Einar: I think that makes sense, that’s the key differentiator. You have to have an investment structure which I don’t think really fundamentally exist. Currently, you have to have an investment structure that can support those kinds of success.
Rob: Yeah, that’s right. That’s where we’ve had to go, I’ll say, go back to first principle and say, “What is founder-friendly? What also works from a financial model perspective?” Because we won’t get investors. The fund will not exist if we can show that, “Hey, there’s a good likelihood that there will be a really good return for you.” and for us, we’re putting in time, we’re putting in money, we have to believe that ourselves or else it’s not worth doing.
Einar: It’s a risk-reward thing. It’s easy to look at from the founder side and say, “Oh, this is the percentage. I’m giving up too much, too little,” whatever. But fundamentally, for most investors, the question isn’t like, “Do I do this or nothing?” It is, “Do I do this, or do I put this in my buddy’s real estate investment trust where okay, the return isn’t this high, or the potential return isn’t this high but it’s much less risky than backing a basically a small SaaS business?”
Rob: The last differentiator we’ll talk about today as we’re coming close on time. I’ve been talking with my wife, Sherry, for quite some time. A lot of folks know her as Zen founder and she’s a psychologist and also now, essentially a consultant to startup founders and executives and entrepreneurs about staying sane while building a company.
We’ve been throwing around this idea of the sane startup. It’s a startup that values people over results. It has reasonable work hours expectations, so it’s not 90-hour weeks. It’s a startup that allows you to build something interesting and fun and profitable and lucrative, but you avoid burnout while doing that. You maintain your family relationships, your friend relationships, that you grow at a healthy clip instead on a […]. Some startups out there, they grow at an unhealthy clip to the point where they’re doing shady things, they’re doing unlicensed insurance sales or they’re sacrificing their employees. Something a sane startup, I think has ample vacation time, and it just cares about people on general.
We’ve seen these, there’s examples up in Baremetrics I would say, Buffer, that’s how we grew Drip, SparkToro I imagine is going to be that way, Basecamp, Balsamiq. I love this idea, whatever we call it, whether we call it Sane Startup or not, it’s a company that cares about its people over the results but can be a successful and profitable company.
Einar: On top of that, it can do it in sort of the non-traditional places. It can do it in a mid-sized town somewhere that isn’t coastal. I think that’s a big part of it too is, you don’t have to be in Silicon Valley in order to have this kind of success from a business.
Rob: Yup. That’s a big piece to it. I think that’s where we’ve talked about is the untapped potential of this. There is a lot about location and then there’s a lot about kind of quality of life that I think we can have the best of both worlds. That’s our hypothesis here is, we can have the best of these worlds and yet still build profitable businesses that are interesting, fund to work on, and all that stuff.
Thanks so much, Einar, for joining me today. If folks want to keep up with you online, aside from going to tinyseed.com where they can follow you and I, where would they hit you up online?
Einar: You should check out @einarvolsett on Twitter. It’s probably the easiest. I sort of went off that for a bit but I’m seemingly back on now. That’s my […].
Rob: Oh, goodie. You can do that, and I will not argue with people on Twitter. That’s kind of my status quo. Your name is Einar Vollset and we will link that up on the show notes as well.
Einar: Cool.
Rob: If you have a question for us, you can call our voicemail number 1-888-801-9690 or you can email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 419 | VC Prospecting Emails, Building Features vs. Integrations and More Listener Questions
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including VC prospecting emails, building features vs. integration, buying software businesses and more.
Items mentioned in this episode:
- RobWalling.com
- TinySeed
- ZenFounder Ep.193-“Productivity Hacks”
- Flippa
- All Side Projects
- 1Kprojects.com
- FE International
- QuietLight Brokerage
- Empire Flippers
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about how to handle VC prospecting emails, building features versus building integrations and more listener questions. This is Startups for the Rest of Us episode 419.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences help you avoid the same mistakes we’ve made. What’s going on this week sir?
Mike: Well, I’m in the midst of polishing up by a bunch of screenshots for Bluetick to distribute with product listings that I’m posting on various websites at the moment. I started doing it and I realize the screenshots that I could take that would take me like two seconds to do just from various places inside the app don’t really tell a story about the app itself or any of the screens themselves because you kind of have to have used the product in order to understand certain pieces of it.
I kind of backed off a little bit and said okay, well how can I tell a story with these screenshots? I was like, most of the screenshots are actually like smaller versions of the screen itself and then like descriptive text around it and arrows arose and it kind of tells more a marketing story around what the product will do for you as opposed to like just strict screenshots that you see on a lot of those websites.
Rob: I agree. I think taking screenshots and making them palatable is such an art and just trying to take a screenshot of like an entire screenshot of a whole screen in your app almost never works. There’s just too much information, there’s no context, you don’t know what’s going on. It a very developer thing to do because we’ve seen screenshots and inspects before mockups inspects.
When I’ve seen screenshots that wind up being really helpful, it tends to be this really highly cropped thing that’s just one corner of the screen, is high resolution and like you said, it has some type of helper text. It takes a lot of time I guess is what I realized to make good screenshots. Much like making a good explainer video, it seems like you’re cranking out in a few hours tends to take a lot of time to do something like that.
Mike: Yeah, those things take a couple of days. I actually allocated a day earlier this week to basically create a new explainer video and that was just not enough time. I’ve done them before. I knew that it took more time but I guess I was overly optimistic about how long it would take.
Rob: Yup. I kind of always end up with those things. This blog post called How I Created 4 Startup Explainer Videos for $11 and that’s at robwalling.com in my essays section. I ran through how I created some pretty LoFi explainer videos for Drip and why I did that. It’s definitely a bootstrapper’s approach because it was time consuming.
I think I spent a full day from the time I wrote the copy until I recorded. I recorded four different ones but then as far as I can repurpose a bunch of a copy and the parts, basically the animations can repurpose them. Not something I’d recommend if you have the budget to just hire someone professional but definitely something that a scrappy bootstrap startup should probably think about.
Mike: How about you, what’s going on this week?
Rob: I’m having a tough week this week man. Sherry’s out of town she’s with her family. Her dad is pretty ill and it’s been a long time coming. It’s been more than a year of stuff kind of degrading there. So she’s out of town and I’m trying to figure out, I tend to do really well with just me and three kids and I can do it for about four days and then things just drop off a cliff. On the fifth day I wake up tired and then I think the kids are tired of me, kind of tired of each other and I kind of start running out of patience and it’s just this vicious cycle I’ll say.
At the end of the week, it’s Friday right now when we’re recording, we’re doing an emergency recording session because, I’m supposed to record next week but I’m going to be out of town. I think that’s the other thing, I usually don’t enjoy being on the road very much and I’m pretty much on the road for almost the next two weeks. So it is what it is, these are just times and stuff that I have to do. I think it’s stuff that will certainly help with TinySeed and a lot of it is work stuff and being face to face with some folks where it’s important.
For now, I’m just kind of looking forward to getting back here for Thanksgiving and getting pass this week. It’s probably been one of the I’d say worst weeks of maybe the last quarter. It’s not like some catastrophic lifelong trough. But last several months, this has been a tough one.
Mike: Yeah I’ve realized earlier this week that my kids have days off from school this week, next week and the following week. I’m just like, do you kids ever go to school?
Rob: Yeah, it’s like who’s going to watch these kids while they do that? Oh me, I’m just going to work less. Already an announcement to the listeners, you and I have been on the mic for almost 30 minutes and I’ve been interrupted twice by my kids. One kid is home sick and another kid I homeschool part time. But since Sherry’s not here, I’m home schooling full time and on and on. It’s just enough interruption that you can’t actually get anything done. So I feel your pain with the kids home.
Mike: It’s a good thing you don’t write code.
Rob: Maybe there’s a reason I don’t write code anymore.
Mike: It could be. Maybe that’s the trick, I don’t know. I forget who, there was somebody who commented on—I think it was Alex Yumashev he’s like, “Oh I was able to only spend 1% of my time on my phone this week.” and somebody asked him how he did it and he’s like, “Well, I had a third kid.”
Rob: That’s a good way to do it. So today we’re answering some listener questions. Our first one is about how to handle VC prospecting emails and it’s from a long time listener he says, “Hey guys, I got the email below and I was briefly excited and when I clicked on the link and opened up a form where I’m asked about my company’s earnings.” The gist of the email is it’s from a what looks like a venture capital firm and it says, “I’d like to speak to you about a financial opportunity regarding your SaaS business. As an acquisition advisor, I’m seeking to acquire business in this space season.”
So I don’t know this much of VC, it’s almost like private equity right? We may want to acquire you. So back to the original email he says, “Based on his email and the form that was presented, it seems like he’s not really interested in my company, he’s just casting a broad net seeing what’s out there. I think it would be interesting for you guys to discuss A, what to do if you get half asked acquisition related emails like this and B, what to do with all those VC emails, venture capital emails. People seem to get looking to connect when you have no interest in venture capital. Keep up the good work on the show.”
So what do you think? There’s two separate things here. I think anyone who’s built any type of business got any traction winds up on any list anywhere eventually gets these emails. I remember in the latter days right before the acquisition of Drip, I was getting probably three or four of the VC emails a month and I was getting I’d say maybe one a month of acquisition related, maybe it was one every six weeks but there was definitely a pretty steady flow of them. So what do you think about these?
Mike: I guess if we separate these two because as you said, they are two entirely different questions. The part about VC just looking to connect like on LinkedIn or sending emails. I get a bunch of these emails like, “Hey, can we hop on a call and talk about your business?” And I’m just like, “No, I don’t have time to talk to you and even if I did, this isn’t a good fit.” I’m just blunt with them and it’s like, spend your time someplace else because it’s just not going to happen. A lot of times, I will just let the email go and I’ll just ignore it and then if they send me a couple of follow ups, I think if I get like two follow ups, I have a cold emails folder that I just dump these into and then if it gets to at least two and it still looks like they’re still going to continue to email me then I’ll just respond and say, “Look, this is not a good fit. It’s not going to work. I’m just not interested. So take me off your email list.”
For the other ones if it’s like a situation that he described where it’s an acquisition related email and they’re asking questions about finances and stuff, my advice in that situation is really just like ask what their range of interest is because what you don’t want to do is you don’t want to go and fill out a form that gives all the information about your business because they may be looking to use that to justify a purchase price or to lowball somebody else’s business or something along those lines. You just don’t know what that data is going to be used for and there’s no trust. So why would you give over that information.
But if they’re actually really looking for those types of businesses, then they know how much they’re willing to spend. They know what their budget is and they know that below a certain threshold, they’re not going to be interested and they know that above a certain threshold, it’s probably not going to work because they’re not looking for a business that’s at large because they’re just not going to be able to pay for it. Ask them what their range is and if you fall within that range, then you might want to have a conversation with them. But otherwise, I don’t see any real obligation to start forking over information that is very specific to your business without actually going down the path of formal offers and all that other stuff. But if you’re not interested at all, you can say, “Hey look, it’s not a good time. Maybe let’s keep in touch.” But I don’t know if I’d entertain them. Just don’t spend a lot of time on them is really what the bottom line is.
Rob: I think that’s a great advice. I think especially the venture capital emails, I mean they call it junior partner, but just a junior person that is prospecting, it’s cold outreach.
Mike: Like an intern. That’s what you mean, intern.
Rob: An intern, exactly. That’s really what it is. They might be called the junior partner but that’s essentially what it is and it’s like, “Go find some deals.” So, with the venture capital stuff, I pretty much like you, I just put that all into a folder somewhere in case in the future ever I decided by some crazy thing that I was going to raise venture capital which is never on my radar. But at least then you have all the names you could reach back out to.
The acquisition stuff I agree with you. I used to respond directly like you said and just be like, “What are you looking at? What ranges are you looking at?” I mean basically what you said, I would never fill out a form like that and if that’s their requirement, then delete. It’s done. I feel like you don’t have to feel like they’re back to in a corner or something because they’re sending you this email. You don’t have any obligation to do any of this. Also, when those come into my inbox, I would tend to put them in my this week folder.
So I talked this week on ZenFounder I guess it’s last week when this was live but the ZenFounder podcast I did a solo episode where I talked about productivity hacks. One of my productivity things in Gmail is that I have this label and it’s _thisweek and the reason it’s underscore is so it goes to the top the list. Anything that is not time urgent for me or is someone else putting something on my to do list that does not need to urgently get done, I throw into this thisweek folder.
And then once a week, I have a 30-minute time box that pops up and says, “Go through this week folder.” And then, I would go through all these and respond and I would try not to let it get into some big back and forth because that’s how people suck time from you. They don’t do it necessarily intentionally but they do it because it is in their best interest and not necessarily in yours. That’s the biggest thing I would think about. You don’t have to respond to every email and even if you do, like you just said Mike, don’t spend a ton of time on this. That’s the key. So thanks for the question.
Our next question, it’s another anonymous question and he says, “Hey Rob, congratulations on selling Drip. I’ve been following you and Startups for the Rest of Us for a few years and consider you some kind of a role model. Thanks so much for all the useful tips and inspiration. I have a question, I’ve built a SaaS. It works well in the German market. Now that we’ve entered the English speaking market, it’s become clear that it’s scheduling feature, like scheduling for appointments is a deal breaker for most of our trial users. We don’t have it built yet so I’m thinking now if we should build the feature from scratch which would be a lot of work and distraction and it would be essentially expensive for us. Or, should we build an integration with some of the existing big players like say Calendly or Acuity or I’ll say YouCanBook.me. What is your opinion or experience with this? Thanks a lot for your time.” What do you think?
Mike: So this is something I’ve actually looked at for Bluetick and the path that I’m going down is to integrate with other ones who do exactly that. You could invest all the time and effort of building your own version of it from scratch but that is a value add to your products, not necessarily a core feature. For those other products, it’s their core feature. So you may be able to attract certain types of users who aren’t already using those but at the same time, there are huge numbers of people who already have those products in place and they work really well and they’ve got a lot of support infrastructure and customer validation and users, all the stuff that goes with supporting an entire product that does just that.
For you to replicate that inside of your own app is like a small piece of it is probably not the wisest move in the world. So I would lean towards going with an integration of some kind and if down the road it makes sense to build your own version of it so that your incoming customers don’t also have to have a subscription to those, then maybe that makes sense at that point. But I wouldn’t start there, I wouldn’t try to rebuild an entire application that other companies do and that’s all they do.
Rob: Yeah, I would agree with that advice. This is what we’ve seen with the all in one tools much like the infusion Infusionsoft or even the Hubspot where they have built all this functionality into one and so I guess I’ll speak to Infusionsoft itself if you’ve used it and you’ve tried to use their shopping cart, their affiliate management, their landing pages, their CRM, they’re not very good.
The core email stuff is decent and they were the innovator in the visual builder, but it’s a pretty rough product outside of that, I’ve never use those things. I’ve heard it from dozens and dozens of Infusionsoft customers who said, “Yes, I’ve tried their shopping cart and it’s not configurable and it’s kind of a kludge.” And so, that’s what we have to think about, are you going to build something that is a worst in class but is literally just a checkbox so the people say, “Oh, they have the scheduling feature.” the moment you build it, people are going to say, “Oh, Calendly does this and I can check this one box and I can put this buffer around my times or I can do it only every other day or I can do weekly this and that.” Suddenly it’s like you are almost on the hook to build this best in class product.
So I think that if you want to do that, you can make it a very deliberate decision to do that over the long term and think three years down the line. Do you want to still be maintaining that and adding to it and expanding it because it’s not a one-time build. Not only are you going to have to get it to feature parity with your competitors but then as they get better here and after they implement those features. So it really will be like having two products. Now, if you had funding or you’re going after huge market or growing very fast, then maybe that is the right choice.
Maybe it is the right choice to not send people off to sign up for Calendly or Acuity or YouCanBook.me because you would want to maintain those dollars, you don’t want to retain them. Having someone go and pay for those other subscriptions would actually be a loss of value to you and you need to capture as much value as you can. But when you’re a bootstrapper and you’re a small team and you’re going based on revenue, I would say by default, integrate first and do a pretty quick integration. Then do a kind of a V2 integration which is the next level up and is even better. Then if everything catches on, you’re six months down the line and you really have realized this is the core feature, then maybe you evaluate building it.
That’s a very common path to what you see even bigger startups do is first they go integrate and then they circle back and they build out the core features in the app that are the most popular. The most popular integrations become core features in the app but then you at least have more data and you kind of have a longer timeframe to think about it. You’re not making this rash decision of like, “Everyone’s requesting it over the course of this month. Let’s commit ourselves to this thing which lasts years.” you’re going to impact your product roadmap for literally years if you do that.
So I’m on the same page as you. I would integrate first and then I would think about what is does it look like improve that integration and then what does it look like to eventually if we need to build that out. But to do it very deliberately and to give yourself more time for again as to the ramifications of what that means. So thanks for the question, hope that was helpful.
Our next question is about going in circles, no traction, no investors so Gabriel Popan. He says, “Hey Mike and Rob, thanks the great show. I’ve been listening for a couple months now. I’m catching up on older shows as well. I’d appreciate some advice or starting point on this, on the single developer of a note taking app, I’ve reached to the point where the app needs a team and some funding to move forward. I would like to apply for seed investment. But given the fact that investors like to see among other things traction, some customer base etcetera. I know that the chances are slim for me to get investment. I did my homework and I am able to articulate the key differentiators properly. Right now, I cannot get any traction with the current state of the app. it’s not consumer ready. So I’m stuck in this loop. I’m reluctant to apply for seed investment as a single developer as I know this does not look good to investors. All I have is a website, screenshots, a blog, a demo and a deck. I know that’s not enough but I also know that this has some potential. How do you break out of this loop?” So Mike, I’ll totally let you handle this first. He has a lot of I know statements in here that I question if they’re factual.
Mike: I was going to call this out, I was going to call this out like, how do you know that it’s not enough. It seems to me like the core problem here is that you need money in order to be able to take the products to the next level and there are some customers there. There’s a customer base which looks like you’re getting some traction with it. How do you know that you’re not going to get the money unless you ask for it.
Rob: But he said he doesn’t have a customer base.
Mike: Oh he doesn’t?
Rob: No, he said, “The current state of the app is not consumer ready,” that all he has is a marketing website, screenshots, a blog, a demo and a deck. So he doesn’t yet have, I’m assuming zero paying customers at this point.
Mike: Does that mean he doesn’t have a product either?
Rob: He says, “I can’t get any traction with the current state of the app.” So that tells me there’s code written. I don’t know item maybe the UI is bad, maybe it’s just not usable yet. He said it’s not consumer ready, I don’t know what that means.
Mike: I wonder if this is a mobile app or like a web app.
Rob: It says note taking which tells me it might be both. Note taking app you think of like Evernote or something it’s like you kind of have to be mobile and web.
Mike: Right. Honestly, I would wonder more about whether it’s the space as opposed to the app itself because there are a lot of note taking apps. And there’s a lot of them that are free. That’s the thing, there’s so much competition and I feel like it’s like project management software or blog trackers. Developers for whatever reason love to build blog trackers.
Rob: To do lists.
Mike: Yes, to do lists, blog trackers, those are the things that every developer decides, “All these other ones suck and I’m going to create my own and it’s going to be better than all of them.” and the reality is that like, everyone has different tastes and that’s why there are so many of them and it’s hard to build like mass market appeal with any of them because everyone just has these different tastes associated with it.
It’s so easy to get into this space because the bar is really low to build most of those apps. I’m not saying that’s not complicated and there’s not a lot to it, it’s just that it’s fairly straightforward in terms of the technical challenges that you have to overcome. So everyone says, “Well, I can build one that’s better than that and it will do exactly what I want.” The problem is, everybody who uses those apps has slightly different needs and therefore that’s why the market is so incredibly fragmented.
I’m with you, I think that there’s a lot of “I knows” in here that are probably not justified but at the same time like, I don’t know how much traction you’re going to get with an app like this or how you would go about pitching this to investors to begin with without getting that traction. You even look at Evernote, I’ve used Evernote before, I still have my account but I barely use the product anymore. And why is that? It’s just like I got away from it and I found other things that I like better. So there’s huge term problems as well in those types of apps and I don’t know how you overcome those types of things.
Rob: Yeah, it’s definitely an investment play and I think that’s the struggle. Trying to build an app in a crowded space like this even with differentiators, you have to validate that that differentiation matters to anyone before anyone is likely to give you investment. Honestly in your shoes, this is what accelerators are made for. It’s made for people who have ideas and either no traction or maybe a little bit of traction. That’s why YC started. You can come with an idea.
I know a lot of people come in beyond that but you got put your hustle pants on in all honesty. You either need to apply to an accelerator if this idea is that big, you need to have a network of people who are willing to invest in you because of your past history. I’m guessing that that’s not the case, you would have already done that. You need to teach yourself to code or if you’re already a developer, nights and weekends.
I mean we’ve all done this years and years of nights and weekends I did to get stuff off the ground. If you’re not a developer, then work aside hustle, save enough money, hire a developer, have them bill that. I mean there are ways to get this done, they’re hard. It’s hard work. That’s what startups are. There is no easy answer. So you break out of this loop by just saying that you’re not going to give up until you have something to show people. If you truly believe that this is something that that’s going to be a differentiator.
That’s my first two thoughts one is I think accelerators are ideal for this. Number two, I think you’re going to have to hustle way harder than you’re letting on in your email. I’m not saying you’re not hustling, but you’re certainly not presenting that in the email that you’ve just gone to the mattress that are pulling out all the stops because that’s what it’s going to take to watch an app like this. My third thought is, have you validated this with anyone? Does anyone else care about the note taking differentiators you’re talking about.
So I would be literally going to local coffee shops and just ask if it’s a B2C app, I would just start asking people. I would approach people. I would be on forums. I would start on indie hackers, be on hacker news but I would also if this is a note taking app for veterinarians, I would be on the veterinarian forums. I would buy that ticket to the conference where you need to approach people that might use this app.
It’s just like have the conversations and try to invalidate your hypothesis. Your hypothesis is that these key differentiators are going to so differentiate your note taking app that it’s going to have all this traction and it’s going to grow big and grow fast. I think you need to validate that assumption.
Mike: The one thing that you mentioned in there that I think is actually something for him to key in on is the, you’ve mentioned the note taking app for veterinarians. The way this is presented to us is that it’s a generic note taking app. I think if your knee is down to a particular type of industry or market vertical or even a position in a company, that would probably be a great place to go.
I have seen apps that are specifically designed for the person who changes your tires at the car shop. They have apps that are specifically set up so that they can take notes on, “Oh, you last came in for your car and this is what things look like and this is what we should look, or this is what we should reach out to you about in the future because we see that there’s like a degradation on the muffler or something like that and it looks fine now. But what about in six months, what about in a year? Maybe we should send you a coupon or something like that.” Those are the types of things that you’re going to want to key in on to find who the audience is that’s actually going to pay for it. Then you have your value propositions and everything else.
Rob: Yeah. This is a hard place to be. This is what every early stage entrepreneur, this is where almost all of us find ourselves in unless you have a Cinderella story. You’re Mark Zuckerberg and you’re at Harvard and you’re hacking away and suddenly your app is growing 9 million percent a month or whatever. That almost never happens, almost never. It’s always this struggle. It’s the untold struggle and I think that does us all a disservice because when you get to the point where Gabriel is at, you don’t realize all the hustle you have to put into it to get any type of escape velocity.
The untold hours and nights and weekends and the sacrifice that it’s going to take and the fact that it may not work out. You may spend the next six months or a year of nights and weekends and then realize, “This is no different than Evernote. I can’t get any traction.” or “This is different but nobody cares.” or “It was different, but Evernote implemented my feature and now I have to start over from scratch.” and this is the path that you’re going to travel as a founder.
I really think you want to ask yourself, “Is this what I’m signing up for? Is this something that I want to do?” because it is a life long journey I believe. From the time I first launched something in 1999 until I was even able to quit my job is for myself full time it was 10 years I think. There are some tough times there. I think all of us, each of us, each successful entrepreneur has that story to tell. Hopefully it’s not 10 years for you, hopefully it’s gotten shorter now that there’s better information out there. But I want you to think in terms of years, not months when you’re thinking about trying to build a successful business. That was a good question, thanks for sending it in.
Our last question of the day is all about buying a software business. It’s from Alex Bush and he says, “Hey Rob and Mike, thanks for making such a great podcast, very educational. I am entrepreneurial myself but so far, I’m in the consulting world trying to save up as much FU money as I can to go full time with my own business. I’m focusing on selling services and educational materials for iOS developers. I listened to a few of your episodes lately about taking on investment and it got me thinking about acquiring a business rather than building one from scratch. So question for you, how would you go about this? Specifically, how do I find an online or software business for sale? How do I approach them? How do I find all the info? How do I get all the data like their user base, their accounting books, what they’ve done for marketing etcetera that I need about them to make an educated decision. What are the price ranges I’m looking at for a profitable business. So far, I have found Flippa, flippa.com and it is very interesting but some of the prices in bids there seem to be too good to be true. How would I vet them? Is it even a good place to look?” what do you think Mike?
Mike: I’m going to give a couple of links in addition to Flippa for you. One of them is allsideprojects.com and you’ll find things there that have various price ranges and there’s different tags and stuff that you can sort and it does look like you can buy various websites and apps and products over there. But there’s also a new one that I saw, it was on products on Product Hunt, it’s called one 1kprojects.com and its pitch is, “Neglected side projects for less than $1,000.”
So you can go there and take a look and see what they have there and they’ll tell you what the MRR is, what the price is, what the product does and kind of who it’s aimed at. You can get a good sense of at least whether or not it’s worth your time looking at, but that’s the place that I would probably start over Flippa. It’s relatively new, I remember I saw it was within a month ago. So it’s relatively new.
I can’t voucher the quality of anything that you find there but it seems like they’re getting a fair amount of traction and the site looks pretty clean and polished. so I would imagine that they’re heading in the right direction because there’s a lot of people out there with projects that they started working on and they just didn’t go anywhere or they’re down to a certain point they just can’t make it work. So that’s a place I would start.
Rob: That’s a cool idea. I hope this sticks around. I’ve seen a lot of these things crop up over the years and then they just go away because they don’t make enough money. But I like this idea because of how many side projects people start and shut down. It’s like wasted value. You know how economists look at like, I think it’s like Christmas as this huge waste of economic value because you buy things for people that they don’t want and then they either have to sell them for less or they return them and they get store credits instead of getting value.
That’s why I see people building side projects shutting them down and then all these other people are coming in and saying, “I really wish I could take over a side project.” so I hope that this kind of thing sticks around. It’s kind of cool and it’s neat that they’re at a low price point. I mean I guess if they get traction, they’ll expand out because certainly sometimes there are things that I suppose could be worth more than $1,000 but I love that idea as you said, allsideprojects.com and 1kprojects.com. We will include links to those in the show notes.
The other thing I think you could look at and even five or six years ago, I wouldn’t have had this suggestion but there are a handful of basically website or app brokers. They do both, they do ecommerce websites and information products and software and all that stuff. There’s a handful of them that are pretty damn good and they’re specializing in this kind of stuff. So FE International is one and quietlightbrokerage.com is another and empireflippers.com. Those are the three that I tend to recommend to people.
You get on their lists and they get new listings each week. You kind of got to go through and look at them. Now those are going to be I would say definitely higher quality and also higher cost to something like Flippa. I have bought many websites, web apps on Flippa. Some of them are complete junk and scams. I had to spend a bunch of time vetting them even then sometimes it did mark out but the cost was so low that in the end, it was very much a net positive for me but it was a lot of time that I spent vetting.
It wasn’t just you walk down the street and find this amazing deal on this amazing piece of real estate, that never happens. If you’re a real estate investor, you spend a ton of time learning the market, learning how to negotiate, learning how to vet things, learning how to do the work and what it’s going to cost, same thing here. If you’re going to buy an app, you need to educate yourself. So don’t think that you’re just going to walk up and on the first day, find a great deal that you don’t have to vet and everything’s laid out for you.
Especially the cheaper you get, the more risk that there’s going to be. You just have to be willing to take that risk. So I have always been a proponent of buying or I say always, since my first acquisition worked out in 2005 and I realized, oh my gosh, this is like the shortcut. Forget all this building stuff. I mean as fun as the building is, it’s also super stressful. It takes too long and you never know if it’s going to work and it takes a year or two to get the product market fit. Whereas if you can acquire something that’s already halfway there or already has product market fit, honestly I think you are definitely ahead of the game by thinking in those terms.
Mike: Well I think that about wraps us up for the day. If you have a question for us, you can call it in our voicemail number 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences help you avoid the same mistakes we’ve made. What’s going on this week sir?
Mike: Well, I’m in the midst of polishing up by a bunch of screenshots for Bluetick to distribute with product listings that I’m posting on various websites at the moment. I started doing it and I realize the screenshots that I could take that would take me like two seconds to do just from various places inside the app don’t really tell a story about the app itself or any of the screens themselves because you kind of have to have used the product in order to understand certain pieces of it.
I kind of backed off a little bit and said okay, well how can I tell a story with these screenshots? I was like, most of the screenshots are actually like smaller versions of the screen itself and then like descriptive text around it and arrows arose and it kind of tells more a marketing story around what the product will do for you as opposed to like just strict screenshots that you see on a lot of those websites.
Rob: I agree. I think taking screenshots and making them palatable is such an art and just trying to take a screenshot of like an entire screenshot of a whole screen in your app almost never works. There’s just too much information, there’s no context, you don’t know what’s going on. It a very developer thing to do because we’ve seen screenshots and inspects before mockups inspects.
When I’ve seen screenshots that wind up being really helpful, it tends to be this really highly cropped thing that’s just one corner of the screen, is high resolution and like you said, it has some type of helper text. It takes a lot of time I guess is what I realized to make good screenshots. Much like making a good explainer video, it seems like you’re cranking out in a few hours tends to take a lot of time to do something like that.
Mike: Yeah, those things take a couple of days. I actually allocated a day earlier this week to basically create a new explainer video and that was just not enough time. I’ve done them before. I knew that it took more time but I guess I was overly optimistic about how long it would take.
Rob: Yup. I kind of always end up with those things. This blog post called How I Created 4 Startup Explainer Videos for $11 and that’s at robwalling.com in my essays section. I ran through how I created some pretty LoFi explainer videos for Drip and why I did that. It’s definitely a bootstrapper’s approach because it was time consuming.
I think I spent a full day from the time I wrote the copy until I recorded. I recorded four different ones but then as far as I can repurpose a bunch of a copy and the parts, basically the animations can repurpose them. Not something I’d recommend if you have the budget to just hire someone professional but definitely something that a scrappy bootstrap startup should probably think about.
Mike: How about you, what’s going on this week?
Rob: I’m having a tough week this week man. Sherry’s out of town she’s with her family. Her dad is pretty ill and it’s been a long time coming. It’s been more than a year of stuff kind of degrading there. So she’s out of town and I’m trying to figure out, I tend to do really well with just me and three kids and I can do it for about four days and then things just drop off a cliff. On the fifth day I wake up tired and then I think the kids are tired of me, kind of tired of each other and I kind of start running out of patience and it’s just this vicious cycle I’ll say.
At the end of the week, it’s Friday right now when we’re recording, we’re doing an emergency recording session because, I’m supposed to record next week but I’m going to be out of town. I think that’s the other thing, I usually don’t enjoy being on the road very much and I’m pretty much on the road for almost the next two weeks. So it is what it is, these are just times and stuff that I have to do. I think it’s stuff that will certainly help with TinySeed and a lot of it is work stuff and being face to face with some folks where it’s important.
For now, I’m just kind of looking forward to getting back here for Thanksgiving and getting pass this week. It’s probably been one of the I’d say worst weeks of maybe the last quarter. It’s not like some catastrophic lifelong trough. But last several months, this has been a tough one.
Mike: Yeah I’ve realized earlier this week that my kids have days off from school this week, next week and the following week. I’m just like, do you kids ever go to school?
Rob: Yeah, it’s like who’s going to watch these kids while they do that? Oh me, I’m just going to work less. Already an announcement to the listeners, you and I have been on the mic for almost 30 minutes and I’ve been interrupted twice by my kids. One kid is home sick and another kid I homeschool part time. But since Sherry’s not here, I’m home schooling full time and on and on. It’s just enough interruption that you can’t actually get anything done. So I feel your pain with the kids home.
Mike: It’s a good thing you don’t write code.
Rob: Maybe there’s a reason I don’t write code anymore.
Mike: It could be. Maybe that’s the trick, I don’t know. I forget who, there was somebody who commented on—I think it was Alex Yumashev he’s like, “Oh I was able to only spend 1% of my time on my phone this week.” and somebody asked him how he did it and he’s like, “Well, I had a third kid.”
Rob: That’s a good way to do it. So today we’re answering some listener questions. Our first one is about how to handle VC prospecting emails and it’s from a long time listener he says, “Hey guys, I got the email below and I was briefly excited and when I clicked on the link and opened up a form where I’m asked about my company’s earnings.” The gist of the email is it’s from a what looks like a venture capital firm and it says, “I’d like to speak to you about a financial opportunity regarding your SaaS business. As an acquisition advisor, I’m seeking to acquire business in this space season.”
So I don’t know this much of VC, it’s almost like private equity right? We may want to acquire you. So back to the original email he says, “Based on his email and the form that was presented, it seems like he’s not really interested in my company, he’s just casting a broad net seeing what’s out there. I think it would be interesting for you guys to discuss A, what to do if you get half asked acquisition related emails like this and B, what to do with all those VC emails, venture capital emails. People seem to get looking to connect when you have no interest in venture capital. Keep up the good work on the show.”
So what do you think? There’s two separate things here. I think anyone who’s built any type of business got any traction winds up on any list anywhere eventually gets these emails. I remember in the latter days right before the acquisition of Drip, I was getting probably three or four of the VC emails a month and I was getting I’d say maybe one a month of acquisition related, maybe it was one every six weeks but there was definitely a pretty steady flow of them. So what do you think about these?
Mike: I guess if we separate these two because as you said, they are two entirely different questions. The part about VC just looking to connect like on LinkedIn or sending emails. I get a bunch of these emails like, “Hey, can we hop on a call and talk about your business?” And I’m just like, “No, I don’t have time to talk to you and even if I did, this isn’t a good fit.” I’m just blunt with them and it’s like, spend your time someplace else because it’s just not going to happen. A lot of times, I will just let the email go and I’ll just ignore it and then if they send me a couple of follow ups, I think if I get like two follow ups, I have a cold emails folder that I just dump these into and then if it gets to at least two and it still looks like they’re still going to continue to email me then I’ll just respond and say, “Look, this is not a good fit. It’s not going to work. I’m just not interested. So take me off your email list.”
For the other ones if it’s like a situation that he described where it’s an acquisition related email and they’re asking questions about finances and stuff, my advice in that situation is really just like ask what their range of interest is because what you don’t want to do is you don’t want to go and fill out a form that gives all the information about your business because they may be looking to use that to justify a purchase price or to lowball somebody else’s business or something along those lines. You just don’t know what that data is going to be used for and there’s no trust. So why would you give over that information.
But if they’re actually really looking for those types of businesses, then they know how much they’re willing to spend. They know what their budget is and they know that below a certain threshold, they’re not going to be interested and they know that above a certain threshold, it’s probably not going to work because they’re not looking for a business that’s at large because they’re just not going to be able to pay for it. Ask them what their range is and if you fall within that range, then you might want to have a conversation with them. But otherwise, I don’t see any real obligation to start forking over information that is very specific to your business without actually going down the path of formal offers and all that other stuff. But if you’re not interested at all, you can say, “Hey look, it’s not a good time. Maybe let’s keep in touch.” But I don’t know if I’d entertain them. Just don’t spend a lot of time on them is really what the bottom line is.
Rob: I think that’s a great advice. I think especially the venture capital emails, I mean they call it junior partner, but just a junior person that is prospecting, it’s cold outreach.
Mike: Like an intern. That’s what you mean, intern.
Rob: An intern, exactly. That’s really what it is. They might be called the junior partner but that’s essentially what it is and it’s like, “Go find some deals.” So, with the venture capital stuff, I pretty much like you, I just put that all into a folder somewhere in case in the future ever I decided by some crazy thing that I was going to raise venture capital which is never on my radar. But at least then you have all the names you could reach back out to.
The acquisition stuff I agree with you. I used to respond directly like you said and just be like, “What are you looking at? What ranges are you looking at?” I mean basically what you said, I would never fill out a form like that and if that’s their requirement, then delete. It’s done. I feel like you don’t have to feel like they’re back to in a corner or something because they’re sending you this email. You don’t have any obligation to do any of this. Also, when those come into my inbox, I would tend to put them in my this week folder.
So I talked this week on ZenFounder I guess it’s last week when this was live but the ZenFounder podcast I did a solo episode where I talked about productivity hacks. One of my productivity things in Gmail is that I have this label and it’s _thisweek and the reason it’s underscore is so it goes to the top the list. Anything that is not time urgent for me or is someone else putting something on my to do list that does not need to urgently get done, I throw into this thisweek folder.
And then once a week, I have a 30-minute time box that pops up and says, “Go through this week folder.” And then, I would go through all these and respond and I would try not to let it get into some big back and forth because that’s how people suck time from you. They don’t do it necessarily intentionally but they do it because it is in their best interest and not necessarily in yours. That’s the biggest thing I would think about. You don’t have to respond to every email and even if you do, like you just said Mike, don’t spend a ton of time on this. That’s the key. So thanks for the question.
Our next question, it’s another anonymous question and he says, “Hey Rob, congratulations on selling Drip. I’ve been following you and Startups for the Rest of Us for a few years and consider you some kind of a role model. Thanks so much for all the useful tips and inspiration. I have a question, I’ve built a SaaS. It works well in the German market. Now that we’ve entered the English speaking market, it’s become clear that it’s scheduling feature, like scheduling for appointments is a deal breaker for most of our trial users. We don’t have it built yet so I’m thinking now if we should build the feature from scratch which would be a lot of work and distraction and it would be essentially expensive for us. Or, should we build an integration with some of the existing big players like say Calendly or Acuity or I’ll say YouCanBook.me. What is your opinion or experience with this? Thanks a lot for your time.” What do you think?
Mike: So this is something I’ve actually looked at for Bluetick and the path that I’m going down is to integrate with other ones who do exactly that. You could invest all the time and effort of building your own version of it from scratch but that is a value add to your products, not necessarily a core feature. For those other products, it’s their core feature. So you may be able to attract certain types of users who aren’t already using those but at the same time, there are huge numbers of people who already have those products in place and they work really well and they’ve got a lot of support infrastructure and customer validation and users, all the stuff that goes with supporting an entire product that does just that.
For you to replicate that inside of your own app is like a small piece of it is probably not the wisest move in the world. So I would lean towards going with an integration of some kind and if down the road it makes sense to build your own version of it so that your incoming customers don’t also have to have a subscription to those, then maybe that makes sense at that point. But I wouldn’t start there, I wouldn’t try to rebuild an entire application that other companies do and that’s all they do.
Rob: Yeah, I would agree with that advice. This is what we’ve seen with the all in one tools much like the infusion Infusionsoft or even the Hubspot where they have built all this functionality into one and so I guess I’ll speak to Infusionsoft itself if you’ve used it and you’ve tried to use their shopping cart, their affiliate management, their landing pages, their CRM, they’re not very good.
The core email stuff is decent and they were the innovator in the visual builder, but it’s a pretty rough product outside of that, I’ve never use those things. I’ve heard it from dozens and dozens of Infusionsoft customers who said, “Yes, I’ve tried their shopping cart and it’s not configurable and it’s kind of a kludge.” And so, that’s what we have to think about, are you going to build something that is a worst in class but is literally just a checkbox so the people say, “Oh, they have the scheduling feature.” the moment you build it, people are going to say, “Oh, Calendly does this and I can check this one box and I can put this buffer around my times or I can do it only every other day or I can do weekly this and that.” Suddenly it’s like you are almost on the hook to build this best in class product.
So I think that if you want to do that, you can make it a very deliberate decision to do that over the long term and think three years down the line. Do you want to still be maintaining that and adding to it and expanding it because it’s not a one-time build. Not only are you going to have to get it to feature parity with your competitors but then as they get better here and after they implement those features. So it really will be like having two products. Now, if you had funding or you’re going after huge market or growing very fast, then maybe that is the right choice.
Maybe it is the right choice to not send people off to sign up for Calendly or Acuity or YouCanBook.me because you would want to maintain those dollars, you don’t want to retain them. Having someone go and pay for those other subscriptions would actually be a loss of value to you and you need to capture as much value as you can. But when you’re a bootstrapper and you’re a small team and you’re going based on revenue, I would say by default, integrate first and do a pretty quick integration. Then do a kind of a V2 integration which is the next level up and is even better. Then if everything catches on, you’re six months down the line and you really have realized this is the core feature, then maybe you evaluate building it.
That’s a very common path to what you see even bigger startups do is first they go integrate and then they circle back and they build out the core features in the app that are the most popular. The most popular integrations become core features in the app but then you at least have more data and you kind of have a longer timeframe to think about it. You’re not making this rash decision of like, “Everyone’s requesting it over the course of this month. Let’s commit ourselves to this thing which lasts years.” you’re going to impact your product roadmap for literally years if you do that.
So I’m on the same page as you. I would integrate first and then I would think about what is does it look like improve that integration and then what does it look like to eventually if we need to build that out. But to do it very deliberately and to give yourself more time for again as to the ramifications of what that means. So thanks for the question, hope that was helpful.
Our next question is about going in circles, no traction, no investors so Gabriel Popan. He says, “Hey Mike and Rob, thanks the great show. I’ve been listening for a couple months now. I’m catching up on older shows as well. I’d appreciate some advice or starting point on this, on the single developer of a note taking app, I’ve reached to the point where the app needs a team and some funding to move forward. I would like to apply for seed investment. But given the fact that investors like to see among other things traction, some customer base etcetera. I know that the chances are slim for me to get investment. I did my homework and I am able to articulate the key differentiators properly. Right now, I cannot get any traction with the current state of the app. it’s not consumer ready. So I’m stuck in this loop. I’m reluctant to apply for seed investment as a single developer as I know this does not look good to investors. All I have is a website, screenshots, a blog, a demo and a deck. I know that’s not enough but I also know that this has some potential. How do you break out of this loop?” So Mike, I’ll totally let you handle this first. He has a lot of I know statements in here that I question if they’re factual.
Mike: I was going to call this out, I was going to call this out like, how do you know that it’s not enough. It seems to me like the core problem here is that you need money in order to be able to take the products to the next level and there are some customers there. There’s a customer base which looks like you’re getting some traction with it. How do you know that you’re not going to get the money unless you ask for it.
Rob: But he said he doesn’t have a customer base.
Mike: Oh he doesn’t?
Rob: No, he said, “The current state of the app is not consumer ready,” that all he has is a marketing website, screenshots, a blog, a demo and a deck. So he doesn’t yet have, I’m assuming zero paying customers at this point.
Mike: Does that mean he doesn’t have a product either?
Rob: He says, “I can’t get any traction with the current state of the app.” So that tells me there’s code written. I don’t know item maybe the UI is bad, maybe it’s just not usable yet. He said it’s not consumer ready, I don’t know what that means.
Mike: I wonder if this is a mobile app or like a web app.
Rob: It says note taking which tells me it might be both. Note taking app you think of like Evernote or something it’s like you kind of have to be mobile and web.
Mike: Right. Honestly, I would wonder more about whether it’s the space as opposed to the app itself because there are a lot of note taking apps. And there’s a lot of them that are free. That’s the thing, there’s so much competition and I feel like it’s like project management software or blog trackers. Developers for whatever reason love to build blog trackers.
Rob: To do lists.
Mike: Yes, to do lists, blog trackers, those are the things that every developer decides, “All these other ones suck and I’m going to create my own and it’s going to be better than all of them.” and the reality is that like, everyone has different tastes and that’s why there are so many of them and it’s hard to build like mass market appeal with any of them because everyone just has these different tastes associated with it.
It’s so easy to get into this space because the bar is really low to build most of those apps. I’m not saying that’s not complicated and there’s not a lot to it, it’s just that it’s fairly straightforward in terms of the technical challenges that you have to overcome. So everyone says, “Well, I can build one that’s better than that and it will do exactly what I want.” The problem is, everybody who uses those apps has slightly different needs and therefore that’s why the market is so incredibly fragmented.
I’m with you, I think that there’s a lot of “I knows” in here that are probably not justified but at the same time like, I don’t know how much traction you’re going to get with an app like this or how you would go about pitching this to investors to begin with without getting that traction. You even look at Evernote, I’ve used Evernote before, I still have my account but I barely use the product anymore. And why is that? It’s just like I got away from it and I found other things that I like better. So there’s huge term problems as well in those types of apps and I don’t know how you overcome those types of things.
Rob: Yeah, it’s definitely an investment play and I think that’s the struggle. Trying to build an app in a crowded space like this even with differentiators, you have to validate that that differentiation matters to anyone before anyone is likely to give you investment. Honestly in your shoes, this is what accelerators are made for. It’s made for people who have ideas and either no traction or maybe a little bit of traction. That’s why YC started. You can come with an idea.
I know a lot of people come in beyond that but you got put your hustle pants on in all honesty. You either need to apply to an accelerator if this idea is that big, you need to have a network of people who are willing to invest in you because of your past history. I’m guessing that that’s not the case, you would have already done that. You need to teach yourself to code or if you’re already a developer, nights and weekends.
I mean we’ve all done this years and years of nights and weekends I did to get stuff off the ground. If you’re not a developer, then work aside hustle, save enough money, hire a developer, have them bill that. I mean there are ways to get this done, they’re hard. It’s hard work. That’s what startups are. There is no easy answer. So you break out of this loop by just saying that you’re not going to give up until you have something to show people. If you truly believe that this is something that that’s going to be a differentiator.
That’s my first two thoughts one is I think accelerators are ideal for this. Number two, I think you’re going to have to hustle way harder than you’re letting on in your email. I’m not saying you’re not hustling, but you’re certainly not presenting that in the email that you’ve just gone to the mattress that are pulling out all the stops because that’s what it’s going to take to watch an app like this. My third thought is, have you validated this with anyone? Does anyone else care about the note taking differentiators you’re talking about.
So I would be literally going to local coffee shops and just ask if it’s a B2C app, I would just start asking people. I would approach people. I would be on forums. I would start on indie hackers, be on hacker news but I would also if this is a note taking app for veterinarians, I would be on the veterinarian forums. I would buy that ticket to the conference where you need to approach people that might use this app.
It’s just like have the conversations and try to invalidate your hypothesis. Your hypothesis is that these key differentiators are going to so differentiate your note taking app that it’s going to have all this traction and it’s going to grow big and grow fast. I think you need to validate that assumption.
Mike: The one thing that you mentioned in there that I think is actually something for him to key in on is the, you’ve mentioned the note taking app for veterinarians. The way this is presented to us is that it’s a generic note taking app. I think if your knee is down to a particular type of industry or market vertical or even a position in a company, that would probably be a great place to go.
I have seen apps that are specifically designed for the person who changes your tires at the car shop. They have apps that are specifically set up so that they can take notes on, “Oh, you last came in for your car and this is what things look like and this is what we should look, or this is what we should reach out to you about in the future because we see that there’s like a degradation on the muffler or something like that and it looks fine now. But what about in six months, what about in a year? Maybe we should send you a coupon or something like that.” Those are the types of things that you’re going to want to key in on to find who the audience is that’s actually going to pay for it. Then you have your value propositions and everything else.
Rob: Yeah. This is a hard place to be. This is what every early stage entrepreneur, this is where almost all of us find ourselves in unless you have a Cinderella story. You’re Mark Zuckerberg and you’re at Harvard and you’re hacking away and suddenly your app is growing 9 million percent a month or whatever. That almost never happens, almost never. It’s always this struggle. It’s the untold struggle and I think that does us all a disservice because when you get to the point where Gabriel is at, you don’t realize all the hustle you have to put into it to get any type of escape velocity.
The untold hours and nights and weekends and the sacrifice that it’s going to take and the fact that it may not work out. You may spend the next six months or a year of nights and weekends and then realize, “This is no different than Evernote. I can’t get any traction.” or “This is different but nobody cares.” or “It was different, but Evernote implemented my feature and now I have to start over from scratch.” and this is the path that you’re going to travel as a founder.
I really think you want to ask yourself, “Is this what I’m signing up for? Is this something that I want to do?” because it is a life long journey I believe. From the time I first launched something in 1999 until I was even able to quit my job is for myself full time it was 10 years I think. There are some tough times there. I think all of us, each of us, each successful entrepreneur has that story to tell. Hopefully it’s not 10 years for you, hopefully it’s gotten shorter now that there’s better information out there. But I want you to think in terms of years, not months when you’re thinking about trying to build a successful business. That was a good question, thanks for sending it in.
Our last question of the day is all about buying a software business. It’s from Alex Bush and he says, “Hey Rob and Mike, thanks for making such a great podcast, very educational. I am entrepreneurial myself but so far, I’m in the consulting world trying to save up as much FU money as I can to go full time with my own business. I’m focusing on selling services and educational materials for iOS developers. I listened to a few of your episodes lately about taking on investment and it got me thinking about acquiring a business rather than building one from scratch. So question for you, how would you go about this? Specifically, how do I find an online or software business for sale? How do I approach them? How do I find all the info? How do I get all the data like their user base, their accounting books, what they’ve done for marketing etcetera that I need about them to make an educated decision. What are the price ranges I’m looking at for a profitable business. So far, I have found Flippa, flippa.com and it is very interesting but some of the prices in bids there seem to be too good to be true. How would I vet them? Is it even a good place to look?” what do you think Mike?
Mike: I’m going to give a couple of links in addition to Flippa for you. One of them is allsideprojects.com and you’ll find things there that have various price ranges and there’s different tags and stuff that you can sort and it does look like you can buy various websites and apps and products over there. But there’s also a new one that I saw, it was on products on Product Hunt, it’s called one 1kprojects.com and its pitch is, “Neglected side projects for less than $1,000.”
So you can go there and take a look and see what they have there and they’ll tell you what the MRR is, what the price is, what the product does and kind of who it’s aimed at. You can get a good sense of at least whether or not it’s worth your time looking at, but that’s the place that I would probably start over Flippa. It’s relatively new, I remember I saw it was within a month ago. So it’s relatively new.
I can’t voucher the quality of anything that you find there but it seems like they’re getting a fair amount of traction and the site looks pretty clean and polished. so I would imagine that they’re heading in the right direction because there’s a lot of people out there with projects that they started working on and they just didn’t go anywhere or they’re down to a certain point they just can’t make it work. So that’s a place I would start.
Rob: That’s a cool idea. I hope this sticks around. I’ve seen a lot of these things crop up over the years and then they just go away because they don’t make enough money. But I like this idea because of how many side projects people start and shut down. It’s like wasted value. You know how economists look at like, I think it’s like Christmas as this huge waste of economic value because you buy things for people that they don’t want and then they either have to sell them for less or they return them and they get store credits instead of getting value.
That’s why I see people building side projects shutting them down and then all these other people are coming in and saying, “I really wish I could take over a side project.” so I hope that this kind of thing sticks around. It’s kind of cool and it’s neat that they’re at a low price point. I mean I guess if they get traction, they’ll expand out because certainly sometimes there are things that I suppose could be worth more than $1,000 but I love that idea as you said, allsideprojects.com and 1kprojects.com. We will include links to those in the show notes.
The other thing I think you could look at and even five or six years ago, I wouldn’t have had this suggestion but there are a handful of basically website or app brokers. They do both, they do ecommerce websites and information products and software and all that stuff. There’s a handful of them that are pretty damn good and they’re specializing in this kind of stuff. So FE International is one and quietlightbrokerage.com is another and empireflippers.com. Those are the three that I tend to recommend to people.
You get on their lists and they get new listings each week. You kind of got to go through and look at them. Now those are going to be I would say definitely higher quality and also higher cost to something like Flippa. I have bought many websites, web apps on Flippa. Some of them are complete junk and scams. I had to spend a bunch of time vetting them even then sometimes it did mark out but the cost was so low that in the end, it was very much a net positive for me but it was a lot of time that I spent vetting.
It wasn’t just you walk down the street and find this amazing deal on this amazing piece of real estate, that never happens. If you’re a real estate investor, you spend a ton of time learning the market, learning how to negotiate, learning how to vet things, learning how to do the work and what it’s going to cost, same thing here. If you’re going to buy an app, you need to educate yourself. So don’t think that you’re just going to walk up and on the first day, find a great deal that you don’t have to vet and everything’s laid out for you.
Especially the cheaper you get, the more risk that there’s going to be. You just have to be willing to take that risk. So I have always been a proponent of buying or I say always, since my first acquisition worked out in 2005 and I realized, oh my gosh, this is like the shortcut. Forget all this building stuff. I mean as fun as the building is, it’s also super stressful. It takes too long and you never know if it’s going to work and it takes a year or two to get the product market fit. Whereas if you can acquire something that’s already halfway there or already has product market fit, honestly I think you are definitely ahead of the game by thinking in those terms.
Mike: Well I think that about wraps us up for the day. If you have a question for us, you can call it in our voicemail number 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 418 | Creators Versus Fans
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about creators versus fans. They discuss some cautionary tales of building products on someone else’s platform and the potential risks.
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Mike: In this episode of Startups for the Rest of Us, Rob and I are going to be talking about creators versus fans. This is Startups for the Rest of Us episode 418.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Mike: Things are good this week. Fall is in full effect as the leaves fall off the trees, we live near a lake and the view of that gets better for us. It’s kind of definitely feeling the season’s change and kind of gearing up to do more work in Winter. I took late Spring, Summer and an early Fall off. I’ve been off work since I left Drip in April, so it’s been about six months. Now, I’m kind of starting to ramp up little bit on Tiny Seed, tinyseedfund.com which is the accelerator that I mentioned on the show a few weeks back and things are picking up and going really well with that.
We’re in fundraising mode in essence and that’s going, I will say, quite a bit better than I thought it would. The hypothesis is I think this is needed in our space, I think that bootstrappers and people who want to kind of fun strap things needs and some funding and better funding source and some guidance, and then that there will be people who are interested in supporting that, and based on our models, making money obviously, because it’s an investment. But you don’t know, it’s a hypothesis when you start.
Then the more that we’ve talked to people it’s like, “This is really interesting.” This is something that I feel the momentum building as we speak and I’m pretty excited about that. It’s exciting for me to be working on something new. I haven’t done anything new since starting Drip which is 2012. It’s fun to do that.
Mike: Awesome. On my end, last month, I started doing some paid advertising through the one paid ad that I was doing. I added about 600 email addresses to my mailing list and they’re still kind of working their way through an email campaign that I have set up for them. I have no idea what my eventual conversion rate will be on them. But we just have to just kind of see how that all shakes out. I’m kind of looking at what other things I can do in November and then December and January etc. I’m kind of looking forward to the future, but we seem to have had some reasonable success so far with that.
Rob: Sounds good. How are you feeling about Bluetick? Are you optimistic? Are you in a rut or in a valley right now? What’s your sentiment?
Mike: I don’t know. It’s hard to separate, I’ll say, the business side of things from the personal side of things. Last week I mentioned that I was diagnosed with sleep apnea and I got a CPAP machine and my sleep has started to get noticeably better already. It’s hard to say whether or not like, I don’t want to call it apathy but it’s just like general tiredness, it’s been more than a year or so, just general exhaustion working on it.
It’s not that I’m not excited to work on it or that I don’t want to, it already got things going or make good progress on it, but with the sleep, I feel more energetic just in general. I’m thinking that that’s actually like I said, I’m trying to differentiate between, “Is it just utter lack of sleep? or is it like, “How the product is going.” Obviously, there’s a correlation between them but at a financial level, Bluetick has kind of been meandering. It doesn’t have like hockey stick growth. It goes up some months and goes down some months and it’s just not where I want it to be. But it’s also been really hard to make any substantial progress on it because of the lack of sleep.
Rob: It’s tough, right?
Mike: Yeah. I’m looking at it, saying, “Well, if I can actually start sleeping and get more productive days on a consistent basis…” because before I would have maybe two or three out of a month which is awful. You can’t make progress like that. This week alone I’ve had like three. Obviously, a 300% increase but yeah, I’ll see how it goes and I think that I’ll probably know more in a couple of months.
Rob: Yeah. That makes sense. Like I said last week, it’s tough to have that chronic stuff that you’re fighting against. It’s hard enough to start a company like this without also having to fight another battle on another front. A colleague of mine said, “I can have a tumultuous work life if my personal life is calm and supportive and I can have a tumultuous personal life if my work life is calm and supportive. But if both are in tumult at the same time, it’s just too much.” That’s when people melt out, that’s when you either leave the job, you get a divorce, bad things happen, and you have to make a change, or you come to a breaking point. It sounds like you have the challenge on the business front and then on the personal front—and it’s not easy fighting both those battles.
Mike: like I said, I’m consciously optimistic at this point. The sleep issues will be at least partially resolved and then my expectation/hope is that those will translate into more consistent progress on the Bluetick side. We’ll just see how it goes because I mean honestly, even with sleep, it may not eventually work out. I don’t know, we’ll see how it goes.
Rob: What are we talking about today?
Mike: Well, I have a subscription to Medium and one of the articles that hedge…
Rob: You’re the one.
Mike: Yes, I’m the one.
Rob: You’re the one person that subscribed to it. Did you just do it to get rid of the annoying pop-ups?
Mike: There were articles that I actually wanted to read, and there’s various authors who I read a bunch of their stuff and, it just kind of made sense. It was one of those things where I can pay the $50 a year or not, but if I don’t, then there are certain articles like I go to click on them and they say, “Oh, you can’t read this because you need a Medium subscription.” and yes, I know that there are ways around it but I didn’t really care. It’s $50 a year, I’m totally cool with helping to support those authors. That’s just kind of my point of view on it. It wasn’t enough that I was like, “Oh, I don’t want to pay this, they’re dastardly.” or something like that. It’s just like, “Yeah, whatever.” It’s not that big a deal to me.
Rob: Yeah, I wouldn’t do a work around. If I believe in the content, I pay for the content. I think at this point in our careers, we need to a: value creators and b: not be such cheap bastards that you’re not going to pay somebody $4 a month to help support what’s going on. If it’s a big corporation trying to take a bunch of money from me, then of course, I’m going to fight that tooth and nail. But assuming that some of this is distributed to the writers themselves or at the office themselves, that’s the point of it, I don’t see a reason to try to do some lame work around.
Mike: Yeah, and that was it. Knowing that it was going to support those authors. I will admit that I used those workarounds early on because I was like, “Well, is the content that’s behind the pay wall, is that the same?” or similar quality and everything else like, “Is it the same type of stuff or is it just like completely different.?” It’s the same type of stuff it was just, I want to read it based on what the headline was or what the first couple of paragraphs were and I was like, “Oh, I actually want to read the rest of this.” It’s worked out.
I’d totally renew my subscription when it comes up. If you’re interested in learning more about that, score Medium and you start reading a few different things. Some of them are really interesting and some of them aren’t. But I mean you’re kind of supporting, I think all of the authors that you read their articles because I think that they track what you read and how much you read it and they attribute the money that you pay on a monthly basis to whichever people that you read their content.
Rob: Yeah, and it’s tough because when Medium came out it’s kind of like, “What? How are you going to do this at Williams? You’ve obviously had success with Blogger and Twitter, but this seems like a real tough gamble.” But he raised a bunch of money, buckets of it, because he’s at Williams and really hasn’t found a business model that’s made it work and then when they went to pay, and they started the ads, and they started the pop-ups it’s like, “It’s predictable.” and it’s irritatingly predictable.
It’s another Silicon Valley company that launches with no business model, that in the end just went pissing off or screwing their users, and that’s frustrating to me. It’s a similar thing to, I mean I can throw out dozens of examples, but one that reminds me is Outright which is an accounting software and it was free. It’s an accounting software that’s free. I remember even the CEO, when they launched I said, “How can this be free?” and he’s like, “Well, we want it to be free for everyone and we think that should just be table stakes and then we’re going to charge for tax preparation and these other things and that’s going to make it work.” Well, that was his line but really what they’re trying to do is get a bunch of users and then sell.
Because they sold to GoDaddy and it’s a [shit] product now. It’s terrible, they haven’t touched it. I think we used to use it for academy stuff, we had to switched to Zero. I had three or four accounts at Outright and it’s terrible.
Mike: No, we still use it.
Rob: Do we? I hate that program and it used to be good, but they decided to Silicon Valley model of, “We don’t care about our users. We’re going to launch. We need a bunch of free users. Look, here, we have an exit.” and that’s the difference. I don’t disagree when people have an exit. I mean I’ve sold companies but do it in a way that you don’t screw your employees, you screw your customers, you screw your partners, don’t do that. Have some something. I don’t know if it’s ethics or morals or it’s just like, do the right thing by people and that’s where I get irritated. I’m not saying Medium has gone that far. But I am annoyed every time I go there and there’s some annoying pop-ups.
Mike: I think that there’s a correlation between like the Silicon Valley startups. You and I, we started this podcast kind of in direct opposition to those because as you said, it’s predictable. This happens almost every time. They build a product, they don’t really know who they’re going after, or who’s going to buy it, or who’s going to pay the money, or how they’re going to make money and then they do a bunch of stuff. They get users, they use that to get to the next funding level and eventually, they turn around and bite the people who got them there.
Whether that’s because they sold the company to somebody else and they just say, “Okay, it’s not my problem anymore.” or they do things like put in annoying ads and pop-ups because they didn’t have any business model to begin with, or they’re like Facebook and they start selling all your personal information. It’s predictable every single time.
Rob: Right, or Twitter. Remember they just screwed all the developers who were using their API at one point, remember that? They just said, “Yeah, we’re not going to do that anymore.” Or Google who used to give us the best search results and now the top five of any given search results are a bunch of ads that they say are sponsored in small writing, but my kids don’t know that those are ads, my mom doesn’t know those are ads, she thinks they’re results. Google was always against pay-to-rank and that’s exactly what they’re doing now. We’ve just named five companies who’ve all done this off the top of our heads. We could probably name 50 more. Shall we get back to the episode?
Mike: Sure. Know that our next episode will be a rant. But actually, the topic that we’re going to be talking about today was this article that I found on Medium. It’s named, The Power Struggle for Dungeons & Dragons’ Soul. I thought it was interesting because I read this article and it was all about how originally TSR was the company and Gary Gygax and his team, built dungeons, dragons as to what it was. They sold it to Wizards of the Coast in ’97 and Wizards of the Coast has basically owned it ever since.
Throughout that time, they have done various things to promote the game but at the same time, they own the license to the rules, the content, all the stuff that they distribute. But Dungeons and Dragons has always been like this world that was created or a style of gaming that was created and then people build their own stuff and bring their own stuff to it. There’s this really big do-it-yourself culture inside of Dungeons and Dragons.
I would say there’s a very strong analogy you can make between something like that where you’ve got a platform and you have all these creators who are kind of adding on to it and like the world of software where you have the Twitter API and then there’s all these people that are saying, “Hey, I can use that to create this or I can do that.” so they build on it and then the platform creator turns around and bites them.
In reading through this article, the one thing that struck me was that the analogies are so strong. The very first thing they said was, “Oh, the Dungeons and Dragons rules tend to be complicated and software will help you avoid that minutia.” so software developers came in and started saying like, “Hey, I’m going to build this tool for the game and distribute it.” and Wizards of the Coast said, “Well, yeah. Here’s an open gaming license.” They created this back in the year 2000 and they basically licensed some of their content to be distributed within those tools. The problem is, it wasn’t all of it.
Rob: Yeah, that’s right. It was the gaming engine and to be honest in 2000, that was revolutionary. It was the third edition of Dungeons and Dragons. It was the rules engine itself, but you couldn’t take their proprietary monsters or their proprietary spell names. There’s a bunch of stuff they kept behind. But man, that sparked a huge kind of revolution in terms of all these games. I used to say, “I want to build my own role-playing game.” and a bunch of people want to do that.
You have to come up with all your own game mechanics. I can’t use the 3D6 or the 118, I guess it’s 3D18 ability score, strength, intelligence, wisdom, constitution the ones that Dungeons and Dragons uses because they’re copyrighted, and they’re protected. They opened that up which now 18 years later it seems like, “Yeah, of course they should have done that.” but no one had done that before.
I mean there’s always been massive kind of in-fighting even within the creators themselves like Gary Gygax kind of co-created DnD with this guy Dave Arneson. Dave Arneson sued him every other year for five years in a row about who owned what. It was just super unclear. It was just riddled with lawsuits and has been from the start.
Mike: If you go back and look at the history of it a little bit in terms of what the open gaming license is. Well, I’ll actually have this linked into the show notes. But they have things in here like, “What do you mean by free in terms of the open gaming license?” They actually talk about the concept of free as in beer which is just it’s fascinating that there’s that. They borrowed a lot from open source licenses because they said like with some of the text of their manuals, you could take that and put it directly in.
Normally, it would be a copyright violation and they said, “No. These sections of the manuals, you can copy word-for-word and distribute them but these other things you can’t.” so they restricted certain pieces of it but not all of it. The vast majority of it, you can do whatever you want with it and republish it but then, there’s small sections of it that are actually important sections that you can’t do anything with. It’s almost like an API where you got access to a lot of things but there’s certain things they hold back because they want to basically be in control of them. It’s really not any different than like Twitter saying, “Okay you can have this API but we’re not going to give you the ability to create polls via the API. Only we can do that.”
Rob: This is a tough one. Where are we headed with this? Because I can get into, I believe, if I was Wizards of the Coast, I would hold some stuff back because it’s their business model. Their business model is selling content. It’s selling a game engine and it’s selling content around that game engine, adventures and then expansions to the game mechanics, new classes, new spells all that stuff. They held all that back because if they give it all away, that’s their business, you know I mean. Are we going to debate that part or are we headed in a different direction with this?
Mike: Well, I think it’s just an interesting question of what as a creator of the platform are you holding back from your customers or users versus what they’re allowed to do with it. Because like the things that they hold back for example, you can play the game without them. It’s just that they’re also the popular pieces of it that people want to use like certain sub-races or what have you. I think this is going to be more of a discussion about, “How do you treat your users?” for one. Wizards of the Coast offered their own set of tools in the marketplace called DnD Beyond and they allow people to distribute their own content through it, but they also compete with them at the same time.
Do you trust, I’ll say, the platform vendors? If you put something on Apple’s ecosystem, are you guaranteed that they’re not going to compete against you. Of course, the answer to that is no. They can create anything they want and so could Microsoft or Twitter or what have you. But certain companies are more likely to, I’ll say, leave pieces of the business alone because they know that they want third party vendors to come in and develop on their platform and they don’t want to squash them. They want to kind of foster that. Because as soon as they start squashing these smaller vendors, people are going to take notice and say, “Well, if you’re going to build exactly what we put on your platform and develop, and you see that it’s successful, you create your own version of it and then bundle it…” back in the situation of Microsoft being threatened to be broken up into four different business units back in 2000 because they’re abusing their monopoly position of the distribution engine.
Rob: Wizards of the Coast, when I look at it, the amount of stuff they’re giving away is shocking. The stuff they give away on dndbeyond.com, they have a free plan, that’s all I have. I can pretty much play the game with all that. I mean you can download that the starter rule book and all the materials for free as PDFs legally off of their site. Now, I paid whatever it is, $14 or $15 for it on Amazon, The Dungeons and Dragons starter set for fifth edition because I wanted to print versions of it, I don’t want to print it all out and always be trying to flip around through it on my iPad. But you could get this for free and then even like the expanded spells and expanded monsters are all on DnD Beyond in electronic format for free and it’s fully searchable.
In my opinion, they have done a great job of expanding the free bubble. Expanding the free circle because the free circle was almost nonexistent 10 or 15 years ago. It just keeps getting bigger and bigger but as a result, they then have to have other things around it that they can add to that. My son and I are casual DnD fans, we play it, we like it but we’re not buying all the supplements and all the extra stuff because we don’t have time to consume all of that. For the casual gamer, it’s great. I am spending some money. We buy miniatures and we buy other stuff that I think helps the ecosystem.
But if you’re intense about it, if you’re a hardcore gamer, a hardcore Dungeons and Dragons player, then you’re going to buy that expansion stuff and that’s the gamble Wizards had to take because to me it’s a gamble. Can you make up the lost revenue back giving this other stuff away with the expectation that people are going to buy the other stuff you put out. I think that’s part of what we’re talking about here, right? If you’re building on someone else’s platform, you’re taking a gamble. If you build a platform, how much of it can you release for free without cannibalizing your business model.
Mike: One of the things I find interesting is that there’s nothing that I’ve found that is I’ll say a concession for purchasing their content in another form for example. If you buy some of the books themselves, you can’t then plug in a license key or anything like that into their online system that provides you access to the content that you already bought.
Rob: You bought a physical copy. You’re just saying they don’t give you the digital copy free with the physical. Is that what you’re saying?
Mike: Right.
Rob: Yeah, I mean they could do that if they wanted. But I don’t feel like they’re required to do that, do you?
Mike: I don’t. But if you’re paying a subscription for it which is like there’s the free plan and then there’s the paid plan. But the paid plan doesn’t give you the access to the things that you already purchased in physical form, that’s my point. It’s like they’re charging you a subscription fee to allow you more things inside of the software and it’s like you can create more characters for example. If you want to see a particular monster that’s in a book you already purchased, you can’t have access to that. You have to buy the digital copy of the book which is another $30 to $50 or whatever. You’re basically paying for twice.
Rob: But if you wanted a digital format then don’t buy the physical one, like that’s what I would say. Your subscription is $3 a month or $5 a month, it’s not expensive and that gives you capabilities of the software itself. But then there are these tomes that they spend thousands and tens of thousands of person hours developing with art and all this stuff, it’s expensive to write that stuff. If they wanted to give that away as an all access pass, to me, that’s another tier all together and my guess is someday they might do that.
The Kindle Unlimited or comiXology Unlimited where you can just pay $5 or $10 a month and you get access to not everything in the Kindle store, but you get access to the ones that people make available. They could do that and then it’s a content subscription. I think that the subscription you have with DnD Beyond is more about the capabilities of the software, isn’t it?
Mike: No, if you go in and do you log in and you say, “Okay, let me take a look at the monsters,” there’s like official monsters and stuff like and you go to click on some of them that says, “Oh, you have to purchase the monster manual in order to see this.” It’s like, “Well, I have a physical copy of it. I already purchased it. You’re just allowing me to see it now inside of the software.” Do you see what I’m saying? You already purchased the content.
Rob: You purchased it in paper format though. It’s not their obligation to give it to you in all 17 formats that exist. Should you get a PDF, an EPUB, a Kindle version, when you buy the paper copy? I don’t think that they need to do that, they can.
Mike: I’m not saying that they do, yeah, I totally agree with you. I hear you. I completely agree with what you’re saying but the problems they’ve, I’ll say. created is that they started publishing these things like two or three years before they came out with their online version, so that’s a problem that they’d like basically just looked at and said, “Yeah, we’re not going to deal with this at all.” The whole article is basically about one, them basically pissing off their fan base because of that, because these people have invested $300, $400 or $500 into buying the books and then Wizards of the Coast comes along and says, “Hey, use our online software. You can’t use things that other people have developed because it has the copyrighted material in it. You can’t use those tools. “
It’s like, “How do you use software to basically just search for stuff? ” for example, something simple like that. They’re like, “Yeah, you can’t do that.” And then they compete with you side by side and they take 30% of whatever it is. You can use some other source material, publish it on the market place and they will take 30% of it.
Rob: Sure, it’s an app store model.
Mike: Sure.
Rob: Right, but they compete with you. You’re actually competing with them, if you think about it. They own the license, they own the marketplace. They could just say, “No user-generated content. Go use…” I forget, “…drive through RPG. ” and there’s all these other peripheral market places. They made the choice to let people publish their stuff and to let other people compete with them. You don’t have to put your stuff on there, right?
Mike: No, you don’t. But there’s two different licenses you can choose from when you decide to create something in their world and one of them is the open gaming license, the other one’s the DnD Beyond license. DnD Beyond license lets you use things from their world, but you can only publish it in DnD Beyond. If use the open gaming license, you have to publish it elsewhere. It’s not even allowed in DnD Beyond.
They’ve got a split license system that they think seems to have solved the problem, but it doesn’t solve every problem, of course. Like I said, it kind of comes down to what is the vendor doing that you are not going to be able to work around? What are the things they’re doing that are not fair to you as a creator on that platform? What are they not allowing you to do?
Rob: Yeah, that makes sense. Let’s get back to the point, because we’ve kind of dug through this, but let’s bring this around to software. How does this apply? Where are we going with this in terms of startups?
Mike: Yeah, so as I said there’s a lot of analogies between this particular situation and software where as I said, Twitter is cracking down on their API right now. I get, in certain cases, you have to do that to prevent abuse and right now, Twitter’s cracking down a lot on apps that are bot related, because they don’t want tons of bots on their platform, they want people.
And then there’s others the similar situations where like you got WordPress plugins for example, or Microsoft Office add-ins, or Gmail plug-ins, you are very much reliance upon the vendors’, I’ll say, good graces to allow you to continue doing that and are they going to build a product that does the same thing as yours? TweetDeck, for example competes with other Twitter automation products. Stripe is starting offer in app dashboards and that competes with things like Baremetrics and ProfitWell. I think it’s, I’ll say, a cautionary tale of, “be careful what you wish for,” in terms of the marketplace because you might get it.
Rob: Yeah, that’s right. I think it’s very difficult. The platform is viewed as this holy grail, “If you can build a platform everybody else is building on, then you’ll make a lot of money.” That’s something a lot of Silicon Valley companies strive for. It is also a headache. It is hard to manage because once you have a platform people are building on, those creators—well, they’ve spent money and they have a right to expect that you’re not going to turn around screw them, and sometimes for the greater business, you make the decision to turn around and screw them and that sucks.
I see both sides of it when I look at what Wizards is doing DnD Beyond, I think overall, they are pushing forward, and they are doing the best they can. I don’t think they’re out to screw people. I do think that the licensing stuff is a challenge. I don’t think there’s anything they can do to not piss at least somebody off, when you have tens of thousands of people dealing with, creating or whatever, someone’s going to be upset about something. I’m not saying no one should be upset.
But then on the flip side, when you look at Twitter and Facebook and Google, some of the other things we’ve mentioned, they have done things that I feel like are, I don’t know, downright evil in terms of the sense of don’t be evil, that they’ve really just purely to grow their own bottom line and keep shareholders happy, do things to their ecosystem that, frankly, they said they wouldn’t do or they implied they wouldn’t do and then they turn around and screw a lot of people. They put people out of business, they do real damage. I see both sides of it. I think sometimes the creators and the builders on these platforms get a little too whiny about it or a little too entitled of like, “Well, Wizard shouldn’t be able to do this,” and I don’t necessarily agree with some of that, but I also see the other side of it.
Mike: Yeah, I mean I feel like they’re entitled to do whatever they want, but at the same time, you kind of have to respect the position you’re in is because of the people that you kind of invited to use the platform. I think what’s a little irksome about this is they aren’t really clear about what the future holds. When you’ve got this black box of how it operates and what the future road map for it looks like, it’s hard to make your own decisions about what to do with your business. If you’re a creator and you’re putting things out there and you’re trying to build a business from it and they’re not real clear about what their intentions are for the future, it makes it hard for you to make decisions. Ultimately, the fate of your business, to some extent, is in their hands. They can come out of left field and kill you at any time and there’s very little that you can do to stop it. You can complain but, that may only go so far.
The bigger problem is that, if you don’t have a good understanding of what’s going on inside the company, you can’t predict the future or tell when their business is suffering from the outside and they could be put in a position where they have to make tough choices that are going to hurt you, in order to just either become profitable or simply to stay in business and sometimes, I think their hands are tied as well.
Rob: Yeah, that’s a good point. Typically, I keep saying that Silicon Valley startups, I’m not trying to be generic and paint everybody with a brush, but it does tend to be these heavily funded startups that are clawing after market share and just burning through cash. When I hear one of them is having financial difficulties, either just rumored or they’re a public company and so you know that they’re missing earnings like Twitter has been and Yahoo was, and we hear these companies in trouble. As soon as I hear that, I think to myself, “They’re going to scratch, claw, and screw everyone they can including their users, including their customers, including their partners in order to somehow turn this around. ” They’re doing it for the survival. Once I hear that I’m always backing away like, “Okay, I’m going to be using this tool less.”
I’m just kind of waiting for them to turn around and kind of make decisions that are going to be negative for everyone else’s experience. This is the hard part about building on someone else’s platform. Remember when Facebook—the games came out, Facebook apps, I guess, and then there were all these games like, what was it, FarmVille.
Mike: Yep, FarmVille, Candy Crush.
Rob: FarmVille just got huge instantly and it was like, “Oh my gosh, the company that built that, this is amazing,” and I remember thinking this isn’t lasting, Facebook isn’t going to let it last,” and then they didn’t, remember? And then they tweaked the algorithm on the news feed and all these companies went from whatever it was, down to 10% of their revenue overnight, and that’s it. You fall as quickly as you go up. I don’t view that as a sustainable business. I mean, it’s really, really hard.
I can think of very few platforms that you can build your business on and count that it’s not going to change and screw you in the next two year. Especially if they’re heavily funded and they don’t have the revenue model worked out yet and they eventually want to go public. Eventually, they’re just going to figure out a way to take more money from you, you won’t have a choice or to just build the same functionality you’ve built and usurp you and you won’t have a choice.
Again, building on someone else’s platform is not something you shouldn’t do, but know that you’re going to get screwed at some point and figure out what your exit strategy is before that happens. That’s how I would approach it.
Mike: You’re saying get out no matter what as quickly as possible.
Rob: My personal thing. If I were to build on the next Facebook or Twitter or even Amazon, like people launching Amazon, launching their ecommerce shops on Amazon, I know they get traction fast. But have you seen how many Amazon private label things there are now? I used to buy Duracell and Energizer batteries on Amazon, now they have Amazon Basics. They’re cheaper, I think they arrive the same day here in Minneapolis if I order them. Luggage, I almost bought an Amazon Basics luggage because it was cheaper, it was nice it was highly rated. They are basically looking at all these categories and they’re just figuring out a way to basically screw their vendor.
Again, I’m not saying you shouldn’t do that. But if you get in and you get traction, count that that’s not going to last. That’s not a 10-year business. There’s no chance Amazon will let you take that kind of profit margin for 10 years. They’re going to figure out a way to take it from you.
Mike: I find that odd. On one hand, I get it because they’re a public company and they’re always looking for ways to make more revenue and push their stock price everything. But at the same time, if you develop a reputation for doing that, does it hurt your chances as a platform provider? I think with Amazon, at the moment, the answer is no. But longer term, 10 or 20 years down the road is that going to hurt them? I don’t know the answer to that. I think it depends a lot on specifics of which platform and kind of what it does.
Rob: That makes sense. It depends on, “Are you so big that it doesn’t matter. ” Obviously, Twitter was not, Twitter hasn’t figured out. I mean, they’re struggling. Amazon may be, they may be big enough that it doesn’t matter. Salesforce sucks. I never tried to integrate with them. It’s a 9-month process. They try to charge you a bunch of money just to integrate, it’s insane.
Everyone whom I spoke to, all the SaaS vendors, except for maybe one, got months into the process and eventually just gave up and put their hands up. People had invested hundreds of hours and built the whole thing and then just walked away from it, but they’re still successful. They are big enough that they can kind of do what they want. I think it goes both ways.
Mike: I guess the question for the people listening to this is like, “What do you do when you get to that point? ” I think your thinking is definitely, sell out as quickly as possible and get out. I think that’s a risk, that’s a basic risk profile. You’re not comfortable with the risk.
Rob: And mitigation, totally. Here’s the thing, these are great. If you think of WordPress plugins and Microsoft Office add-ons, the Gmail plugins, even Salesforce add-ons, whatever. I mean if you’ve built a little lifestyle business and you get a couple hundred grand in revenue, the odds of them squashing you are pretty low. But as soon as you’ve built kind of a high six, or seven, or an eight-figure business and you’re really cranking it, and you’re hiring employees, and you’re growing and all that stuff, that’s when it’s like that’s not going to last. I don’t know of many platforms that are going to let you just sit there and do that.
Mike: Right. That kind of goes to the thing I said earlier, what happens 10 or 20 years out, and they’re small enough that you’re not going to grow into this massive business entity in that 10 or 20 years, or if you have no intentions of doing that then it probably doesn’t make nearly as much of a difference. But if you do have plans for that then developing your own platform is probably a better way to go than leveraging theirs.
Rob: Yeah and that’s the struggle. From both sides of it, if you’re building your own platform, you’ll have to manage these challenges. Know that if you get a bunch of developers or a bunch of people using, or consuming, or creating, you’re eventually going to make someone mad. You’re going to piss somebody off. If you have 10,000 people, five are going to be mad at any given time or maybe it’s 500 that are going to be mad.
That’s probably okay, it’s just people’s opinion. You get groups of people and that’s going to happen. But you try to do right by them and you try to have a long-term vision about taking care of the people who made you what you are. If you’re building on someone else’s platform and I think we have talked that through, there are risks. It’s not that you shouldn’t do it, just be aware of the risks going in. Don’t be naive and think that because someone’s offering something for free that they’re not trying to get a bunch of users and sell.
Mike: I think the quote that sticks out from the article is for fan creators, the new status quo is all about dodging wizards hovering mallet. They gave an example of somebody who would put something out there and technically violated their copyright terms of service inside of the license, but Wizards of the Coast was selling it and making 30% off of it for over a year and then they decided, “Well, yeah, we don’t want you doing this anymore.” and then they killed it.
Rob: I wonder if they decided that or if nobody had noticed.
Mike: It was one of their top selling products. It was one of the top selling products in the marketplace. How do you not notice that?
Rob: I don’t know. I’d want to dig in, I mean I’m not trying to defend Wizards, they’re a big company. I’m not trying to say that they’re on the right, but I’m always a little hesitant when I read things like this. These stories, it’s easy to be dramatic and kind of throw stones at the big 98-pound gorilla. I would like to hear more about that. If everyone inside knew about it and they’re like, “Oh, we’re just going to make 30%.” I don’t think 30% on that thing made a damn bit of difference to them. I don’t think that’s why they were doing it. I don’t think Wizards were just like, “Yeah, but we’re going to make money. Let them infringe on our copyright.” I think the fact that it sold for a year and then was taken down is pretty dang unfortunate though, that sucks. It doesn’t look good.
Mike: Right. And I think that’s the question that people have. Well, if they’re going to let this go on, if you make a mistake, for example, and you create a larger business out of it and you start hiring employees and they don’t tell you early enough on that, “Hey, there’s been a mistake here or you’re violating copyright.” Your business would not get to that point. Let’s say, you got it to $15,000 a month and you hired two or three people, and then suddenly they come in a year later and say, “Well, this is wrong. You can’t do this.” and then it’s like, “Okay, well, now what?”
Rob: Right. Yeah, that was a good one. Thanks for bringing that article in. It’s always nice to discuss. It’s a little bit different and it’s definitely a form of philosophical conversation, but I do think that it’s fun to think through and fun to put into the mind set up of this goes on in a lot of different ecosystems. Sometimes it’s a hobby and sometimes it’s business and startups, and what does that look like from both sides, and what are some things you should be aware of as you kind of plan for what you’re building.
With that, I think we’re wrapped up for the day. If you have a question for us, call our voicemail number 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Mike: Things are good this week. Fall is in full effect as the leaves fall off the trees, we live near a lake and the view of that gets better for us. It’s kind of definitely feeling the season’s change and kind of gearing up to do more work in Winter. I took late Spring, Summer and an early Fall off. I’ve been off work since I left Drip in April, so it’s been about six months. Now, I’m kind of starting to ramp up little bit on Tiny Seed, tinyseedfund.com which is the accelerator that I mentioned on the show a few weeks back and things are picking up and going really well with that.
We’re in fundraising mode in essence and that’s going, I will say, quite a bit better than I thought it would. The hypothesis is I think this is needed in our space, I think that bootstrappers and people who want to kind of fun strap things needs and some funding and better funding source and some guidance, and then that there will be people who are interested in supporting that, and based on our models, making money obviously, because it’s an investment. But you don’t know, it’s a hypothesis when you start.
Then the more that we’ve talked to people it’s like, “This is really interesting.” This is something that I feel the momentum building as we speak and I’m pretty excited about that. It’s exciting for me to be working on something new. I haven’t done anything new since starting Drip which is 2012. It’s fun to do that.
Mike: Awesome. On my end, last month, I started doing some paid advertising through the one paid ad that I was doing. I added about 600 email addresses to my mailing list and they’re still kind of working their way through an email campaign that I have set up for them. I have no idea what my eventual conversion rate will be on them. But we just have to just kind of see how that all shakes out. I’m kind of looking at what other things I can do in November and then December and January etc. I’m kind of looking forward to the future, but we seem to have had some reasonable success so far with that.
Rob: Sounds good. How are you feeling about Bluetick? Are you optimistic? Are you in a rut or in a valley right now? What’s your sentiment?
Mike: I don’t know. It’s hard to separate, I’ll say, the business side of things from the personal side of things. Last week I mentioned that I was diagnosed with sleep apnea and I got a CPAP machine and my sleep has started to get noticeably better already. It’s hard to say whether or not like, I don’t want to call it apathy but it’s just like general tiredness, it’s been more than a year or so, just general exhaustion working on it.
It’s not that I’m not excited to work on it or that I don’t want to, it already got things going or make good progress on it, but with the sleep, I feel more energetic just in general. I’m thinking that that’s actually like I said, I’m trying to differentiate between, “Is it just utter lack of sleep? or is it like, “How the product is going.” Obviously, there’s a correlation between them but at a financial level, Bluetick has kind of been meandering. It doesn’t have like hockey stick growth. It goes up some months and goes down some months and it’s just not where I want it to be. But it’s also been really hard to make any substantial progress on it because of the lack of sleep.
Rob: It’s tough, right?
Mike: Yeah. I’m looking at it, saying, “Well, if I can actually start sleeping and get more productive days on a consistent basis…” because before I would have maybe two or three out of a month which is awful. You can’t make progress like that. This week alone I’ve had like three. Obviously, a 300% increase but yeah, I’ll see how it goes and I think that I’ll probably know more in a couple of months.
Rob: Yeah. That makes sense. Like I said last week, it’s tough to have that chronic stuff that you’re fighting against. It’s hard enough to start a company like this without also having to fight another battle on another front. A colleague of mine said, “I can have a tumultuous work life if my personal life is calm and supportive and I can have a tumultuous personal life if my work life is calm and supportive. But if both are in tumult at the same time, it’s just too much.” That’s when people melt out, that’s when you either leave the job, you get a divorce, bad things happen, and you have to make a change, or you come to a breaking point. It sounds like you have the challenge on the business front and then on the personal front—and it’s not easy fighting both those battles.
Mike: like I said, I’m consciously optimistic at this point. The sleep issues will be at least partially resolved and then my expectation/hope is that those will translate into more consistent progress on the Bluetick side. We’ll just see how it goes because I mean honestly, even with sleep, it may not eventually work out. I don’t know, we’ll see how it goes.
Rob: What are we talking about today?
Mike: Well, I have a subscription to Medium and one of the articles that hedge…
Rob: You’re the one.
Mike: Yes, I’m the one.
Rob: You’re the one person that subscribed to it. Did you just do it to get rid of the annoying pop-ups?
Mike: There were articles that I actually wanted to read, and there’s various authors who I read a bunch of their stuff and, it just kind of made sense. It was one of those things where I can pay the $50 a year or not, but if I don’t, then there are certain articles like I go to click on them and they say, “Oh, you can’t read this because you need a Medium subscription.” and yes, I know that there are ways around it but I didn’t really care. It’s $50 a year, I’m totally cool with helping to support those authors. That’s just kind of my point of view on it. It wasn’t enough that I was like, “Oh, I don’t want to pay this, they’re dastardly.” or something like that. It’s just like, “Yeah, whatever.” It’s not that big a deal to me.
Rob: Yeah, I wouldn’t do a work around. If I believe in the content, I pay for the content. I think at this point in our careers, we need to a: value creators and b: not be such cheap bastards that you’re not going to pay somebody $4 a month to help support what’s going on. If it’s a big corporation trying to take a bunch of money from me, then of course, I’m going to fight that tooth and nail. But assuming that some of this is distributed to the writers themselves or at the office themselves, that’s the point of it, I don’t see a reason to try to do some lame work around.
Mike: Yeah, and that was it. Knowing that it was going to support those authors. I will admit that I used those workarounds early on because I was like, “Well, is the content that’s behind the pay wall, is that the same?” or similar quality and everything else like, “Is it the same type of stuff or is it just like completely different.?” It’s the same type of stuff it was just, I want to read it based on what the headline was or what the first couple of paragraphs were and I was like, “Oh, I actually want to read the rest of this.” It’s worked out.
I’d totally renew my subscription when it comes up. If you’re interested in learning more about that, score Medium and you start reading a few different things. Some of them are really interesting and some of them aren’t. But I mean you’re kind of supporting, I think all of the authors that you read their articles because I think that they track what you read and how much you read it and they attribute the money that you pay on a monthly basis to whichever people that you read their content.
Rob: Yeah, and it’s tough because when Medium came out it’s kind of like, “What? How are you going to do this at Williams? You’ve obviously had success with Blogger and Twitter, but this seems like a real tough gamble.” But he raised a bunch of money, buckets of it, because he’s at Williams and really hasn’t found a business model that’s made it work and then when they went to pay, and they started the ads, and they started the pop-ups it’s like, “It’s predictable.” and it’s irritatingly predictable.
It’s another Silicon Valley company that launches with no business model, that in the end just went pissing off or screwing their users, and that’s frustrating to me. It’s a similar thing to, I mean I can throw out dozens of examples, but one that reminds me is Outright which is an accounting software and it was free. It’s an accounting software that’s free. I remember even the CEO, when they launched I said, “How can this be free?” and he’s like, “Well, we want it to be free for everyone and we think that should just be table stakes and then we’re going to charge for tax preparation and these other things and that’s going to make it work.” Well, that was his line but really what they’re trying to do is get a bunch of users and then sell.
Because they sold to GoDaddy and it’s a [shit] product now. It’s terrible, they haven’t touched it. I think we used to use it for academy stuff, we had to switched to Zero. I had three or four accounts at Outright and it’s terrible.
Mike: No, we still use it.
Rob: Do we? I hate that program and it used to be good, but they decided to Silicon Valley model of, “We don’t care about our users. We’re going to launch. We need a bunch of free users. Look, here, we have an exit.” and that’s the difference. I don’t disagree when people have an exit. I mean I’ve sold companies but do it in a way that you don’t screw your employees, you screw your customers, you screw your partners, don’t do that. Have some something. I don’t know if it’s ethics or morals or it’s just like, do the right thing by people and that’s where I get irritated. I’m not saying Medium has gone that far. But I am annoyed every time I go there and there’s some annoying pop-ups.
Mike: I think that there’s a correlation between like the Silicon Valley startups. You and I, we started this podcast kind of in direct opposition to those because as you said, it’s predictable. This happens almost every time. They build a product, they don’t really know who they’re going after, or who’s going to buy it, or who’s going to pay the money, or how they’re going to make money and then they do a bunch of stuff. They get users, they use that to get to the next funding level and eventually, they turn around and bite the people who got them there.
Whether that’s because they sold the company to somebody else and they just say, “Okay, it’s not my problem anymore.” or they do things like put in annoying ads and pop-ups because they didn’t have any business model to begin with, or they’re like Facebook and they start selling all your personal information. It’s predictable every single time.
Rob: Right, or Twitter. Remember they just screwed all the developers who were using their API at one point, remember that? They just said, “Yeah, we’re not going to do that anymore.” Or Google who used to give us the best search results and now the top five of any given search results are a bunch of ads that they say are sponsored in small writing, but my kids don’t know that those are ads, my mom doesn’t know those are ads, she thinks they’re results. Google was always against pay-to-rank and that’s exactly what they’re doing now. We’ve just named five companies who’ve all done this off the top of our heads. We could probably name 50 more. Shall we get back to the episode?
Mike: Sure. Know that our next episode will be a rant. But actually, the topic that we’re going to be talking about today was this article that I found on Medium. It’s named, The Power Struggle for Dungeons & Dragons’ Soul. I thought it was interesting because I read this article and it was all about how originally TSR was the company and Gary Gygax and his team, built dungeons, dragons as to what it was. They sold it to Wizards of the Coast in ’97 and Wizards of the Coast has basically owned it ever since.
Throughout that time, they have done various things to promote the game but at the same time, they own the license to the rules, the content, all the stuff that they distribute. But Dungeons and Dragons has always been like this world that was created or a style of gaming that was created and then people build their own stuff and bring their own stuff to it. There’s this really big do-it-yourself culture inside of Dungeons and Dragons.
I would say there’s a very strong analogy you can make between something like that where you’ve got a platform and you have all these creators who are kind of adding on to it and like the world of software where you have the Twitter API and then there’s all these people that are saying, “Hey, I can use that to create this or I can do that.” so they build on it and then the platform creator turns around and bites them.
In reading through this article, the one thing that struck me was that the analogies are so strong. The very first thing they said was, “Oh, the Dungeons and Dragons rules tend to be complicated and software will help you avoid that minutia.” so software developers came in and started saying like, “Hey, I’m going to build this tool for the game and distribute it.” and Wizards of the Coast said, “Well, yeah. Here’s an open gaming license.” They created this back in the year 2000 and they basically licensed some of their content to be distributed within those tools. The problem is, it wasn’t all of it.
Rob: Yeah, that’s right. It was the gaming engine and to be honest in 2000, that was revolutionary. It was the third edition of Dungeons and Dragons. It was the rules engine itself, but you couldn’t take their proprietary monsters or their proprietary spell names. There’s a bunch of stuff they kept behind. But man, that sparked a huge kind of revolution in terms of all these games. I used to say, “I want to build my own role-playing game.” and a bunch of people want to do that.
You have to come up with all your own game mechanics. I can’t use the 3D6 or the 118, I guess it’s 3D18 ability score, strength, intelligence, wisdom, constitution the ones that Dungeons and Dragons uses because they’re copyrighted, and they’re protected. They opened that up which now 18 years later it seems like, “Yeah, of course they should have done that.” but no one had done that before.
I mean there’s always been massive kind of in-fighting even within the creators themselves like Gary Gygax kind of co-created DnD with this guy Dave Arneson. Dave Arneson sued him every other year for five years in a row about who owned what. It was just super unclear. It was just riddled with lawsuits and has been from the start.
Mike: If you go back and look at the history of it a little bit in terms of what the open gaming license is. Well, I’ll actually have this linked into the show notes. But they have things in here like, “What do you mean by free in terms of the open gaming license?” They actually talk about the concept of free as in beer which is just it’s fascinating that there’s that. They borrowed a lot from open source licenses because they said like with some of the text of their manuals, you could take that and put it directly in.
Normally, it would be a copyright violation and they said, “No. These sections of the manuals, you can copy word-for-word and distribute them but these other things you can’t.” so they restricted certain pieces of it but not all of it. The vast majority of it, you can do whatever you want with it and republish it but then, there’s small sections of it that are actually important sections that you can’t do anything with. It’s almost like an API where you got access to a lot of things but there’s certain things they hold back because they want to basically be in control of them. It’s really not any different than like Twitter saying, “Okay you can have this API but we’re not going to give you the ability to create polls via the API. Only we can do that.”
Rob: This is a tough one. Where are we headed with this? Because I can get into, I believe, if I was Wizards of the Coast, I would hold some stuff back because it’s their business model. Their business model is selling content. It’s selling a game engine and it’s selling content around that game engine, adventures and then expansions to the game mechanics, new classes, new spells all that stuff. They held all that back because if they give it all away, that’s their business, you know I mean. Are we going to debate that part or are we headed in a different direction with this?
Mike: Well, I think it’s just an interesting question of what as a creator of the platform are you holding back from your customers or users versus what they’re allowed to do with it. Because like the things that they hold back for example, you can play the game without them. It’s just that they’re also the popular pieces of it that people want to use like certain sub-races or what have you. I think this is going to be more of a discussion about, “How do you treat your users?” for one. Wizards of the Coast offered their own set of tools in the marketplace called DnD Beyond and they allow people to distribute their own content through it, but they also compete with them at the same time.
Do you trust, I’ll say, the platform vendors? If you put something on Apple’s ecosystem, are you guaranteed that they’re not going to compete against you. Of course, the answer to that is no. They can create anything they want and so could Microsoft or Twitter or what have you. But certain companies are more likely to, I’ll say, leave pieces of the business alone because they know that they want third party vendors to come in and develop on their platform and they don’t want to squash them. They want to kind of foster that. Because as soon as they start squashing these smaller vendors, people are going to take notice and say, “Well, if you’re going to build exactly what we put on your platform and develop, and you see that it’s successful, you create your own version of it and then bundle it…” back in the situation of Microsoft being threatened to be broken up into four different business units back in 2000 because they’re abusing their monopoly position of the distribution engine.
Rob: Wizards of the Coast, when I look at it, the amount of stuff they’re giving away is shocking. The stuff they give away on dndbeyond.com, they have a free plan, that’s all I have. I can pretty much play the game with all that. I mean you can download that the starter rule book and all the materials for free as PDFs legally off of their site. Now, I paid whatever it is, $14 or $15 for it on Amazon, The Dungeons and Dragons starter set for fifth edition because I wanted to print versions of it, I don’t want to print it all out and always be trying to flip around through it on my iPad. But you could get this for free and then even like the expanded spells and expanded monsters are all on DnD Beyond in electronic format for free and it’s fully searchable.
In my opinion, they have done a great job of expanding the free bubble. Expanding the free circle because the free circle was almost nonexistent 10 or 15 years ago. It just keeps getting bigger and bigger but as a result, they then have to have other things around it that they can add to that. My son and I are casual DnD fans, we play it, we like it but we’re not buying all the supplements and all the extra stuff because we don’t have time to consume all of that. For the casual gamer, it’s great. I am spending some money. We buy miniatures and we buy other stuff that I think helps the ecosystem.
But if you’re intense about it, if you’re a hardcore gamer, a hardcore Dungeons and Dragons player, then you’re going to buy that expansion stuff and that’s the gamble Wizards had to take because to me it’s a gamble. Can you make up the lost revenue back giving this other stuff away with the expectation that people are going to buy the other stuff you put out. I think that’s part of what we’re talking about here, right? If you’re building on someone else’s platform, you’re taking a gamble. If you build a platform, how much of it can you release for free without cannibalizing your business model.
Mike: One of the things I find interesting is that there’s nothing that I’ve found that is I’ll say a concession for purchasing their content in another form for example. If you buy some of the books themselves, you can’t then plug in a license key or anything like that into their online system that provides you access to the content that you already bought.
Rob: You bought a physical copy. You’re just saying they don’t give you the digital copy free with the physical. Is that what you’re saying?
Mike: Right.
Rob: Yeah, I mean they could do that if they wanted. But I don’t feel like they’re required to do that, do you?
Mike: I don’t. But if you’re paying a subscription for it which is like there’s the free plan and then there’s the paid plan. But the paid plan doesn’t give you the access to the things that you already purchased in physical form, that’s my point. It’s like they’re charging you a subscription fee to allow you more things inside of the software and it’s like you can create more characters for example. If you want to see a particular monster that’s in a book you already purchased, you can’t have access to that. You have to buy the digital copy of the book which is another $30 to $50 or whatever. You’re basically paying for twice.
Rob: But if you wanted a digital format then don’t buy the physical one, like that’s what I would say. Your subscription is $3 a month or $5 a month, it’s not expensive and that gives you capabilities of the software itself. But then there are these tomes that they spend thousands and tens of thousands of person hours developing with art and all this stuff, it’s expensive to write that stuff. If they wanted to give that away as an all access pass, to me, that’s another tier all together and my guess is someday they might do that.
The Kindle Unlimited or comiXology Unlimited where you can just pay $5 or $10 a month and you get access to not everything in the Kindle store, but you get access to the ones that people make available. They could do that and then it’s a content subscription. I think that the subscription you have with DnD Beyond is more about the capabilities of the software, isn’t it?
Mike: No, if you go in and do you log in and you say, “Okay, let me take a look at the monsters,” there’s like official monsters and stuff like and you go to click on some of them that says, “Oh, you have to purchase the monster manual in order to see this.” It’s like, “Well, I have a physical copy of it. I already purchased it. You’re just allowing me to see it now inside of the software.” Do you see what I’m saying? You already purchased the content.
Rob: You purchased it in paper format though. It’s not their obligation to give it to you in all 17 formats that exist. Should you get a PDF, an EPUB, a Kindle version, when you buy the paper copy? I don’t think that they need to do that, they can.
Mike: I’m not saying that they do, yeah, I totally agree with you. I hear you. I completely agree with what you’re saying but the problems they’ve, I’ll say. created is that they started publishing these things like two or three years before they came out with their online version, so that’s a problem that they’d like basically just looked at and said, “Yeah, we’re not going to deal with this at all.” The whole article is basically about one, them basically pissing off their fan base because of that, because these people have invested $300, $400 or $500 into buying the books and then Wizards of the Coast comes along and says, “Hey, use our online software. You can’t use things that other people have developed because it has the copyrighted material in it. You can’t use those tools. “
It’s like, “How do you use software to basically just search for stuff? ” for example, something simple like that. They’re like, “Yeah, you can’t do that.” And then they compete with you side by side and they take 30% of whatever it is. You can use some other source material, publish it on the market place and they will take 30% of it.
Rob: Sure, it’s an app store model.
Mike: Sure.
Rob: Right, but they compete with you. You’re actually competing with them, if you think about it. They own the license, they own the marketplace. They could just say, “No user-generated content. Go use…” I forget, “…drive through RPG. ” and there’s all these other peripheral market places. They made the choice to let people publish their stuff and to let other people compete with them. You don’t have to put your stuff on there, right?
Mike: No, you don’t. But there’s two different licenses you can choose from when you decide to create something in their world and one of them is the open gaming license, the other one’s the DnD Beyond license. DnD Beyond license lets you use things from their world, but you can only publish it in DnD Beyond. If use the open gaming license, you have to publish it elsewhere. It’s not even allowed in DnD Beyond.
They’ve got a split license system that they think seems to have solved the problem, but it doesn’t solve every problem, of course. Like I said, it kind of comes down to what is the vendor doing that you are not going to be able to work around? What are the things they’re doing that are not fair to you as a creator on that platform? What are they not allowing you to do?
Rob: Yeah, that makes sense. Let’s get back to the point, because we’ve kind of dug through this, but let’s bring this around to software. How does this apply? Where are we going with this in terms of startups?
Mike: Yeah, so as I said there’s a lot of analogies between this particular situation and software where as I said, Twitter is cracking down on their API right now. I get, in certain cases, you have to do that to prevent abuse and right now, Twitter’s cracking down a lot on apps that are bot related, because they don’t want tons of bots on their platform, they want people.
And then there’s others the similar situations where like you got WordPress plugins for example, or Microsoft Office add-ins, or Gmail plug-ins, you are very much reliance upon the vendors’, I’ll say, good graces to allow you to continue doing that and are they going to build a product that does the same thing as yours? TweetDeck, for example competes with other Twitter automation products. Stripe is starting offer in app dashboards and that competes with things like Baremetrics and ProfitWell. I think it’s, I’ll say, a cautionary tale of, “be careful what you wish for,” in terms of the marketplace because you might get it.
Rob: Yeah, that’s right. I think it’s very difficult. The platform is viewed as this holy grail, “If you can build a platform everybody else is building on, then you’ll make a lot of money.” That’s something a lot of Silicon Valley companies strive for. It is also a headache. It is hard to manage because once you have a platform people are building on, those creators—well, they’ve spent money and they have a right to expect that you’re not going to turn around screw them, and sometimes for the greater business, you make the decision to turn around and screw them and that sucks.
I see both sides of it when I look at what Wizards is doing DnD Beyond, I think overall, they are pushing forward, and they are doing the best they can. I don’t think they’re out to screw people. I do think that the licensing stuff is a challenge. I don’t think there’s anything they can do to not piss at least somebody off, when you have tens of thousands of people dealing with, creating or whatever, someone’s going to be upset about something. I’m not saying no one should be upset.
But then on the flip side, when you look at Twitter and Facebook and Google, some of the other things we’ve mentioned, they have done things that I feel like are, I don’t know, downright evil in terms of the sense of don’t be evil, that they’ve really just purely to grow their own bottom line and keep shareholders happy, do things to their ecosystem that, frankly, they said they wouldn’t do or they implied they wouldn’t do and then they turn around and screw a lot of people. They put people out of business, they do real damage. I see both sides of it. I think sometimes the creators and the builders on these platforms get a little too whiny about it or a little too entitled of like, “Well, Wizard shouldn’t be able to do this,” and I don’t necessarily agree with some of that, but I also see the other side of it.
Mike: Yeah, I mean I feel like they’re entitled to do whatever they want, but at the same time, you kind of have to respect the position you’re in is because of the people that you kind of invited to use the platform. I think what’s a little irksome about this is they aren’t really clear about what the future holds. When you’ve got this black box of how it operates and what the future road map for it looks like, it’s hard to make your own decisions about what to do with your business. If you’re a creator and you’re putting things out there and you’re trying to build a business from it and they’re not real clear about what their intentions are for the future, it makes it hard for you to make decisions. Ultimately, the fate of your business, to some extent, is in their hands. They can come out of left field and kill you at any time and there’s very little that you can do to stop it. You can complain but, that may only go so far.
The bigger problem is that, if you don’t have a good understanding of what’s going on inside the company, you can’t predict the future or tell when their business is suffering from the outside and they could be put in a position where they have to make tough choices that are going to hurt you, in order to just either become profitable or simply to stay in business and sometimes, I think their hands are tied as well.
Rob: Yeah, that’s a good point. Typically, I keep saying that Silicon Valley startups, I’m not trying to be generic and paint everybody with a brush, but it does tend to be these heavily funded startups that are clawing after market share and just burning through cash. When I hear one of them is having financial difficulties, either just rumored or they’re a public company and so you know that they’re missing earnings like Twitter has been and Yahoo was, and we hear these companies in trouble. As soon as I hear that, I think to myself, “They’re going to scratch, claw, and screw everyone they can including their users, including their customers, including their partners in order to somehow turn this around. ” They’re doing it for the survival. Once I hear that I’m always backing away like, “Okay, I’m going to be using this tool less.”
I’m just kind of waiting for them to turn around and kind of make decisions that are going to be negative for everyone else’s experience. This is the hard part about building on someone else’s platform. Remember when Facebook—the games came out, Facebook apps, I guess, and then there were all these games like, what was it, FarmVille.
Mike: Yep, FarmVille, Candy Crush.
Rob: FarmVille just got huge instantly and it was like, “Oh my gosh, the company that built that, this is amazing,” and I remember thinking this isn’t lasting, Facebook isn’t going to let it last,” and then they didn’t, remember? And then they tweaked the algorithm on the news feed and all these companies went from whatever it was, down to 10% of their revenue overnight, and that’s it. You fall as quickly as you go up. I don’t view that as a sustainable business. I mean, it’s really, really hard.
I can think of very few platforms that you can build your business on and count that it’s not going to change and screw you in the next two year. Especially if they’re heavily funded and they don’t have the revenue model worked out yet and they eventually want to go public. Eventually, they’re just going to figure out a way to take more money from you, you won’t have a choice or to just build the same functionality you’ve built and usurp you and you won’t have a choice.
Again, building on someone else’s platform is not something you shouldn’t do, but know that you’re going to get screwed at some point and figure out what your exit strategy is before that happens. That’s how I would approach it.
Mike: You’re saying get out no matter what as quickly as possible.
Rob: My personal thing. If I were to build on the next Facebook or Twitter or even Amazon, like people launching Amazon, launching their ecommerce shops on Amazon, I know they get traction fast. But have you seen how many Amazon private label things there are now? I used to buy Duracell and Energizer batteries on Amazon, now they have Amazon Basics. They’re cheaper, I think they arrive the same day here in Minneapolis if I order them. Luggage, I almost bought an Amazon Basics luggage because it was cheaper, it was nice it was highly rated. They are basically looking at all these categories and they’re just figuring out a way to basically screw their vendor.
Again, I’m not saying you shouldn’t do that. But if you get in and you get traction, count that that’s not going to last. That’s not a 10-year business. There’s no chance Amazon will let you take that kind of profit margin for 10 years. They’re going to figure out a way to take it from you.
Mike: I find that odd. On one hand, I get it because they’re a public company and they’re always looking for ways to make more revenue and push their stock price everything. But at the same time, if you develop a reputation for doing that, does it hurt your chances as a platform provider? I think with Amazon, at the moment, the answer is no. But longer term, 10 or 20 years down the road is that going to hurt them? I don’t know the answer to that. I think it depends a lot on specifics of which platform and kind of what it does.
Rob: That makes sense. It depends on, “Are you so big that it doesn’t matter. ” Obviously, Twitter was not, Twitter hasn’t figured out. I mean, they’re struggling. Amazon may be, they may be big enough that it doesn’t matter. Salesforce sucks. I never tried to integrate with them. It’s a 9-month process. They try to charge you a bunch of money just to integrate, it’s insane.
Everyone whom I spoke to, all the SaaS vendors, except for maybe one, got months into the process and eventually just gave up and put their hands up. People had invested hundreds of hours and built the whole thing and then just walked away from it, but they’re still successful. They are big enough that they can kind of do what they want. I think it goes both ways.
Mike: I guess the question for the people listening to this is like, “What do you do when you get to that point? ” I think your thinking is definitely, sell out as quickly as possible and get out. I think that’s a risk, that’s a basic risk profile. You’re not comfortable with the risk.
Rob: And mitigation, totally. Here’s the thing, these are great. If you think of WordPress plugins and Microsoft Office add-ons, the Gmail plugins, even Salesforce add-ons, whatever. I mean if you’ve built a little lifestyle business and you get a couple hundred grand in revenue, the odds of them squashing you are pretty low. But as soon as you’ve built kind of a high six, or seven, or an eight-figure business and you’re really cranking it, and you’re hiring employees, and you’re growing and all that stuff, that’s when it’s like that’s not going to last. I don’t know of many platforms that are going to let you just sit there and do that.
Mike: Right. That kind of goes to the thing I said earlier, what happens 10 or 20 years out, and they’re small enough that you’re not going to grow into this massive business entity in that 10 or 20 years, or if you have no intentions of doing that then it probably doesn’t make nearly as much of a difference. But if you do have plans for that then developing your own platform is probably a better way to go than leveraging theirs.
Rob: Yeah and that’s the struggle. From both sides of it, if you’re building your own platform, you’ll have to manage these challenges. Know that if you get a bunch of developers or a bunch of people using, or consuming, or creating, you’re eventually going to make someone mad. You’re going to piss somebody off. If you have 10,000 people, five are going to be mad at any given time or maybe it’s 500 that are going to be mad.
That’s probably okay, it’s just people’s opinion. You get groups of people and that’s going to happen. But you try to do right by them and you try to have a long-term vision about taking care of the people who made you what you are. If you’re building on someone else’s platform and I think we have talked that through, there are risks. It’s not that you shouldn’t do it, just be aware of the risks going in. Don’t be naive and think that because someone’s offering something for free that they’re not trying to get a bunch of users and sell.
Mike: I think the quote that sticks out from the article is for fan creators, the new status quo is all about dodging wizards hovering mallet. They gave an example of somebody who would put something out there and technically violated their copyright terms of service inside of the license, but Wizards of the Coast was selling it and making 30% off of it for over a year and then they decided, “Well, yeah, we don’t want you doing this anymore.” and then they killed it.
Rob: I wonder if they decided that or if nobody had noticed.
Mike: It was one of their top selling products. It was one of the top selling products in the marketplace. How do you not notice that?
Rob: I don’t know. I’d want to dig in, I mean I’m not trying to defend Wizards, they’re a big company. I’m not trying to say that they’re on the right, but I’m always a little hesitant when I read things like this. These stories, it’s easy to be dramatic and kind of throw stones at the big 98-pound gorilla. I would like to hear more about that. If everyone inside knew about it and they’re like, “Oh, we’re just going to make 30%.” I don’t think 30% on that thing made a damn bit of difference to them. I don’t think that’s why they were doing it. I don’t think Wizards were just like, “Yeah, but we’re going to make money. Let them infringe on our copyright.” I think the fact that it sold for a year and then was taken down is pretty dang unfortunate though, that sucks. It doesn’t look good.
Mike: Right. And I think that’s the question that people have. Well, if they’re going to let this go on, if you make a mistake, for example, and you create a larger business out of it and you start hiring employees and they don’t tell you early enough on that, “Hey, there’s been a mistake here or you’re violating copyright.” Your business would not get to that point. Let’s say, you got it to $15,000 a month and you hired two or three people, and then suddenly they come in a year later and say, “Well, this is wrong. You can’t do this.” and then it’s like, “Okay, well, now what?”
Rob: Right. Yeah, that was a good one. Thanks for bringing that article in. It’s always nice to discuss. It’s a little bit different and it’s definitely a form of philosophical conversation, but I do think that it’s fun to think through and fun to put into the mind set up of this goes on in a lot of different ecosystems. Sometimes it’s a hobby and sometimes it’s business and startups, and what does that look like from both sides, and what are some things you should be aware of as you kind of plan for what you’re building.
With that, I think we’re wrapped up for the day. If you have a question for us, call our voicemail number 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 417 | Pulling Out Profits, Building Features vs. Integrating, Marketing a Podcast, and More Listener Questions
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including how to market a podcast, what to do with business profits, building features vs. integrating and more.
Items mentioned in this episode:
- MicroConf
- ZoomAdmin
- Big Snow Tiny Conf
- Business of Software Conference
- FemtoConf
- Brian Casel “Tiny Conferences”
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about when to pull profits out of your business, the balancing act of building features versus integrating, how to market a podcast, and more listener questions. This is Startups For The Rest Of Us episode 417.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Well, I talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Well, I talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 416 | MicroConf Europe 2018 Recap
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike recap MicroConf Europe 2018. The guys go through the list of speakers of the two day event and highlight some of their key takeaways from each presentation.
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Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be recapping MicroConf Europe 2018. This is Startups For The Rest Of Us 416.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: You know, I’m still in Croatia. We’re taking an extended little vacation after MicroConf Europe ended a couple of days ago. Even actually the day the day this goes live next week, I think that’s a day before Halloween, we’re flying back on Tuesday in order to get the kids back for Halloween. They really didn’t want to miss Halloween.
Mike: Oh, interesting.
Rob: Yeah. About that time, we would have been here for over two weeks I believe. Maybe 16 days or something. It’s been a really fun time. I am pleasantly surprised. I found a lot of good things about Croatia. We have travelled a lot so I tend to have high expectations of the places that I go. I want them to be interesting, fun, have history, have natural beauty, have cities with cool thing, just have all the stuff. Croatia has offered that. I’m really impressed with it.
Mike: I came back yesterday. The place is amazing. I don’t even know how to put it into words, to be honest. It was just crazy how awesome the city was. I did a walking tour. I went around like a Game of Thrones tour there, so I went on that. I think Zander went on one of the six hours. Mine was only two but it was still fantastic. What I really liked about the tour was that it actually went into history of the city itself, it wasn’t just Game of Thrones because they also had a tour of the city walls that you could go on. I think it was self-guided.
But you could walk around the entire city, and of course, because the city was built in I don’t even know exactly what year, but I think the walls, they said, they think they were built anywhere between 1100 and 1400, and the city never been breached by a siege. It went into a lot of the history of the Ottoman Empire being nearby and how they were like a conduit back to them from the ocean. It was just fascinating because I’m sort of a history buff, I enjoy history, but I don’t necessarily know a vast array of history but I always find it fascinating.
Rob: Dubrovnik specifically is where the conference is. I think my favorite part of the trip, we were up North, there’s an amazing natural park, waterfalls that was great, we went to some islands, those were fun and sleepy because it’s offseason now which has been nice. I mean, the fact that it hasn’t been crowded, it’s still pretty warm, and it’s inexpensive to be here right now compared to the high season. Dubrovnik has definitely been our favorite time. I’m a wid bit […] we’re going to have been here a week by tomorrow and we’re going to extend our stay and stay for another two or three days and fly out directly from here just because there’s more to do. I went on the two-hour Game of Thrones tour as well and I had a great time. It was nice to be able to walk around and see the scenes, but also get some amazing pictures of the city. I’m impressed. Thumbs up for me.
Mike: Cool.
Rob: How about you?
Mike: Well, like I said, I just got back. I’m burrowing through my emails. That’s the funny part because I’m going through and trying to clear up my email box and of course, because it’s the middle of the day, I’m still getting them in. It’s kind of brushing your teeth while eating oreos but I think I’m down to under a hundred or so right now. It’s just a matter of figuring out what to do with a lot of the rest of them and kind of […] them in and still like, “What to do? When?”
Rob: Yep, yep. It’s just getting it all, gathering it, and it’s like, “Do I throw this into Trello? Do I boomerang…” When I get back, I will boomerang things that I don’t want to log into Trello, I don’t want to put somewhere else, but I know that I need to get to it in a week or so. I will just boomerang it because I know that by that time I will have less in my inbox and I’m just trying to churn through things. I’ve kept up pretty well with email, fortunately. I got a sim card when I got here and so as we were riding on trains or ferries and boats and that kind of stuff, I’ve been trying to keep up with stuff, but it’s always tough on vacation to try to balance that.
Mike: Yep.
Rob: Cool. We are talking about MicroConf Europe 2018 today.
Mike: Yeah. Why don’t we go through some of the speakers, kind of talk about the gist of what it is they were talking about, and kind of pull out some takeaways that the audience can use.
Rob: Sounds great.
Mike: The first speaker was Steli Efti and he talked about what he called, The 7 Deadly Startup Sales Sins. I don’t if he arranged or structured the talk exactly like this when he started because I know he’s given a very similar talk the past couple of weeks at different conferences, but he basically, took the talk itself and shortened it a little bit so that he could do a lot more Q&A. I thought that was a really great way to handle this especially for the size of the audience this year because he was able to really dig in and start digging into people’s specific problems and challenges that they were having about how do you address certain sales situations or how do you handle certain types of objections that other people would have, how you transition between one part of the sales process and the other, how do you get the sales team and the marketing team and the product team all on the same page. I think that was extremely helpful for the audience. He did a fantastic job.
Rob: The nice part is having a talk that I think we had slotted 35 minutes for talks and then you get some Q&A time, 35-40 minutes I think, and he went out for 20 or 25 minutes, but you can pack a lot in that amount of time. We’ve actually shortened our talk times over the years. But for our very first year, we have everybody an hour. That’s a long time to get up on stage, even including Q&A, that’s got 50 minute talk just starts to feel long. We shortened to 45 and sometimes, we do 35, and then 30, and then we found as long as we can fill the days with good content, having more of a shorter talk I think is something that works pretty well. Steli knew, he didn’t accidentally go short.
We’ve had folks do that where they get up there and it’s like, “Boom!” 20 minutes and they’re done and that’s like, “Oh, no. What do we do?” But it was not like that at all. In his first five minutes he goes like, “Look, I’m going to do a short but we’re going to do a lot of Q&A.” and there was. There were a ton of questions. He totally filled out the time. I thought it was a well-delivered talk, as you would expect from Steli. He’s a good speaker, good content, it was a good talk. I thought that was well-received.
Mike: Next we have Ashley Baxter come in from Scotland. Her talk title was, Idea to Execution and Beyond. What I found fascinating about her and one of the reasons I sought her out as a speaker was because she’s in software, she’s been a software developer, and she’s also in the insurance industry. It’s not an industry where you would think that you would probably want to go, I think for the most part. I certainly would not want to deal with the insurance industry. But her company is re-selling insurance to freelancers. She talked about how she built her business and how she grew it, and what people were really looking for, and how to dive into the idea itself, and then also expanding and really hit on the actual pain points that your customers are having, and how to use those in not just your marketing material, but how you talk to them.
She showed some extremely crappy ways of how she was gathering information from the audience that she was going after just by using a simple type form where she’s like, “Oh, people thought this was part of the process to get the information and it really wasn’t. It was just I used that because I didn’t have any feedback loop from the insurance company themselves where they were actually filling-up the information.” She gathered all email address upfront and then send them over and people just kind of thought that, “Oh, this is part of that process.” and it wasn’t. It was so she can get the information she needed.
Rob: Yeah, this was the first time I had met Ashley. When she said she was talking about insurance, I was like, “Oh, no. What have we done?” But she’s like, “No, it’s kind of a joke. I’m not actually talking about the insurance. I’m talking about doing the startup and validating it and the steps I took.” I thought her talk turned out really well. I enjoyed it. I heard some folks talking in hallway about how they enjoyed hearing her journey because it’s a little bit non-traditional. It’s not a SaaS app, but we’ve had really good talks from some folks who sell information products, some people who sell physical products. There are things to be learned and passed along across this disciplines.
Mike: Third speaker on our first day is Aleth Gueguen. Her talk was the Bulletproof Path to Privacy for your Software Business. She does a lot of stuff with the GDPR, a lot of consulting with various companies. But she kind of describes herself as a privacy advocate. Most of what she talked about was things that you would think are generally common sense and in certain cases they are. Obviously, certain companies where she has done consulting, they go in a different direction or they lean too much on the legal team for example. She’s like, “If you’re going to be putting together a privacy policy, yes, the legal team should have an input, but the marketing team should write it.” Because it’s really about how you are portraying your company and what you’re doing to your customers versus making it overly, I’ll say, aimed at covering your ass in terms of the legalities of it.
Yes, you do want to do that, but when you have a lawyer write that stuff, it’s very different in terms of tone and feel when the users are reading it versus when the marketing team writes it because you are presenting your company to the users like, “Hey, this is what we do with your data and this is why you should trust us.” Not saying you shouldn’t have the legal team review it afterwards, but it depends on your starting point and it’s going to have a very different tone and feel depending on who you have offer it.
Rob: This was another one when Aleth said she was speaking about GDPR. I was like, “Well, this can go one of two ways. It can be really boring or it can be super helpful.” What I like about what she said is when GDPR started coming on our radar at Drip—this is shortly before I had moved on from Drip—I said, “Let legal worry about it.” He said, “No. If they do it, it’ll be a mess. We, as product people, know the product and legal will not. They just won’t have the experience or the knowledge to be able to do this. We need to do it first then they need to make it legal speak.” and it worked out. That’s what we did. Brendan read the whole GDPR document, it’s 200 and something pages, and it worked out really well. She wasn’t recommending you read the whole thing, but she was saying, “You, as a product person, you have to own this.” I think that’s super important.
This is similar to negotiations I’ve seen. If your company is going to be acquired, you don’t want lawyers negotiating before the stuff needs to go to legal. There’s a point where it needs in a contract, before then, keep the lawyers out of it, and either have an investment maker or a broker, of if you’re going to be negotiating yourself, you handle it. But the lawyers in general will make things complicated and they can kill deals just with their approach. They’re trained to do things a certain way and it’s not always the right way.
GDPR, it was actually a really good talk. A couple of people said it was the best talk they’d heard on GDPR. It wasn’t like walking through legislation, it was saying, “Here’s a minimum viable approach to this. Here’s the next level up. Here’s some ways to think about.” It was much more from a more experienced person, not just someone who read a boring document.
Mike: It was definitely positioned as like, “This is the common sense way to approach it for companies that don’t have unlimited resources to be able to do it.”
Rob: Yeah, that’s right. And then we had some attendee talks in the afternoon. We have four attendee talks this year and that’s where admitted topics and they were voted on in advanced based on the topic. The presenter voted in advanced who should give the talks. I thought those went well. There were 12-minute talks, we did four of them in an hour, and they tend to move pretty quick. In general, we tend to have a pretty good luck in it, so that was the case again this year.
Mike: I would agree with that. I do want to call out a special thanks to Benedikt Deicke for putting together a attendee talk at the last minute because we did have an attendee talk that who had been voted on and was going to come and do that and he ended-up having to change his plans, and wasn’t able to make it to MicroConf Europe so I contacted Benedikt a few days before MicroConf and asked him. I was like, “Do you think you could put something together? Yes or No?” and I didn’t want to put him on the spot and force him to do it, but if he hadn’t been able to, we probably wouldn’t have been able to get away with it. But at the same time, I wanted to give him the opportunity if he wanted to. He put together a great talk. I thought it was exceptionally well done for the amount of time that he had.
Rob: Yup, I agree. Kudos to him for stepping up and doing that. And then I wrapped the day up with my talk. I called it, I really messed with the title a lot, and I finally landed on The State of Bootstrapping in 2018. I kind of talked through my journey as a bootstrapper, the phases of doing literally six years of nights and weekends, on and off and never making more $100 a month from the stuff I launched. Then there was this three-year period where I stair-stepped up to having like a house payment type of money, like $1000-$2000 a month. Then over that three years, I got to full-time income.
I went through the phases of what that looked like for me, funding options I have like, finding being nights and weekends, it’s a day job, or you can have savings or whatever. Then I looked at the funding options that we have today because they are definitely more a founder-friendly options. Obviously, I talked about venture capital, what that looks like. I still don’t think it’s fit for almost everyone in the room. Talked about fund-strapping which of course, I’ve talked about on this podcast before. I mentioned what I believe is the next wave or next generation of funding for our crowd basically, for the the MicroConf bootstrapping community which is kind of these funds like […] VC or accelerators I’m launching with TinySeed, at tinyseedfund.com which is bootstrapper-friendly accelerator.
I talked through all that and I got a lot of good questions afterwards. A couple of people said, “I wish you’d spend more time talking about TinySeed,” and I said, “The intent was not for it to be an advertisement for what I’m doing.” It’s not, “Hey, look at what I’m doing.” because if you don’t care about that, why are you sitting in the dock for 30 or 40 minutes. I really wanted it to be helpful to you no matter what you do. If it convinced you that bootstrapping is still the best way for you, then good, at least I convinced at something. If I convinced that you should consider fund-strapping or an accelerator like TinySeed or whatever, my goal was accomplished as well.
Mike: Then we had an evening event out on the terrace right outside where the main hall was where we had the conference itself, and that was sponsored by FE International. It was an absolutely gorgeous view from there because you could see, not just down to the water, the hotel was literally right on the water, and then they have like an infinity pool there with a swim up bar and a hot tub over to the side. It was just like, you could watch the sunset.
I think the second day I was there, there were probably 15 or 20 people just sitting out there, watching the sunset, and there were a few people who took timelapse videos. There’s a couple that got uploaded into the Slack group. It was just amazing view.
Rob: The hotel was the nicest, I’d say the nicest hotel we’ve had at MicroConf Europe at and by far the best location and the best view. Everyone commented on that. Every room has an ocean view. It’s really crazy. It’s so cool to be able to do that and to do it off-season so it wasn’t outrageously expensive. It was €110 a night for these rooms that I believe are twice that, I think they’re €220 in the high season or €240 or something. It’s nice.
Mike: I would say the only confusing thing about the hotel is that because you’re basically coming in from the back and it’s sort of on a cliff, the lobby is above all the other floors. The first floor is actually where you could go down, there’s a place to eat, and you can walk out into the pool area. But the lobby is actually–I think they call it the RC level but was like 9 or 10 or something like that. It’s at the top of the hotel and so the bottom.
Rob: Thank you to FE International for sponsoring MicroConf Europe and for sponsoring that evening event.
Mike: And then on day two, we had Adii Pienaar who came in and talked about fundstrapping. He talked about how he had bootstrapped his company and then he did a seed round, and then he almost did a Series A round and decided that instead of doing that, he just didn’t have the heart to try and convince people—the VCs—that that was the direction that the company really deserved to go in. Instead of trying to spend his effort there he turned around and said, “Okay, well let me just make this company profitable and I can do whatever they want.” They cut expenses, went through a couple of rough decisions, but ultimately, he has made the company profitable and they’ve been profitable since the beginning of the year. It was nice to see that path that he took.
He could’ve probably gotten funding if he really wanted to and he just said, “You know what, I don’t have to. I’m just going to make this company profitable.” and it gave some options. I think it was a nice follow-up to the talk that you had had where you talked about the different funding options and how money makes you make different decisions and profit from Adii’s […] but also gives you an optionality that I think that you don’t always have if you take a giant pile of money and you’re trying to build a big business that needs to grow fast because of the investors.
Rob: Yup. That makes a lot of sense. His was one of my favorite talks, to be honest, because he was so raw. Talk about the emotion, the ups and downs, and really kind of told the whole story. I didn’t feel like he held anything back, he gave exact numbers, he talked about a potential acquisition, and talked about, I believe he said what the price was. It was really so cool to hear all the details and then talk like that. I really appreciated him in coming into this with both the topic and the honesty.
Mike: Next, Dr. Sherry Walling came and she talked about mainly trying to keep the alignment that you have as an entrepreneur, making sure that you are aligned both mentally and physically with the goals that you have as a human being. She talked about how entrepreneurs are basically disruptors and there’s a sense that you want to do something that makes you belong but you also want to be successful. Sometimes those things have a little bit of friction between them but having alignment across that spectrum makes things a lot easier for you.
Rob: I missed most of her talk because I was watching the kids. We have three kids here with us and it was the middle of the day, so I had them, and then I caught the last 15 minutes of the talk. When I walked in, it was towards the end. All the eyes were up on her so I knew that she was capturing the audience. People weren’t off on their phone doing Twitter and stuff. It was good. I heard good things about it in the evening events as well.
But she spent a long time trying to figuring out exactly what she wanted to speak about this year and felt like she was going out on a limb with it. I felt like it really resonated.
Mike: The third talk of day two was Simon Payne. It was the CTO of LeadPages. He had left LeadPages I think shortly before you joined. He’s brought a couple of different things. He ran ConvertPlayer and more recently he’s been involved in a company called EventsFrame which helps event organizers sell tickets, and has different pricing structures.
What I found fascinating about that is that one of the things that they did to help get it out there was they did an AppSumo deal. He’s actually done two different AppSumo deals. First one was a while back and then this one was with EventsFrame. He talked about the behind-the-scene stuff like how that worked, what the, not necessarily the specific numbers of it, but what he saw in terms of like, “Oh, we started out with a hefty amount of traffic here and then there’s follow-up emails, and this is how we dealt with people who are already using the software,” and then they saw the AppSumo deal.
You do something like that where you don’t necessarily have control over who it goes to or the messaging, you may have to deal with customer support issues of somebody who says, “Hey, I bought this at this price and now I see this thing over here where you’re offering that.” He talked about how they handled that. I thought it was a really interesting way of approaching some of the objections that people may have about that.
Rob: For sure. And then we have typically seen this. If you’re doing a SaaS app, you […] craft a different plan that doesn’t match any of the plans on your pricing page. You probably put it in between two of the plans. Whatever you do, you just make it different so there is no direct comparison. They had some clever ways of working around that as well. Overall, it sounds like it was pretty successful for them and they’re off to a good start with EventsFrame. I enjoyed the talk. I like stories, he talked about the story and if you’re thinking about doing an AppSumo deal or even any of the deal a day things, it will apply to any of them. I felt like there was some value there.
Next up was Ashley Greene. The title of her talk was, Tech Changes, People Don’t: User Research Is Your Secret Growth Weapon. She is a user-research expert, that’s what she does for a living. She’s a consultant. She talked a lot about segmenting your users and surveying them, and figuring out which folks use which features, and which folks asks for which features. I caught most of it. I was actually in the middle of, there was this conference stuff coming up, so I kept having to get up. But the pieces that I caught I liked and I could tell there were certain folks in the audience who it really resonated with.
With talks like this, about user research, some people aren’t at the phase where it matters yet or they’re past the phase where it matters although you’re kind of never past that phase. But essentially, in the early days of customer […] that’s when, I would say, matters most. As a product matures, you can still do it, but it’s definitely, I would say not as, in my opinion, not as critical or something you should do. You’re doing everyday and make something in the early days. There were definitely some people who were really focused in on it, a lot of good questions for her at the end of the talk.
And then you wrapped up the day and the conference with the talk called, I’m Not Even Supposed to be Here. What’s that all about?
Mike: Well, we had a speaker who canceled at the last minute. I was flying out on Friday and I got an email on Thursday saying, “Look, there’s some stuff going on.” I’m not going to talk about it on the podcast because it’s his story, but I totally understand why he had to cancel. I feel more bad for him that he had to cancel than me for having to fill in. But just because he wasn’t able to make it, I didn’t want to leave the attendees in a lurch so I ended-up coming up with a talk at the very last minute to basically fill the time.
You could tell me how it went, but I completely pulled it out of thin air to be perfectly honest on extremely short notice. I had to work from notes. I would say that the presentation was probably the worst talk that I’ve ever given, but given the timeframe and the zero practice and everything else, it probably wasn’t terrible.
Rob: That was the thing, you had no practice, and you literally had notes that you had learn from, so it was tough. I would agree with you. Certainly, you’ve given talks that are a lot better than it both in prep, it’s hard. The first part, you have a lot of jokes, Morgan Freeman kind of internet meme stuff, and I felt the timing on some of them was off. I think by that time, people were tired. It was two days into the conference and I think it didn’t necessarily resonate with everyone but then you went into like, “Things go wrong, what do you do when they go wrong?” You started giving examples of all the things that have gone wrong behind-the-scenes at MicroConf over the past 16 conferences we’ve run. That part was fun for me, for sure. I think people got a kick out of it. And then you went into stuff that has gone wrong with you, like health issues and such, and kind of wrapped it up with, “Here’s what we do about it. We’re entrepreneurs.” I felt overall it was a good message.
The content was good, the delivery was unpracticed. It is what it is at that point, but we need some way to wrap up the conf.
Mike: After that, we had another evening reception on the terrace again and it was sponsored by SureSwift Capital. Again, another big thanks and shout out to SureSwift for stepping up and helping us to sponsor and support MicroConf. This is the third time that they’ve sponsored MicroConf. Honestly, it’s great to have sponsors like SureSwift Capital and FE International who really just want to support the community. They want to help people be successful. They like to interact with the attendees too. I think in general, the sponsors we have at MicroConf are fantastic in their attitudes and their willingness to just come in and help. They’re like, “We just want to support this community.” Obviously, I can’t say enough good things about both FE International and SureSwift.
Rob: It’s really nice to have, like you said, sponsors that I would do business with or have done business with because then you know, I can genuinely vouch for them, I don’t feel bad about letting them come up and talk on stage for two or three minutes or ask for information or intro-ing them to people, or whatever. We would thank them up from stage like, “Thanks to these guys. They’re legit. We like them.” It’s nice to have that luxury I think.
Mike: Yeah, it’s nice for everybody I think, everybody involved.
Rob: Overall, 16th, one in the bag. How does it feel?
Mike: It feels good. I’m hoping that I will get a goodnight of sleep tonight. I just got back yesterday. I think I left at one o’clock, Croatia time. When I got home, it was 9:00 PM for me, so it was like three o’clock in the morning, something like that. 13 hours of travel, 14 hours of travel which I really shouldn’t be complaining because I know that there are some people who come into MicroConf Vegas and they travelled 25 or 30 hours to be there.
Rob: Totally. That’s the thing for me too. I don’t know if you can hear it in my voice, but I have a little bit of head cold, I’m also super tired. It’s Thursday and the conference ended Tuesday night so you’d expect on Wednesday you’d be tired, but then last night, Sherry and I just went down to the bar to literally have a drink and to have a conversation. Of course, we’ve run into some MicroConf and the we stayed way too late. I still haven’t caught up on sleep. I’m trying to make a plan to do that tonight. But it’s almost dinner time and already I’m thinking, “You know, it’d be nice to just hit the bar and just have a little…watch the sunset right now.” We’ll see where all that leads.
Mike: After the evening reception was over, there were a ton of people that went down to the —actually, I should say up—to the reception area or the lobby area because they have a bar there and they have a piano and somebody went and got on the piano. One of the attendees plays piano and he just played for like 1 hour, 1 ½ or something like that. It reminded me a lot of the very first MicroConf when Marcus got onto the piano up in Andrew Warner’s room. We were all hanging out there. It reminded me a lot of that.
Rob: Yeah, it was fun. It was impromptu. I thought it was really neat. It kind of showed the community that’s like, the conference was over, the conference party was over, and yet, there people were gathering, hanging out, talking, networking/making jokes/playing the piano and just having drinks. I thought that was nice.
Mike: I would totally agree and I would totally go back.
Rob: I know. We’ll have to see if we can pull it off again next year because Croatia sure is a nice destination.
Mike: Well, with that said, I think you should take us out.
Rob: That wraps us up for the day. If you have a question for us, call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: You know, I’m still in Croatia. We’re taking an extended little vacation after MicroConf Europe ended a couple of days ago. Even actually the day the day this goes live next week, I think that’s a day before Halloween, we’re flying back on Tuesday in order to get the kids back for Halloween. They really didn’t want to miss Halloween.
Mike: Oh, interesting.
Rob: Yeah. About that time, we would have been here for over two weeks I believe. Maybe 16 days or something. It’s been a really fun time. I am pleasantly surprised. I found a lot of good things about Croatia. We have travelled a lot so I tend to have high expectations of the places that I go. I want them to be interesting, fun, have history, have natural beauty, have cities with cool thing, just have all the stuff. Croatia has offered that. I’m really impressed with it.
Mike: I came back yesterday. The place is amazing. I don’t even know how to put it into words, to be honest. It was just crazy how awesome the city was. I did a walking tour. I went around like a Game of Thrones tour there, so I went on that. I think Zander went on one of the six hours. Mine was only two but it was still fantastic. What I really liked about the tour was that it actually went into history of the city itself, it wasn’t just Game of Thrones because they also had a tour of the city walls that you could go on. I think it was self-guided.
But you could walk around the entire city, and of course, because the city was built in I don’t even know exactly what year, but I think the walls, they said, they think they were built anywhere between 1100 and 1400, and the city never been breached by a siege. It went into a lot of the history of the Ottoman Empire being nearby and how they were like a conduit back to them from the ocean. It was just fascinating because I’m sort of a history buff, I enjoy history, but I don’t necessarily know a vast array of history but I always find it fascinating.
Rob: Dubrovnik specifically is where the conference is. I think my favorite part of the trip, we were up North, there’s an amazing natural park, waterfalls that was great, we went to some islands, those were fun and sleepy because it’s offseason now which has been nice. I mean, the fact that it hasn’t been crowded, it’s still pretty warm, and it’s inexpensive to be here right now compared to the high season. Dubrovnik has definitely been our favorite time. I’m a wid bit […] we’re going to have been here a week by tomorrow and we’re going to extend our stay and stay for another two or three days and fly out directly from here just because there’s more to do. I went on the two-hour Game of Thrones tour as well and I had a great time. It was nice to be able to walk around and see the scenes, but also get some amazing pictures of the city. I’m impressed. Thumbs up for me.
Mike: Cool.
Rob: How about you?
Mike: Well, like I said, I just got back. I’m burrowing through my emails. That’s the funny part because I’m going through and trying to clear up my email box and of course, because it’s the middle of the day, I’m still getting them in. It’s kind of brushing your teeth while eating oreos but I think I’m down to under a hundred or so right now. It’s just a matter of figuring out what to do with a lot of the rest of them and kind of […] them in and still like, “What to do? When?”
Rob: Yep, yep. It’s just getting it all, gathering it, and it’s like, “Do I throw this into Trello? Do I boomerang…” When I get back, I will boomerang things that I don’t want to log into Trello, I don’t want to put somewhere else, but I know that I need to get to it in a week or so. I will just boomerang it because I know that by that time I will have less in my inbox and I’m just trying to churn through things. I’ve kept up pretty well with email, fortunately. I got a sim card when I got here and so as we were riding on trains or ferries and boats and that kind of stuff, I’ve been trying to keep up with stuff, but it’s always tough on vacation to try to balance that.
Mike: Yep.
Rob: Cool. We are talking about MicroConf Europe 2018 today.
Mike: Yeah. Why don’t we go through some of the speakers, kind of talk about the gist of what it is they were talking about, and kind of pull out some takeaways that the audience can use.
Rob: Sounds great.
Mike: The first speaker was Steli Efti and he talked about what he called, The 7 Deadly Startup Sales Sins. I don’t if he arranged or structured the talk exactly like this when he started because I know he’s given a very similar talk the past couple of weeks at different conferences, but he basically, took the talk itself and shortened it a little bit so that he could do a lot more Q&A. I thought that was a really great way to handle this especially for the size of the audience this year because he was able to really dig in and start digging into people’s specific problems and challenges that they were having about how do you address certain sales situations or how do you handle certain types of objections that other people would have, how you transition between one part of the sales process and the other, how do you get the sales team and the marketing team and the product team all on the same page. I think that was extremely helpful for the audience. He did a fantastic job.
Rob: The nice part is having a talk that I think we had slotted 35 minutes for talks and then you get some Q&A time, 35-40 minutes I think, and he went out for 20 or 25 minutes, but you can pack a lot in that amount of time. We’ve actually shortened our talk times over the years. But for our very first year, we have everybody an hour. That’s a long time to get up on stage, even including Q&A, that’s got 50 minute talk just starts to feel long. We shortened to 45 and sometimes, we do 35, and then 30, and then we found as long as we can fill the days with good content, having more of a shorter talk I think is something that works pretty well. Steli knew, he didn’t accidentally go short.
We’ve had folks do that where they get up there and it’s like, “Boom!” 20 minutes and they’re done and that’s like, “Oh, no. What do we do?” But it was not like that at all. In his first five minutes he goes like, “Look, I’m going to do a short but we’re going to do a lot of Q&A.” and there was. There were a ton of questions. He totally filled out the time. I thought it was a well-delivered talk, as you would expect from Steli. He’s a good speaker, good content, it was a good talk. I thought that was well-received.
Mike: Next we have Ashley Baxter come in from Scotland. Her talk title was, Idea to Execution and Beyond. What I found fascinating about her and one of the reasons I sought her out as a speaker was because she’s in software, she’s been a software developer, and she’s also in the insurance industry. It’s not an industry where you would think that you would probably want to go, I think for the most part. I certainly would not want to deal with the insurance industry. But her company is re-selling insurance to freelancers. She talked about how she built her business and how she grew it, and what people were really looking for, and how to dive into the idea itself, and then also expanding and really hit on the actual pain points that your customers are having, and how to use those in not just your marketing material, but how you talk to them.
She showed some extremely crappy ways of how she was gathering information from the audience that she was going after just by using a simple type form where she’s like, “Oh, people thought this was part of the process to get the information and it really wasn’t. It was just I used that because I didn’t have any feedback loop from the insurance company themselves where they were actually filling-up the information.” She gathered all email address upfront and then send them over and people just kind of thought that, “Oh, this is part of that process.” and it wasn’t. It was so she can get the information she needed.
Rob: Yeah, this was the first time I had met Ashley. When she said she was talking about insurance, I was like, “Oh, no. What have we done?” But she’s like, “No, it’s kind of a joke. I’m not actually talking about the insurance. I’m talking about doing the startup and validating it and the steps I took.” I thought her talk turned out really well. I enjoyed it. I heard some folks talking in hallway about how they enjoyed hearing her journey because it’s a little bit non-traditional. It’s not a SaaS app, but we’ve had really good talks from some folks who sell information products, some people who sell physical products. There are things to be learned and passed along across this disciplines.
Mike: Third speaker on our first day is Aleth Gueguen. Her talk was the Bulletproof Path to Privacy for your Software Business. She does a lot of stuff with the GDPR, a lot of consulting with various companies. But she kind of describes herself as a privacy advocate. Most of what she talked about was things that you would think are generally common sense and in certain cases they are. Obviously, certain companies where she has done consulting, they go in a different direction or they lean too much on the legal team for example. She’s like, “If you’re going to be putting together a privacy policy, yes, the legal team should have an input, but the marketing team should write it.” Because it’s really about how you are portraying your company and what you’re doing to your customers versus making it overly, I’ll say, aimed at covering your ass in terms of the legalities of it.
Yes, you do want to do that, but when you have a lawyer write that stuff, it’s very different in terms of tone and feel when the users are reading it versus when the marketing team writes it because you are presenting your company to the users like, “Hey, this is what we do with your data and this is why you should trust us.” Not saying you shouldn’t have the legal team review it afterwards, but it depends on your starting point and it’s going to have a very different tone and feel depending on who you have offer it.
Rob: This was another one when Aleth said she was speaking about GDPR. I was like, “Well, this can go one of two ways. It can be really boring or it can be super helpful.” What I like about what she said is when GDPR started coming on our radar at Drip—this is shortly before I had moved on from Drip—I said, “Let legal worry about it.” He said, “No. If they do it, it’ll be a mess. We, as product people, know the product and legal will not. They just won’t have the experience or the knowledge to be able to do this. We need to do it first then they need to make it legal speak.” and it worked out. That’s what we did. Brendan read the whole GDPR document, it’s 200 and something pages, and it worked out really well. She wasn’t recommending you read the whole thing, but she was saying, “You, as a product person, you have to own this.” I think that’s super important.
This is similar to negotiations I’ve seen. If your company is going to be acquired, you don’t want lawyers negotiating before the stuff needs to go to legal. There’s a point where it needs in a contract, before then, keep the lawyers out of it, and either have an investment maker or a broker, of if you’re going to be negotiating yourself, you handle it. But the lawyers in general will make things complicated and they can kill deals just with their approach. They’re trained to do things a certain way and it’s not always the right way.
GDPR, it was actually a really good talk. A couple of people said it was the best talk they’d heard on GDPR. It wasn’t like walking through legislation, it was saying, “Here’s a minimum viable approach to this. Here’s the next level up. Here’s some ways to think about.” It was much more from a more experienced person, not just someone who read a boring document.
Mike: It was definitely positioned as like, “This is the common sense way to approach it for companies that don’t have unlimited resources to be able to do it.”
Rob: Yeah, that’s right. And then we had some attendee talks in the afternoon. We have four attendee talks this year and that’s where admitted topics and they were voted on in advanced based on the topic. The presenter voted in advanced who should give the talks. I thought those went well. There were 12-minute talks, we did four of them in an hour, and they tend to move pretty quick. In general, we tend to have a pretty good luck in it, so that was the case again this year.
Mike: I would agree with that. I do want to call out a special thanks to Benedikt Deicke for putting together a attendee talk at the last minute because we did have an attendee talk that who had been voted on and was going to come and do that and he ended-up having to change his plans, and wasn’t able to make it to MicroConf Europe so I contacted Benedikt a few days before MicroConf and asked him. I was like, “Do you think you could put something together? Yes or No?” and I didn’t want to put him on the spot and force him to do it, but if he hadn’t been able to, we probably wouldn’t have been able to get away with it. But at the same time, I wanted to give him the opportunity if he wanted to. He put together a great talk. I thought it was exceptionally well done for the amount of time that he had.
Rob: Yup, I agree. Kudos to him for stepping up and doing that. And then I wrapped the day up with my talk. I called it, I really messed with the title a lot, and I finally landed on The State of Bootstrapping in 2018. I kind of talked through my journey as a bootstrapper, the phases of doing literally six years of nights and weekends, on and off and never making more $100 a month from the stuff I launched. Then there was this three-year period where I stair-stepped up to having like a house payment type of money, like $1000-$2000 a month. Then over that three years, I got to full-time income.
I went through the phases of what that looked like for me, funding options I have like, finding being nights and weekends, it’s a day job, or you can have savings or whatever. Then I looked at the funding options that we have today because they are definitely more a founder-friendly options. Obviously, I talked about venture capital, what that looks like. I still don’t think it’s fit for almost everyone in the room. Talked about fund-strapping which of course, I’ve talked about on this podcast before. I mentioned what I believe is the next wave or next generation of funding for our crowd basically, for the the MicroConf bootstrapping community which is kind of these funds like […] VC or accelerators I’m launching with TinySeed, at tinyseedfund.com which is bootstrapper-friendly accelerator.
I talked through all that and I got a lot of good questions afterwards. A couple of people said, “I wish you’d spend more time talking about TinySeed,” and I said, “The intent was not for it to be an advertisement for what I’m doing.” It’s not, “Hey, look at what I’m doing.” because if you don’t care about that, why are you sitting in the dock for 30 or 40 minutes. I really wanted it to be helpful to you no matter what you do. If it convinced you that bootstrapping is still the best way for you, then good, at least I convinced at something. If I convinced that you should consider fund-strapping or an accelerator like TinySeed or whatever, my goal was accomplished as well.
Mike: Then we had an evening event out on the terrace right outside where the main hall was where we had the conference itself, and that was sponsored by FE International. It was an absolutely gorgeous view from there because you could see, not just down to the water, the hotel was literally right on the water, and then they have like an infinity pool there with a swim up bar and a hot tub over to the side. It was just like, you could watch the sunset.
I think the second day I was there, there were probably 15 or 20 people just sitting out there, watching the sunset, and there were a few people who took timelapse videos. There’s a couple that got uploaded into the Slack group. It was just amazing view.
Rob: The hotel was the nicest, I’d say the nicest hotel we’ve had at MicroConf Europe at and by far the best location and the best view. Everyone commented on that. Every room has an ocean view. It’s really crazy. It’s so cool to be able to do that and to do it off-season so it wasn’t outrageously expensive. It was €110 a night for these rooms that I believe are twice that, I think they’re €220 in the high season or €240 or something. It’s nice.
Mike: I would say the only confusing thing about the hotel is that because you’re basically coming in from the back and it’s sort of on a cliff, the lobby is above all the other floors. The first floor is actually where you could go down, there’s a place to eat, and you can walk out into the pool area. But the lobby is actually–I think they call it the RC level but was like 9 or 10 or something like that. It’s at the top of the hotel and so the bottom.
Rob: Thank you to FE International for sponsoring MicroConf Europe and for sponsoring that evening event.
Mike: And then on day two, we had Adii Pienaar who came in and talked about fundstrapping. He talked about how he had bootstrapped his company and then he did a seed round, and then he almost did a Series A round and decided that instead of doing that, he just didn’t have the heart to try and convince people—the VCs—that that was the direction that the company really deserved to go in. Instead of trying to spend his effort there he turned around and said, “Okay, well let me just make this company profitable and I can do whatever they want.” They cut expenses, went through a couple of rough decisions, but ultimately, he has made the company profitable and they’ve been profitable since the beginning of the year. It was nice to see that path that he took.
He could’ve probably gotten funding if he really wanted to and he just said, “You know what, I don’t have to. I’m just going to make this company profitable.” and it gave some options. I think it was a nice follow-up to the talk that you had had where you talked about the different funding options and how money makes you make different decisions and profit from Adii’s […] but also gives you an optionality that I think that you don’t always have if you take a giant pile of money and you’re trying to build a big business that needs to grow fast because of the investors.
Rob: Yup. That makes a lot of sense. His was one of my favorite talks, to be honest, because he was so raw. Talk about the emotion, the ups and downs, and really kind of told the whole story. I didn’t feel like he held anything back, he gave exact numbers, he talked about a potential acquisition, and talked about, I believe he said what the price was. It was really so cool to hear all the details and then talk like that. I really appreciated him in coming into this with both the topic and the honesty.
Mike: Next, Dr. Sherry Walling came and she talked about mainly trying to keep the alignment that you have as an entrepreneur, making sure that you are aligned both mentally and physically with the goals that you have as a human being. She talked about how entrepreneurs are basically disruptors and there’s a sense that you want to do something that makes you belong but you also want to be successful. Sometimes those things have a little bit of friction between them but having alignment across that spectrum makes things a lot easier for you.
Rob: I missed most of her talk because I was watching the kids. We have three kids here with us and it was the middle of the day, so I had them, and then I caught the last 15 minutes of the talk. When I walked in, it was towards the end. All the eyes were up on her so I knew that she was capturing the audience. People weren’t off on their phone doing Twitter and stuff. It was good. I heard good things about it in the evening events as well.
But she spent a long time trying to figuring out exactly what she wanted to speak about this year and felt like she was going out on a limb with it. I felt like it really resonated.
Mike: The third talk of day two was Simon Payne. It was the CTO of LeadPages. He had left LeadPages I think shortly before you joined. He’s brought a couple of different things. He ran ConvertPlayer and more recently he’s been involved in a company called EventsFrame which helps event organizers sell tickets, and has different pricing structures.
What I found fascinating about that is that one of the things that they did to help get it out there was they did an AppSumo deal. He’s actually done two different AppSumo deals. First one was a while back and then this one was with EventsFrame. He talked about the behind-the-scene stuff like how that worked, what the, not necessarily the specific numbers of it, but what he saw in terms of like, “Oh, we started out with a hefty amount of traffic here and then there’s follow-up emails, and this is how we dealt with people who are already using the software,” and then they saw the AppSumo deal.
You do something like that where you don’t necessarily have control over who it goes to or the messaging, you may have to deal with customer support issues of somebody who says, “Hey, I bought this at this price and now I see this thing over here where you’re offering that.” He talked about how they handled that. I thought it was a really interesting way of approaching some of the objections that people may have about that.
Rob: For sure. And then we have typically seen this. If you’re doing a SaaS app, you […] craft a different plan that doesn’t match any of the plans on your pricing page. You probably put it in between two of the plans. Whatever you do, you just make it different so there is no direct comparison. They had some clever ways of working around that as well. Overall, it sounds like it was pretty successful for them and they’re off to a good start with EventsFrame. I enjoyed the talk. I like stories, he talked about the story and if you’re thinking about doing an AppSumo deal or even any of the deal a day things, it will apply to any of them. I felt like there was some value there.
Next up was Ashley Greene. The title of her talk was, Tech Changes, People Don’t: User Research Is Your Secret Growth Weapon. She is a user-research expert, that’s what she does for a living. She’s a consultant. She talked a lot about segmenting your users and surveying them, and figuring out which folks use which features, and which folks asks for which features. I caught most of it. I was actually in the middle of, there was this conference stuff coming up, so I kept having to get up. But the pieces that I caught I liked and I could tell there were certain folks in the audience who it really resonated with.
With talks like this, about user research, some people aren’t at the phase where it matters yet or they’re past the phase where it matters although you’re kind of never past that phase. But essentially, in the early days of customer […] that’s when, I would say, matters most. As a product matures, you can still do it, but it’s definitely, I would say not as, in my opinion, not as critical or something you should do. You’re doing everyday and make something in the early days. There were definitely some people who were really focused in on it, a lot of good questions for her at the end of the talk.
And then you wrapped up the day and the conference with the talk called, I’m Not Even Supposed to be Here. What’s that all about?
Mike: Well, we had a speaker who canceled at the last minute. I was flying out on Friday and I got an email on Thursday saying, “Look, there’s some stuff going on.” I’m not going to talk about it on the podcast because it’s his story, but I totally understand why he had to cancel. I feel more bad for him that he had to cancel than me for having to fill in. But just because he wasn’t able to make it, I didn’t want to leave the attendees in a lurch so I ended-up coming up with a talk at the very last minute to basically fill the time.
You could tell me how it went, but I completely pulled it out of thin air to be perfectly honest on extremely short notice. I had to work from notes. I would say that the presentation was probably the worst talk that I’ve ever given, but given the timeframe and the zero practice and everything else, it probably wasn’t terrible.
Rob: That was the thing, you had no practice, and you literally had notes that you had learn from, so it was tough. I would agree with you. Certainly, you’ve given talks that are a lot better than it both in prep, it’s hard. The first part, you have a lot of jokes, Morgan Freeman kind of internet meme stuff, and I felt the timing on some of them was off. I think by that time, people were tired. It was two days into the conference and I think it didn’t necessarily resonate with everyone but then you went into like, “Things go wrong, what do you do when they go wrong?” You started giving examples of all the things that have gone wrong behind-the-scenes at MicroConf over the past 16 conferences we’ve run. That part was fun for me, for sure. I think people got a kick out of it. And then you went into stuff that has gone wrong with you, like health issues and such, and kind of wrapped it up with, “Here’s what we do about it. We’re entrepreneurs.” I felt overall it was a good message.
The content was good, the delivery was unpracticed. It is what it is at that point, but we need some way to wrap up the conf.
Mike: After that, we had another evening reception on the terrace again and it was sponsored by SureSwift Capital. Again, another big thanks and shout out to SureSwift for stepping up and helping us to sponsor and support MicroConf. This is the third time that they’ve sponsored MicroConf. Honestly, it’s great to have sponsors like SureSwift Capital and FE International who really just want to support the community. They want to help people be successful. They like to interact with the attendees too. I think in general, the sponsors we have at MicroConf are fantastic in their attitudes and their willingness to just come in and help. They’re like, “We just want to support this community.” Obviously, I can’t say enough good things about both FE International and SureSwift.
Rob: It’s really nice to have, like you said, sponsors that I would do business with or have done business with because then you know, I can genuinely vouch for them, I don’t feel bad about letting them come up and talk on stage for two or three minutes or ask for information or intro-ing them to people, or whatever. We would thank them up from stage like, “Thanks to these guys. They’re legit. We like them.” It’s nice to have that luxury I think.
Mike: Yeah, it’s nice for everybody I think, everybody involved.
Rob: Overall, 16th, one in the bag. How does it feel?
Mike: It feels good. I’m hoping that I will get a goodnight of sleep tonight. I just got back yesterday. I think I left at one o’clock, Croatia time. When I got home, it was 9:00 PM for me, so it was like three o’clock in the morning, something like that. 13 hours of travel, 14 hours of travel which I really shouldn’t be complaining because I know that there are some people who come into MicroConf Vegas and they travelled 25 or 30 hours to be there.
Rob: Totally. That’s the thing for me too. I don’t know if you can hear it in my voice, but I have a little bit of head cold, I’m also super tired. It’s Thursday and the conference ended Tuesday night so you’d expect on Wednesday you’d be tired, but then last night, Sherry and I just went down to the bar to literally have a drink and to have a conversation. Of course, we’ve run into some MicroConf and the we stayed way too late. I still haven’t caught up on sleep. I’m trying to make a plan to do that tonight. But it’s almost dinner time and already I’m thinking, “You know, it’d be nice to just hit the bar and just have a little…watch the sunset right now.” We’ll see where all that leads.
Mike: After the evening reception was over, there were a ton of people that went down to the —actually, I should say up—to the reception area or the lobby area because they have a bar there and they have a piano and somebody went and got on the piano. One of the attendees plays piano and he just played for like 1 hour, 1 ½ or something like that. It reminded me a lot of the very first MicroConf when Marcus got onto the piano up in Andrew Warner’s room. We were all hanging out there. It reminded me a lot of that.
Rob: Yeah, it was fun. It was impromptu. I thought it was really neat. It kind of showed the community that’s like, the conference was over, the conference party was over, and yet, there people were gathering, hanging out, talking, networking/making jokes/playing the piano and just having drinks. I thought that was nice.
Mike: I would totally agree and I would totally go back.
Rob: I know. We’ll have to see if we can pull it off again next year because Croatia sure is a nice destination.
Mike: Well, with that said, I think you should take us out.
Rob: That wraps us up for the day. If you have a question for us, call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 415 | Product-Founder Fit, Stairstepping, Free Trials vs. Money Back Guarantees, and More Listener Questions
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In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including trials versus money back guarantees, product founder fit, the stair-step approach, and more.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about product founder fit, stair stepping, free trials versus money-back guarantees, and more listener questions. This is Startups For The Rest Of Us episode 415.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Croatia, sir. When this goes live, you and I are at MicroConf Europe.
Mike: Yes, that should definitely be fun. People have asked numerous times like, “What was it that made you select Croatia?” and it’s like, “Well, we’ve never been there before and it becomes a business expense.” Seems like a good reason as any.
Rob: And it’s hard for us to get to from the States but it’s reasonably easy to get there from within the EU. It’s gorgeous. It’s where they filmed a lot of Game of Thrones like the exterior scenes. Obviously, we do MicroConf Europe because we love to see everybody and it’s fun to get the people together and offer the value that we do through the MicroConfs, but we have always been pretty deliberate about where to place it.
First couple of years, we’re in Prague, and that was actually suggested by our coordinator at the time, Dan Taylor, and it turned out really cool because Prague was a fun city to be in. And then next, we picked Barcelona because you and I hadn’t been there and people want to go there. Then we went to Lisbon last year. Croatia is I think a nice next step. We’ve looked at Berlin and Greece, and a bunch of other cities and countries, and I think someday we’ll obviously move it to another place but I, for one, am very excited about this.
I’m going there with my family, wife and kids for two-and-a-half weeks. We’ll be in Dubrovnik itself for about a week but we will be surrounding cities kind of exploring. I don’t know if you’ve looked at images of Croatia or even just read up on it but there’s a lot to do there.
Mike: Yeah, definitely. I did look into it a little bit and there’s way more than you would actually think for a small country like that. It would be cool to just hang around. I’m personally looking forward to go and around looking at Dubrovnik itself just because it kind of mentally overlap between the stuff I’ve seen on Game of Thrones and then what the actual city looks like but I did hear that there’s a Game of Throne tour or something like that. I don’t know. I’m hoping I’ll have time to do that but we’ll see.
Rob: I agree. That’s going to be a no brainer for me for sure. This week we are answering some listener questions that have come in. With this episode, if we get through all of these, I believe that clears out our question queue. If you have a question for us you want to answered soon in the next couple of weeks, send it into us. Email us at questions@startupsfortherestofus.com or call our voicemail number. As always, voicemails and audio questions go to the top of the queue.
Our first question is about how many commitments you need to validate an idea, it’s a follow-up question to episode 410, it’s from Chris Palmer. He says, “Hey, I have a question for you. You say you should find 30 people to validate your idea. I’m working on an enterprise software concept with what I would pitch at an ARR, it’s annual run rate or annual cost, of between $10,000 and $150,000 plus. In other words, roughly based on company population plus paid-for seats. What I want to know, in your opinion, is 30 people or 30 companies still a good target number for validation? I used to work in a team. The company had 80,000 people and they will use the product. I’ve spoken to two other companies. One of the people who’s really interested is the director of communication at a large company. I’m going through my network to speak to more people. Cold contacting has not worked.”
It sounds like he has three companies that he’s at least in conversation with. Back to the question. “Given the income per customer, what number should I set? I’m confident with my validation statement and the concept’s possible success. Also, I just wanted to say thank you for your advice last year regarding a situation I was in. Your advice was super helpful. Thanks, Chris.” What do you think, Mike?
Mike: I don’t want to call it an edge case, but this is one of those situations where there’s general guidelines that you can follow, and then there’s cases like this where things fall so far out of what is normal in those situations that they don’t tend to apply. Most of the guidance that I’ve talked about in terms of how many people should you really talk to, it kind of assumes that people are paying a reasonable low monthly rate for it.
Enterprise sales are very, very different and depending on who it is you’re selling inside the company, it’s going to be a very different sales. If you’re selling to the IT director, it’s a different sale than if you were selling to the marketing director. The marketing director is only concerned about their own team versus if you’re selling to the IT director, you have to convince them not just that it is good for their team but also for the entire company, too. That’s what it sounds like this situation is because it’s based on company population versus the size of the IT team.
Rob: That’s why I’m glad he sent this in because it makes me question assumptions that we might have when we kind of call out rules of thumb. There’s always going to be an edge case with the rule of thumb and it’s neat when we can hear about one and then actually talk about, “Well, this is how we would think through that.”
Mike: Right. I think in this case it sounds to me the product is aimed at the entire company. I don’t want to use WinZip as an example, but I’m going to. WinZip is typically installed on every computer in most organizations just because—not almost all organizations—people who have it, they’re going to install it everywhere. You’re not going to buy it for just one team, for example, because it’s going to be used by pretty much the entire organization.
If you’re licensing like that, then it is a much more difficult sale because you have to convince them not only can you deliver on whatever the promises are but there’s value there for everybody and they’re going to be able to get around the training issues, any support problems, those are going to need to be taken cared of, and they’re going to want to probably test it inside of their environment.
In addition, you mentioned that you used to work on a team in a company of 80,000 people and when you have software like that that gets installed and deployed across the entire environment, what you end up with every single day of the week, there are people whose hard drive fail and they need to have either the hard drive replaced or the machine replaced and they’re re-imaging machines left and right. You have to be able to deploy that software in some way. Now, if that software can be remotely pushed, great. Otherwise, it needs to be embedded into the software image. You also need to figure out how’s that licensing stuff going to work.
Back to your question about how many people you need to validate it, it depends on how much money do you need. I would think you’d want to get commitments from enough companies that you’re able to basically do this full-time because I think it’s going to be hard to do it part time especially when you’re trying to make commitments to an enterprise company and if you’re trying to roll it out to the entire organization site unseen, I don’t know how you would get the commitment from them to buy it or maybe even an upfront payment for it without having something actually deliver to them. I feel there’s a lot of landmines here and it’s just going to be hard. Rob, why don’t you chime in here because maybe we can pass some ideas around for that.
Rob: Yeah. This is a tough one. To be honest, I don’t know if Chris is a single founder. I’m going to assume he’s bootstrapping and either single or maybe has one co-founder. It’s really, really hard to sell into the enterprise. You experienced this with AuditShark, right? It’s a lot of work, it’s a long lead time, and you kind of live or die by two customers or three customers because, again, if you’re going to sell it for $100,000 for an annual license, you only need one or two of those to go full-time on it. But landing one or two can take you a year or two years of just conversations.
It’s definitely an all-or-nothing. It’s riskier than trying to do this $10 or $30 or $50 a month thing where you can just cobble people together. I don’t know if it’s easier or harder, but I do think that there is a big barrier if you don’t already have that list of logos at your back to show you, “Hey, this is where we’ve implemented it.” because enterprises are slow-moving and they’re not very trusting of new technology in general, and rightfully so, because they’ve probably been burned by a bunch in the past.
I think that, that’s a challenge that you’ll face so know that going into it. I would recommend against this approach. But with that said, you have an idea and you are talking to three companies. I guess I feel similar to you that if you get yeses from all three, but you need more than just a yes. You need some type of written LOI, letter of intent, that if you can deliver this, they’ll go through with it because the problem is, how long is it going to take you to build this? You can get these verbal commitments and then is it going to take you six months or a year to build it? Are even the same people still going to be in the same roles at that company? Are they going to follow through on this verbal commitment they forgot about, most likely, to pay you $100,000 To that, I think that’s a challenge. How does he overcome that?
Mike: Well, you said letter of intent. I think an enterprise company is going to shy away from that just because it’s going to have to involve the legal team. You could ask them for a purchase order, you can send them an invoice, for example, that can’t be paid until 30 days or 60 days after delivery or sign-off or something like that. You’re going to have to put lines on the sand for you to be able to deliver. If you can’t meet them, then either it gets pushed out or if it gets pushed out too far, then the whole thing is dead.
One other thing that I did think of is that you could essentially treat it as a consulting engagement because if you can find enough companies to pay you on a consulting basis to deliver a solution, it doesn’t have to be yours, it can be something you cobbled together from a bunch of different places, and then you gradually morph it into your own code and your own full-blown product and then pull all the data over.
I would probably approach it from that side of things. Maybe you deliver it as a virtual machine that you give to them and then they can host it in their own environment. That’s probably more likely to succeed, but again, it’s a matter of getting them to sign off on, “Hey, we know we’re going to pay more for this than otherwise,” but there’s nothing here that says that this is a desktop application or a hosted web app. I don’t know if that would actually be viable.
Rob: Yeah. I do like the idea of consulting, actually. That’s a nice way to get that revenue upfront, the consulting revenue that you’re billing, and then be able to build that product, you have to write in the code and repurpose it to other people. I think with enterprise, that’s not a terrible way to go. You’re going to be plotting along as you go anyway. That’s going to take awhile to get these approvals.
So, yeah, it’s certainly not 30. I mean, back to his original question, he said you said to find 30 in order to validate. That is with lower-priced bootstrap SaaS in mind. This is a different case. I don’t know that I even have that. I could take a guess of if you get three commitments or five commitments, that sounds right. But then again, just as we’ve said, those commitments, what are they worth unless they’ve sign something. I don’t even know if verbal commitments from enterprise companies is worth doing.
I would venture to say that the approach needs to be something entirely different. I can see this consulting idea—he kind of call that—where start consulting with one or two of them, build that out and see if the feature sets overlap, you may get to the point where enterprise stuff is so tough because you can build a feature set and then every enterprise wants something different and they’re used to getting customizations so you really are not building a repeatable product. You’re building a code base that you then augment and do customer consulting for each one. I’ve read a […] so that maybe the road you’re going down here.
Mike: The other nice thing that can offer as consulting where offers you is that it gets you into that enterprise sales process and teaches you how to negotiate it, and you’re more likely to get somebody to sign off on consulting engagement in an enterprise company than you are to have them purchase a piece of software for every user in the organization when they don’t necessarily know for sure if it’s going to work out for them or not. But for whatever reason, they’re more than willing to pay large sums of consulting dollars for that kind of stuff.
Then based on that, you establish this list of people that you came in and did consulting for, and then maybe come back to them later and say, “Hey, we’ve left and you’re now on your own. Is this working out for you?” It’s probably not because most of those consulting engagements they get down once and then that’s it, and then people just let it drop because they’ve got other priorities, but if there’s software in place, it will help them because then they don’t have to manually do things.
Rob: Thanks for the question, Chris, always good to hear from you. Our next question is about stair stepping and where does stair step from where they are. It’s from Will Gant. He says, “Long time listener, three-time MicroConf attendee. Trying to figure out how to stair step my way out of a current situation. I thought it might be a question to discuss. A buddy of mine and I have built a podcast, The Complete Developer Podcast, completedeveloperpodcast.com. In the software development space, it’s taken us three years, we just got our 250,000th download. We’ve got about 15,000 downloads a month and we generate about 2000 downloads in the first six weeks of an episode release. We also have a meetup group, it gets 10-40 attendees once a month, and on meetup.com, the group has about 850 developers in it. It’s only in Nashville, but we’re considering expanding.”
“We’ve tried a bunch of ways to monetize this. We’ve tried sponsorships but the CPM cost per thousand rates for podcast are so low, it doesn’t seem worthwhile. We’ve tried Patreon. Our email list is very small but we’re working on it. We both have full-time jobs. I plan to stay at mine for at least three years, but I like to consider having something else to transition to if it comes time to move along.”
“We’re in the process of putting together an audio book that we’ll sell under the podcast brand. I’ve personally written a small ebook, took a couple of weeks to write. We plan to continue podcasting. We’re getting everything done with 8-12 hours of work each week apiece. That’s 16-24 person-hours. We could cut some of that by outsourcing and process improvements. My question is, what’s a good next step for stair stepping from here?”
“I feel there are four options. First thing, of course, is to build the email list and then we could, number one, try to ramp up ads sponsorships. Number two, build affiliate websites and get commissions or do affiliates stuff in the podcast itself. Number three, create digital products like ebooks, video courses, and sell those. Number four, coaching developers on their careers. How would you evaluate the above? We’ve been leaning towards products, put together individually. Given the constraints above, if you were me, how would you proceed over the next six months? Thanks.”
This is a big one. A lot of aspects to it. A lot of ways to think about it.
Mike: Yeah and I think that the fact that he’s tried a bunch of different things gives a little bit more information to work off of.
Rob: Super helpful.
Mike: Yeah. The four options there, the first one was try to ramp up on ad sponsorships. He’s already said that that’s difficult, and then Patreon has been even less lucrative, and the email list is rather small. The thing about ad sponsorships is they’re going to scale linearly with your audience. If the money that your getting from them now is relatively small, let’s say it’s a hundredth of what you need, you would need to 100x your traffic based of the your audience in order to get that to the level that you need to. It doesn’t sound to me like that is probably going to work out.
I would say roughly the same thing with affiliates and giving commissions or selling affiliate stuff on the podcast. You’re going to get some revenue from it, but it’s probably only going to be—depending on the type of product—it can be anywhere from 15% to 50% of whatever the product is. But it doesn’t seem to me like that is going to pay the bills either.
The third option was creating digital products such as books, video courses, etc, and then the fourth option was coaching developers. I think if you’re going to coach developers, you need to have something very specific that you are coaching them on. I would question how many of them would be able to pay a rate that is going to get you out of a situation that you’re in. Individually, they’re probably not going to be able to pay more than $100 an hour or $150.
You could use something like a group coaching session. I have seen that work out. My wife joined up with a business coach who basically went that route and instead of coaching people one-on-one, we’re coaching them in a group. That’s sort of like a course, but not really. You really want to have everybody starting at the same time. You’re going to have to find the right people and catch them at the right time in order to coach them on that. You’re also going to want to say like, “This is what we are coaching on.” Whether it’s how to get higher salaries or how to program in this particular language or how to deal with these types of situations, you’re going to have to think really, really hard about that.
The third option he just said is digital products. Seems to me like the better bet. I think that there’s a lot of opportunities there for books and video courses tiered info product format. That provides a significant advantage over doing affiliate stuff where your only getting a small fraction of it which is split because there’s two people in the business versus creating your own digital products and then you guys get to keep 100%.
Rob: When I initially read this question, the feeling is 2000 downloads per episode, it’s obviously a great milestone to reach, but it really isn’t enough to monetize directly. If he had written in and said they hadn’t tried Patreon or ads, I would have said, “Don’t try them.” I don’t think they’re going to work. The money is really going to be in the email list and if you don’t have much of a list, I don’t know that there is a direct way to monetize this podcast.
I mean, you and I have never directly monetized this podcast. We’ve talked recently about doing sponsorships, but we’re essentially more than 10 times the size of their podcast. One of the reasons we haven’t wanted to do it today is because we’ve gone down other roads and monetize it with mostly MicroConf and FounderCafe. That’s really what pays our time and editing and all that to put the podcast together.
You and I also sold books and stuff independently, but at that size of an audience, I’m thinking back to Sherry. Sherry started ZenFounder. She and I started ZenFounder podcast. As it’s grown, she did small info product. She did her retreat ebook, The Zen Founder Guide To Founder Retreats, and I don’t know how many copies exactly, but it’s a $20 book and she sold a few hundred copies.
It took time to write, as Will said, took him a couple of weeks to write, but that’s not a bad way to go. What’s nice is that if you release it, you make a few hundred bucks from it, you learn a lot about launching, then you have this thing that’s valuable, and you can give that away as a lead magnet in the future, you can discount it on Black Friday, and you start building up this portfolio of products. Now still, with 2000 downloads, if you don’t grow that email list, it’s never going to be something huge. It’s not going to be a full-time living unless you can grow all of that.
I think that’s the thing to think about. Is this space big enough? We know John Sonmez who comes to MicroConf and runs Simple Programmer or used to run simpleprogrammer.com. I know he’s doing a much different stuff now but he built a big audience. If I recall, it was through blogging and videos, it wasn’t through podcasting. That either says it the audience isn’t there in podcasting or maybe it’s still untapped and you haven’t hit directly on that value proposition yet.
I’d be curious if how much you’ve promoted your podcast, like have you gone on every other podcast in the space? To be interviewed not just about your podcast but just about things and then talk about your podcast and how it helps people? What are the other avenues to grow that podcast listener base and then have more calls to action to your emails list. If you want to go full-time on this, I would not do that without an email list that could support this, which is let’s say 10,000 or tens of thousands of subscribers, depending on how much they buy from you and how much content you can put out.
While coaching is a short-term thing, I think at this size, it’s just so hard to monetize. It’s so hard to get a lot of value out of a couple of thousand listeners. Those are my thoughts. Do you have any other thoughts, Mike?
Mike: No. I mean, I agree with you like the idea of putting together a small portfolio of digital products that you can offer. Some of you may relegate to using this as a lead magnet later on. That’s probably a way to go. As an example, you said that there’s was one that took him about two weeks or so to put together and then plus there is editing time after that. Call it 6-8 weeks total. If each work on one, you can probably put out five, ten of them per year? That’s pretty good. That seems that would give you a fairly significant base to work from and you can have them about very specific topics and then if you promote the podcast more and then you maybe talk about them or get them on your email list. But again, you have to grow everything and you have to have products to offer.
Rob: Right and the nice part is once you’ve written that, well, you can then put it on Amazon as a Kindle ebook and you can even buy ads for that on Amazon now. There are other ways to promote it from there and then you could use that as a way to generate leads and just generate listeners or generate email subscribers. You now have multiple things out there. It’s a tough problem to have. It’s hard to work this much and not having enough of an audience to basically make a full-time living, but it’s a problem all of us have had at one point or another. So, totally get it.
I think the last thing I want to touch on is the 16-24 person-hours a week that you’re spending on a podcast. In contrast, what do we spend, Mike? Between the two of us, it’s four person-hours every two weeks? You think? Five?
Mike: There’s the obvious time spent actually recording. But then beyond that, we’ve outsourced pretty much everything else.
Rob: That’s what I’m saying is it’s not that expensive to outsource everything else. If you get even one of these ebooks that’s selling reasonably well, you could pay for an editor, our editor posts to WordPress and does all the stuff. Given that, again, you and I, let’s say 2 ½ hours a week total person hours versus the 16-24 they’re spending. If they could get all that time back, it would be a big deal. They could put that towards doing other things whether it’s towards growing a list, towards growing another podcast, towards building these products out, I think that’s something to think about.
No, I don’t know the format of their podcast. Maybe it’s just a lot more labor-intensive than ours is. Maybe it’s scheduling guests and it’s doing a bunch of things. But I would guess that a lot of that could still be outsourceable. Chicken and egg, right?
Mike: Yeah, it is. I wonder if there’s other options as well. If you could reclaim eight hours per week, that’s a full day. If you’re doing consulting or other stuff that is able to generate even remotely enough money to cover time or cost or something else, you could definitely outsource that. Let’s sa, you did four hours of consulting work per week. Finding that is a completely different topic, but you get paid $100 an hour for each of those. If you’re each doing that, that’s an extra $800 a week, $1600 between the two of you. It costs a lot less than $6400 a month to edit a podcast. Now, you’re cutting your time in half and you’re adding that money in.
I’m not saying consulting is the answer, but there are other ways to get that done. I would think more consciously about that 8-12 hours that your spending and how much value you’re actually providing. Are there other ways to pay for that, is what really comes down to and then to reclaim that time and use that time to generate revenue as opposed to do stuff that’s essentially a cost sink.
Rob: Thanks for the question. I hope that was helpful. Our next question is about derisking product founder fit and it’s from Heather. She says, “My day job is all about finding product market fit. I can usually figure out a way to test my side project ideas but I struggle to commit to any because I’m not sure if I’ll end up hating the everyday tasks. Do you have any idea for a lean approach for finding product finder fit or to de-risk that side of the equation?” It’s a good question. We’ve never had this before.
Mike: This is a good question and I actually addressed this to some extent in my book, The Single Founder Handbook, and it’s in Chapter 12. It’s on Idea Filtering. I did not call it this at the time because I don’t think I was either well aware of the term but it basically talks about that to some extent in terms of filtering out ideas that you’re brainstorming and trying to figure out if you should go after one idea or another based on your personality and interest.
I laid it out in terms of, there’s pros and then there’s cons, and then there’s also disqualifiers. In terms of the disqualifiers, I put things in there like two-sided markets or difficult customers or indirect revenue streams because it’s just difficult to get those businesses off the ground.
But there’s also the idea that some of your ideas are things that are going to require things of you that you are simply not going to want to do. For example, when it comes to enterprise sales, I’m good at it but I’m not good at finding the enterprise deals to actually then go in and do the sales stuff. I can do the sales stuff but I’m not good at all the prospecting stuff and I hate that stuff. There’s a difference in being good at it versus not enjoying it. Could I find somebody else and hire to do that stuff? Sure, I could. Could I do it temporarily? Yeah, I could. But at the same time, I know that I wouldn’t want to do that long term or manage that entire process.
I think I would come up with a short list of things that you absolutely, under no circumstances, ever want to have to do, and those become your list of disqualifiers. Every idea that you come up with, fit them up against that list and your can throw it into a spreadsheet, see if it’s going to work for you. If it’s not, then don’t do it. You can also test things to some extent and do it a little bit to see if you would be able to do them long term. For everyday tasks that you have to do, a lot of them you can outsource but there’s certain ones that you simply can’t. Again, for enterprise sales like that prospecting, you have to be the one to do it initially and if you hate it that much, the business is never going to work.
Rob: I like the way you framed that. I think that’s super helpful. I think that’s one reason why I never launched a super sales-intensive application is I’ve just known that I want to be low touch or mid touch. Later into the lifecycle, Drip became of higher touch app once we started getting these big contracts to get $20,000, $30,000, $40,000 a year and up. You’re going to talk face-to-face with people, but I always aim for lower touch and that’s because that’s one of my deal breakers is I don’t want to be doing sales in the early days. Later, I can hire people to do that once we grew to a team, it was fine. But if that’s the main driver of sales, you have to do that in the early days. Typically, you want the founder doing that.
Maybe it’s a good framework. What are your deal breakers? What do you like and dislike? This is hard to answer if it’s your first project because it’s hard to know what you like and dislike. You can take a guess but the more experience you have, the more you learn about yourself. I would totally go and take StrengthsFinder and maybe even the Enneagram. These are just personality test that give you more insight into who you are and I think those can help you determine some more things about what you like and dislike, but then it’s also, like you said, singlefounderhandbook.com, if you want to read that section on de-risking it from a product founder fit perspective.
I like this question. I actually want to think on it more. I would bet in a future episode it will come back around and we’ll have more thought. This is one of those that, one the spot, I don’t have the entire framework mapped out, but I know that I’m going to mull on it while doing dishes and kind of come back to it. Thanks for the question, Heather.
Our next question is a voicemail and you know what, Mike? This should have been top of the show. I messed up because voicemails typically go to the top of the queue but I kind of forgot. This is from Tim Burgen. He called in a couple of episodes ago from Brisbane, Australia and we could hear the audio. I did a call out and he basically emailed us a very high quality WAV file. Let’s listen to that now.
“Hi, Mike and Rob. It’s Tim Burgen from Brisbane, Australia. My question is around offering a free trial. Is offering a free trial the only recommended next step to bring prospects into the fold? Or are there alternatives that you’ve also seen work? Most discussions that I’ve read just seem to assume that offering a free trial is given. The only exception that I’ve ever heard was Jason Cohen talking about the early days of the WPEngine where he removed trial for a money-back guarantee. What’s your impression of that approach and are there other options that you’ve seen too? I look forward to hearing your thoughts.”
Mike: I’ve tried the money-back guarantee instead of a free trial and it does work but the problem that you do run into is that if you’re selling—and this is specifically with Bluetick I saw this, where somebody wanted to sign up and they decided against it because it was going to require a credit card, and they didn’t want to use their personal credit card even though there is a money-back guarantee because then afterwards they would have to go to their boss and if they liked it, they said, “Oh, I need to be reimbursed for this.” it was extra paperwork they didn’t want to have to do.
Going with the trial route was a better option than the money-back guarantee. Again, who you’re selling to is going to make a difference there. If you’re selling more to consumers then a money-back guarantee is probably going to work better, but if you’re selling to somebody who’s on a team, then they don’t want to expend their own social capital in front of the eyes of their boss by signing up with the company credit card when it’s something that they don’t know if it’s going to work. There’s pluses and minuses of both approaches.
I was actually just talking to my wife about this the other day. There was a time where money-back guarantee was a fantastic option because you could also just refund somebody’s money, and it didn’t cost you anything. Stripe used to eat those costs, for example, and then they stopped doing that because it just got to be too costly because there were info marketers out there that were selling $1000-$2000 products, and then they’d have to issue refunds for 50% of them, so Stripe basically, just killed that. Depending on how many of those refunds you have to do, it may or may not work. You may just want to eat those costs, but it may not be viable for you to do.
Another option I’ve seen people try is having an onboarding fee. Instead of just saying, “Hey, here’s a free trial,” or whatever, say that there’s also an onboarding fee of $300 or $500 or something like that, which sounds outrageous like, “Why would you ask somebody to pay more when you’re just trying to get them in the door.” But it’s a prequalification process. You’re saying, “Hey, if somebody’s willing to sign-up and they’re willing to pay this extra $750 just to get on-boarded, that’s a great way to do it,” just because you’re going to filter out the people who aren’t necessarily serious about the product.
Rob: I know that you get a chargeback fee if you’re charged back, if it’s a dispute, but I don’t believe there’s any expense for refunds unless you have an unusually high refund rate.
Mike: I have seen that there were. I could be wrong. I could be misremembering this.
Rob: Maybe someone can write in and let us know. I’m on their pricing page, and it’s talking about chargebacks, but if the chargeback dispute is in your favor, you don’t have a fee. If it’s a chargeback and you lose it, then it’s $15. I’ve been on services every 25 or 30 for chargebacks. The only articles that mentions that I can find on Stripe refunds talk about how the entire fee, and it says right here in the docs, “There’s no fee to refund a charge.” Someone write in if you know because Mike and I have different memory. There’s always a chance that this stuff is out-of-date. I’m looking at a page that hasn’t been updated, and they just changed that.
That’s one thing. It’s kind of beside the point if it’s a couple percent. It’s not a big deal. Your refund rat will be higher if you do a money-back guarantee upfront, but it’s not going to bankrupt you as a SaaS app. Your margins are high enough that they can handle it even if there is a a cost.
I think there are a handful of apps that I’ve seen do the money-back guarantee. WP Engine was one, I remember. Pluggio, Justin Vincent did that. I believe, ConvertKit used to do that. I’m not sure. I think they still do. They charge you right up front, there’s no trial, and then they have a money-back guarantee there. There are certainly other apps that do it.
I think the default and normal assumption is to have a free trial rather than money-back guarantee for exactly the reason that you mentioned. If you’re at a company, and you put your own credit card on, and then it gets charged, you need to go reimbursed. It’s kind of a hassle. It’s just one more piece of friction.
Like I said, it really depends on who you’re selling to because if you’re selling to individuals or nascent entrepreneurs or people who it’s like, “Hey, they’re pulling up their personal credit card to buy this and they are convinced that it’s the tool. It’s being recommended by some expert they know and they think it’s going to help them start their business,” then yeah, maybe this isn’t an issue.
But if you’re selling B2B, money-back guarantee will be a blocker. I’ll tell you that right now. Even just asking for credit card upfront for a free trial can be a blocker and you will get a lot of people who won’t go through with the sign-up because of that. You have to look around. There’s a couple of things. Figure out who you’re selling to and if it’s truly your business says, I would shy away from a money-back guarantee, not saying I won’t do it, but the added friction will eliminate actual prospects who probably would buy from you because it can just become a deal breaker of some.
I would also look around at competition and actually in Tim’s email, he mentions that some of his competitors offer a one-year money-back guarantee and a discount for the first year because the churn is very low and because the switching cost are high. That right there tells me, “Oh, that’s interesting.” Could there even be a really limited free plan much like MailChimp, kind of one that ESP space early on because they were the only one that can get a free plan to work.
It’s risky as a bootstrapper, but if the switching cost are high, you can just get this massive funnel coming in. There can be value there. But even if you don’t do free plan, I would say I would lean towards as little friction as possible to get someone into that trial because the more people you get in if the switching cost are high, that’s how you’re going to build value in your SaaS app.
He says another competitor is actually seen to be free but then they have back-end per-transaction charges. What these competitors have figured out is since churn is low and you’re all fighting for new customers, that the least amount of friction upfront is the way to go. That’s where again, I would personally—as a rule of thumb that could be broken—I would lean away from money-back guarantees and I would look much more at a trial.
Then you have to ask yourself, “Do I have to do credit card upfront or not?” If you don’t do credit card upfront, you’re going to get a lot more people in that trial. Can you convert them? Are they still qualified? This is an experiment I would run. I may start with lower friction, given the load churn and the fact that people don’t switch out after they become customers.
Mike: Just a confirmation on that last piece where, in terms of Stripe, right on their refunds page they say, “There are no fees to refund a charge but the fees from the original charge are not returned,” so whatever the percentage is. That changed I think in 2017 because they couldn’t afford to do that.
Rob: Which is 3% plus 29 cents or something?
Mike: Yeah.
Rob: Okay. If it’s $100, you’re to pay him $3, essentially you’re eating $3.30 per refund and with the SaaS app, with the margins you have, that’s probably trivial. That wouldn’t be the reason I wouldn’t do it. If would be the other reasons I think I talked about.
Awesome. That’s a good question. Thanks for the question, Tim.
Mike: I think that about wraps us up for the day. If you have a question for us, you can call into our voicemail number at 1-888-801-9690 and Rob will put it to the top of the queue or be fired.
Rob: Next time, yeah.
Mike: Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Croatia, sir. When this goes live, you and I are at MicroConf Europe.
Mike: Yes, that should definitely be fun. People have asked numerous times like, “What was it that made you select Croatia?” and it’s like, “Well, we’ve never been there before and it becomes a business expense.” Seems like a good reason as any.
Rob: And it’s hard for us to get to from the States but it’s reasonably easy to get there from within the EU. It’s gorgeous. It’s where they filmed a lot of Game of Thrones like the exterior scenes. Obviously, we do MicroConf Europe because we love to see everybody and it’s fun to get the people together and offer the value that we do through the MicroConfs, but we have always been pretty deliberate about where to place it.
First couple of years, we’re in Prague, and that was actually suggested by our coordinator at the time, Dan Taylor, and it turned out really cool because Prague was a fun city to be in. And then next, we picked Barcelona because you and I hadn’t been there and people want to go there. Then we went to Lisbon last year. Croatia is I think a nice next step. We’ve looked at Berlin and Greece, and a bunch of other cities and countries, and I think someday we’ll obviously move it to another place but I, for one, am very excited about this.
I’m going there with my family, wife and kids for two-and-a-half weeks. We’ll be in Dubrovnik itself for about a week but we will be surrounding cities kind of exploring. I don’t know if you’ve looked at images of Croatia or even just read up on it but there’s a lot to do there.
Mike: Yeah, definitely. I did look into it a little bit and there’s way more than you would actually think for a small country like that. It would be cool to just hang around. I’m personally looking forward to go and around looking at Dubrovnik itself just because it kind of mentally overlap between the stuff I’ve seen on Game of Thrones and then what the actual city looks like but I did hear that there’s a Game of Throne tour or something like that. I don’t know. I’m hoping I’ll have time to do that but we’ll see.
Rob: I agree. That’s going to be a no brainer for me for sure. This week we are answering some listener questions that have come in. With this episode, if we get through all of these, I believe that clears out our question queue. If you have a question for us you want to answered soon in the next couple of weeks, send it into us. Email us at questions@startupsfortherestofus.com or call our voicemail number. As always, voicemails and audio questions go to the top of the queue.
Our first question is about how many commitments you need to validate an idea, it’s a follow-up question to episode 410, it’s from Chris Palmer. He says, “Hey, I have a question for you. You say you should find 30 people to validate your idea. I’m working on an enterprise software concept with what I would pitch at an ARR, it’s annual run rate or annual cost, of between $10,000 and $150,000 plus. In other words, roughly based on company population plus paid-for seats. What I want to know, in your opinion, is 30 people or 30 companies still a good target number for validation? I used to work in a team. The company had 80,000 people and they will use the product. I’ve spoken to two other companies. One of the people who’s really interested is the director of communication at a large company. I’m going through my network to speak to more people. Cold contacting has not worked.”
It sounds like he has three companies that he’s at least in conversation with. Back to the question. “Given the income per customer, what number should I set? I’m confident with my validation statement and the concept’s possible success. Also, I just wanted to say thank you for your advice last year regarding a situation I was in. Your advice was super helpful. Thanks, Chris.” What do you think, Mike?
Mike: I don’t want to call it an edge case, but this is one of those situations where there’s general guidelines that you can follow, and then there’s cases like this where things fall so far out of what is normal in those situations that they don’t tend to apply. Most of the guidance that I’ve talked about in terms of how many people should you really talk to, it kind of assumes that people are paying a reasonable low monthly rate for it.
Enterprise sales are very, very different and depending on who it is you’re selling inside the company, it’s going to be a very different sales. If you’re selling to the IT director, it’s a different sale than if you were selling to the marketing director. The marketing director is only concerned about their own team versus if you’re selling to the IT director, you have to convince them not just that it is good for their team but also for the entire company, too. That’s what it sounds like this situation is because it’s based on company population versus the size of the IT team.
Rob: That’s why I’m glad he sent this in because it makes me question assumptions that we might have when we kind of call out rules of thumb. There’s always going to be an edge case with the rule of thumb and it’s neat when we can hear about one and then actually talk about, “Well, this is how we would think through that.”
Mike: Right. I think in this case it sounds to me the product is aimed at the entire company. I don’t want to use WinZip as an example, but I’m going to. WinZip is typically installed on every computer in most organizations just because—not almost all organizations—people who have it, they’re going to install it everywhere. You’re not going to buy it for just one team, for example, because it’s going to be used by pretty much the entire organization.
If you’re licensing like that, then it is a much more difficult sale because you have to convince them not only can you deliver on whatever the promises are but there’s value there for everybody and they’re going to be able to get around the training issues, any support problems, those are going to need to be taken cared of, and they’re going to want to probably test it inside of their environment.
In addition, you mentioned that you used to work on a team in a company of 80,000 people and when you have software like that that gets installed and deployed across the entire environment, what you end up with every single day of the week, there are people whose hard drive fail and they need to have either the hard drive replaced or the machine replaced and they’re re-imaging machines left and right. You have to be able to deploy that software in some way. Now, if that software can be remotely pushed, great. Otherwise, it needs to be embedded into the software image. You also need to figure out how’s that licensing stuff going to work.
Back to your question about how many people you need to validate it, it depends on how much money do you need. I would think you’d want to get commitments from enough companies that you’re able to basically do this full-time because I think it’s going to be hard to do it part time especially when you’re trying to make commitments to an enterprise company and if you’re trying to roll it out to the entire organization site unseen, I don’t know how you would get the commitment from them to buy it or maybe even an upfront payment for it without having something actually deliver to them. I feel there’s a lot of landmines here and it’s just going to be hard. Rob, why don’t you chime in here because maybe we can pass some ideas around for that.
Rob: Yeah. This is a tough one. To be honest, I don’t know if Chris is a single founder. I’m going to assume he’s bootstrapping and either single or maybe has one co-founder. It’s really, really hard to sell into the enterprise. You experienced this with AuditShark, right? It’s a lot of work, it’s a long lead time, and you kind of live or die by two customers or three customers because, again, if you’re going to sell it for $100,000 for an annual license, you only need one or two of those to go full-time on it. But landing one or two can take you a year or two years of just conversations.
It’s definitely an all-or-nothing. It’s riskier than trying to do this $10 or $30 or $50 a month thing where you can just cobble people together. I don’t know if it’s easier or harder, but I do think that there is a big barrier if you don’t already have that list of logos at your back to show you, “Hey, this is where we’ve implemented it.” because enterprises are slow-moving and they’re not very trusting of new technology in general, and rightfully so, because they’ve probably been burned by a bunch in the past.
I think that, that’s a challenge that you’ll face so know that going into it. I would recommend against this approach. But with that said, you have an idea and you are talking to three companies. I guess I feel similar to you that if you get yeses from all three, but you need more than just a yes. You need some type of written LOI, letter of intent, that if you can deliver this, they’ll go through with it because the problem is, how long is it going to take you to build this? You can get these verbal commitments and then is it going to take you six months or a year to build it? Are even the same people still going to be in the same roles at that company? Are they going to follow through on this verbal commitment they forgot about, most likely, to pay you $100,000 To that, I think that’s a challenge. How does he overcome that?
Mike: Well, you said letter of intent. I think an enterprise company is going to shy away from that just because it’s going to have to involve the legal team. You could ask them for a purchase order, you can send them an invoice, for example, that can’t be paid until 30 days or 60 days after delivery or sign-off or something like that. You’re going to have to put lines on the sand for you to be able to deliver. If you can’t meet them, then either it gets pushed out or if it gets pushed out too far, then the whole thing is dead.
One other thing that I did think of is that you could essentially treat it as a consulting engagement because if you can find enough companies to pay you on a consulting basis to deliver a solution, it doesn’t have to be yours, it can be something you cobbled together from a bunch of different places, and then you gradually morph it into your own code and your own full-blown product and then pull all the data over.
I would probably approach it from that side of things. Maybe you deliver it as a virtual machine that you give to them and then they can host it in their own environment. That’s probably more likely to succeed, but again, it’s a matter of getting them to sign off on, “Hey, we know we’re going to pay more for this than otherwise,” but there’s nothing here that says that this is a desktop application or a hosted web app. I don’t know if that would actually be viable.
Rob: Yeah. I do like the idea of consulting, actually. That’s a nice way to get that revenue upfront, the consulting revenue that you’re billing, and then be able to build that product, you have to write in the code and repurpose it to other people. I think with enterprise, that’s not a terrible way to go. You’re going to be plotting along as you go anyway. That’s going to take awhile to get these approvals.
So, yeah, it’s certainly not 30. I mean, back to his original question, he said you said to find 30 in order to validate. That is with lower-priced bootstrap SaaS in mind. This is a different case. I don’t know that I even have that. I could take a guess of if you get three commitments or five commitments, that sounds right. But then again, just as we’ve said, those commitments, what are they worth unless they’ve sign something. I don’t even know if verbal commitments from enterprise companies is worth doing.
I would venture to say that the approach needs to be something entirely different. I can see this consulting idea—he kind of call that—where start consulting with one or two of them, build that out and see if the feature sets overlap, you may get to the point where enterprise stuff is so tough because you can build a feature set and then every enterprise wants something different and they’re used to getting customizations so you really are not building a repeatable product. You’re building a code base that you then augment and do customer consulting for each one. I’ve read a […] so that maybe the road you’re going down here.
Mike: The other nice thing that can offer as consulting where offers you is that it gets you into that enterprise sales process and teaches you how to negotiate it, and you’re more likely to get somebody to sign off on consulting engagement in an enterprise company than you are to have them purchase a piece of software for every user in the organization when they don’t necessarily know for sure if it’s going to work out for them or not. But for whatever reason, they’re more than willing to pay large sums of consulting dollars for that kind of stuff.
Then based on that, you establish this list of people that you came in and did consulting for, and then maybe come back to them later and say, “Hey, we’ve left and you’re now on your own. Is this working out for you?” It’s probably not because most of those consulting engagements they get down once and then that’s it, and then people just let it drop because they’ve got other priorities, but if there’s software in place, it will help them because then they don’t have to manually do things.
Rob: Thanks for the question, Chris, always good to hear from you. Our next question is about stair stepping and where does stair step from where they are. It’s from Will Gant. He says, “Long time listener, three-time MicroConf attendee. Trying to figure out how to stair step my way out of a current situation. I thought it might be a question to discuss. A buddy of mine and I have built a podcast, The Complete Developer Podcast, completedeveloperpodcast.com. In the software development space, it’s taken us three years, we just got our 250,000th download. We’ve got about 15,000 downloads a month and we generate about 2000 downloads in the first six weeks of an episode release. We also have a meetup group, it gets 10-40 attendees once a month, and on meetup.com, the group has about 850 developers in it. It’s only in Nashville, but we’re considering expanding.”
“We’ve tried a bunch of ways to monetize this. We’ve tried sponsorships but the CPM cost per thousand rates for podcast are so low, it doesn’t seem worthwhile. We’ve tried Patreon. Our email list is very small but we’re working on it. We both have full-time jobs. I plan to stay at mine for at least three years, but I like to consider having something else to transition to if it comes time to move along.”
“We’re in the process of putting together an audio book that we’ll sell under the podcast brand. I’ve personally written a small ebook, took a couple of weeks to write. We plan to continue podcasting. We’re getting everything done with 8-12 hours of work each week apiece. That’s 16-24 person-hours. We could cut some of that by outsourcing and process improvements. My question is, what’s a good next step for stair stepping from here?”
“I feel there are four options. First thing, of course, is to build the email list and then we could, number one, try to ramp up ads sponsorships. Number two, build affiliate websites and get commissions or do affiliates stuff in the podcast itself. Number three, create digital products like ebooks, video courses, and sell those. Number four, coaching developers on their careers. How would you evaluate the above? We’ve been leaning towards products, put together individually. Given the constraints above, if you were me, how would you proceed over the next six months? Thanks.”
This is a big one. A lot of aspects to it. A lot of ways to think about it.
Mike: Yeah and I think that the fact that he’s tried a bunch of different things gives a little bit more information to work off of.
Rob: Super helpful.
Mike: Yeah. The four options there, the first one was try to ramp up on ad sponsorships. He’s already said that that’s difficult, and then Patreon has been even less lucrative, and the email list is rather small. The thing about ad sponsorships is they’re going to scale linearly with your audience. If the money that your getting from them now is relatively small, let’s say it’s a hundredth of what you need, you would need to 100x your traffic based of the your audience in order to get that to the level that you need to. It doesn’t sound to me like that is probably going to work out.
I would say roughly the same thing with affiliates and giving commissions or selling affiliate stuff on the podcast. You’re going to get some revenue from it, but it’s probably only going to be—depending on the type of product—it can be anywhere from 15% to 50% of whatever the product is. But it doesn’t seem to me like that is going to pay the bills either.
The third option was creating digital products such as books, video courses, etc, and then the fourth option was coaching developers. I think if you’re going to coach developers, you need to have something very specific that you are coaching them on. I would question how many of them would be able to pay a rate that is going to get you out of a situation that you’re in. Individually, they’re probably not going to be able to pay more than $100 an hour or $150.
You could use something like a group coaching session. I have seen that work out. My wife joined up with a business coach who basically went that route and instead of coaching people one-on-one, we’re coaching them in a group. That’s sort of like a course, but not really. You really want to have everybody starting at the same time. You’re going to have to find the right people and catch them at the right time in order to coach them on that. You’re also going to want to say like, “This is what we are coaching on.” Whether it’s how to get higher salaries or how to program in this particular language or how to deal with these types of situations, you’re going to have to think really, really hard about that.
The third option he just said is digital products. Seems to me like the better bet. I think that there’s a lot of opportunities there for books and video courses tiered info product format. That provides a significant advantage over doing affiliate stuff where your only getting a small fraction of it which is split because there’s two people in the business versus creating your own digital products and then you guys get to keep 100%.
Rob: When I initially read this question, the feeling is 2000 downloads per episode, it’s obviously a great milestone to reach, but it really isn’t enough to monetize directly. If he had written in and said they hadn’t tried Patreon or ads, I would have said, “Don’t try them.” I don’t think they’re going to work. The money is really going to be in the email list and if you don’t have much of a list, I don’t know that there is a direct way to monetize this podcast.
I mean, you and I have never directly monetized this podcast. We’ve talked recently about doing sponsorships, but we’re essentially more than 10 times the size of their podcast. One of the reasons we haven’t wanted to do it today is because we’ve gone down other roads and monetize it with mostly MicroConf and FounderCafe. That’s really what pays our time and editing and all that to put the podcast together.
You and I also sold books and stuff independently, but at that size of an audience, I’m thinking back to Sherry. Sherry started ZenFounder. She and I started ZenFounder podcast. As it’s grown, she did small info product. She did her retreat ebook, The Zen Founder Guide To Founder Retreats, and I don’t know how many copies exactly, but it’s a $20 book and she sold a few hundred copies.
It took time to write, as Will said, took him a couple of weeks to write, but that’s not a bad way to go. What’s nice is that if you release it, you make a few hundred bucks from it, you learn a lot about launching, then you have this thing that’s valuable, and you can give that away as a lead magnet in the future, you can discount it on Black Friday, and you start building up this portfolio of products. Now still, with 2000 downloads, if you don’t grow that email list, it’s never going to be something huge. It’s not going to be a full-time living unless you can grow all of that.
I think that’s the thing to think about. Is this space big enough? We know John Sonmez who comes to MicroConf and runs Simple Programmer or used to run simpleprogrammer.com. I know he’s doing a much different stuff now but he built a big audience. If I recall, it was through blogging and videos, it wasn’t through podcasting. That either says it the audience isn’t there in podcasting or maybe it’s still untapped and you haven’t hit directly on that value proposition yet.
I’d be curious if how much you’ve promoted your podcast, like have you gone on every other podcast in the space? To be interviewed not just about your podcast but just about things and then talk about your podcast and how it helps people? What are the other avenues to grow that podcast listener base and then have more calls to action to your emails list. If you want to go full-time on this, I would not do that without an email list that could support this, which is let’s say 10,000 or tens of thousands of subscribers, depending on how much they buy from you and how much content you can put out.
While coaching is a short-term thing, I think at this size, it’s just so hard to monetize. It’s so hard to get a lot of value out of a couple of thousand listeners. Those are my thoughts. Do you have any other thoughts, Mike?
Mike: No. I mean, I agree with you like the idea of putting together a small portfolio of digital products that you can offer. Some of you may relegate to using this as a lead magnet later on. That’s probably a way to go. As an example, you said that there’s was one that took him about two weeks or so to put together and then plus there is editing time after that. Call it 6-8 weeks total. If each work on one, you can probably put out five, ten of them per year? That’s pretty good. That seems that would give you a fairly significant base to work from and you can have them about very specific topics and then if you promote the podcast more and then you maybe talk about them or get them on your email list. But again, you have to grow everything and you have to have products to offer.
Rob: Right and the nice part is once you’ve written that, well, you can then put it on Amazon as a Kindle ebook and you can even buy ads for that on Amazon now. There are other ways to promote it from there and then you could use that as a way to generate leads and just generate listeners or generate email subscribers. You now have multiple things out there. It’s a tough problem to have. It’s hard to work this much and not having enough of an audience to basically make a full-time living, but it’s a problem all of us have had at one point or another. So, totally get it.
I think the last thing I want to touch on is the 16-24 person-hours a week that you’re spending on a podcast. In contrast, what do we spend, Mike? Between the two of us, it’s four person-hours every two weeks? You think? Five?
Mike: There’s the obvious time spent actually recording. But then beyond that, we’ve outsourced pretty much everything else.
Rob: That’s what I’m saying is it’s not that expensive to outsource everything else. If you get even one of these ebooks that’s selling reasonably well, you could pay for an editor, our editor posts to WordPress and does all the stuff. Given that, again, you and I, let’s say 2 ½ hours a week total person hours versus the 16-24 they’re spending. If they could get all that time back, it would be a big deal. They could put that towards doing other things whether it’s towards growing a list, towards growing another podcast, towards building these products out, I think that’s something to think about.
No, I don’t know the format of their podcast. Maybe it’s just a lot more labor-intensive than ours is. Maybe it’s scheduling guests and it’s doing a bunch of things. But I would guess that a lot of that could still be outsourceable. Chicken and egg, right?
Mike: Yeah, it is. I wonder if there’s other options as well. If you could reclaim eight hours per week, that’s a full day. If you’re doing consulting or other stuff that is able to generate even remotely enough money to cover time or cost or something else, you could definitely outsource that. Let’s sa, you did four hours of consulting work per week. Finding that is a completely different topic, but you get paid $100 an hour for each of those. If you’re each doing that, that’s an extra $800 a week, $1600 between the two of you. It costs a lot less than $6400 a month to edit a podcast. Now, you’re cutting your time in half and you’re adding that money in.
I’m not saying consulting is the answer, but there are other ways to get that done. I would think more consciously about that 8-12 hours that your spending and how much value you’re actually providing. Are there other ways to pay for that, is what really comes down to and then to reclaim that time and use that time to generate revenue as opposed to do stuff that’s essentially a cost sink.
Rob: Thanks for the question. I hope that was helpful. Our next question is about derisking product founder fit and it’s from Heather. She says, “My day job is all about finding product market fit. I can usually figure out a way to test my side project ideas but I struggle to commit to any because I’m not sure if I’ll end up hating the everyday tasks. Do you have any idea for a lean approach for finding product finder fit or to de-risk that side of the equation?” It’s a good question. We’ve never had this before.
Mike: This is a good question and I actually addressed this to some extent in my book, The Single Founder Handbook, and it’s in Chapter 12. It’s on Idea Filtering. I did not call it this at the time because I don’t think I was either well aware of the term but it basically talks about that to some extent in terms of filtering out ideas that you’re brainstorming and trying to figure out if you should go after one idea or another based on your personality and interest.
I laid it out in terms of, there’s pros and then there’s cons, and then there’s also disqualifiers. In terms of the disqualifiers, I put things in there like two-sided markets or difficult customers or indirect revenue streams because it’s just difficult to get those businesses off the ground.
But there’s also the idea that some of your ideas are things that are going to require things of you that you are simply not going to want to do. For example, when it comes to enterprise sales, I’m good at it but I’m not good at finding the enterprise deals to actually then go in and do the sales stuff. I can do the sales stuff but I’m not good at all the prospecting stuff and I hate that stuff. There’s a difference in being good at it versus not enjoying it. Could I find somebody else and hire to do that stuff? Sure, I could. Could I do it temporarily? Yeah, I could. But at the same time, I know that I wouldn’t want to do that long term or manage that entire process.
I think I would come up with a short list of things that you absolutely, under no circumstances, ever want to have to do, and those become your list of disqualifiers. Every idea that you come up with, fit them up against that list and your can throw it into a spreadsheet, see if it’s going to work for you. If it’s not, then don’t do it. You can also test things to some extent and do it a little bit to see if you would be able to do them long term. For everyday tasks that you have to do, a lot of them you can outsource but there’s certain ones that you simply can’t. Again, for enterprise sales like that prospecting, you have to be the one to do it initially and if you hate it that much, the business is never going to work.
Rob: I like the way you framed that. I think that’s super helpful. I think that’s one reason why I never launched a super sales-intensive application is I’ve just known that I want to be low touch or mid touch. Later into the lifecycle, Drip became of higher touch app once we started getting these big contracts to get $20,000, $30,000, $40,000 a year and up. You’re going to talk face-to-face with people, but I always aim for lower touch and that’s because that’s one of my deal breakers is I don’t want to be doing sales in the early days. Later, I can hire people to do that once we grew to a team, it was fine. But if that’s the main driver of sales, you have to do that in the early days. Typically, you want the founder doing that.
Maybe it’s a good framework. What are your deal breakers? What do you like and dislike? This is hard to answer if it’s your first project because it’s hard to know what you like and dislike. You can take a guess but the more experience you have, the more you learn about yourself. I would totally go and take StrengthsFinder and maybe even the Enneagram. These are just personality test that give you more insight into who you are and I think those can help you determine some more things about what you like and dislike, but then it’s also, like you said, singlefounderhandbook.com, if you want to read that section on de-risking it from a product founder fit perspective.
I like this question. I actually want to think on it more. I would bet in a future episode it will come back around and we’ll have more thought. This is one of those that, one the spot, I don’t have the entire framework mapped out, but I know that I’m going to mull on it while doing dishes and kind of come back to it. Thanks for the question, Heather.
Our next question is a voicemail and you know what, Mike? This should have been top of the show. I messed up because voicemails typically go to the top of the queue but I kind of forgot. This is from Tim Burgen. He called in a couple of episodes ago from Brisbane, Australia and we could hear the audio. I did a call out and he basically emailed us a very high quality WAV file. Let’s listen to that now.
“Hi, Mike and Rob. It’s Tim Burgen from Brisbane, Australia. My question is around offering a free trial. Is offering a free trial the only recommended next step to bring prospects into the fold? Or are there alternatives that you’ve also seen work? Most discussions that I’ve read just seem to assume that offering a free trial is given. The only exception that I’ve ever heard was Jason Cohen talking about the early days of the WPEngine where he removed trial for a money-back guarantee. What’s your impression of that approach and are there other options that you’ve seen too? I look forward to hearing your thoughts.”
Mike: I’ve tried the money-back guarantee instead of a free trial and it does work but the problem that you do run into is that if you’re selling—and this is specifically with Bluetick I saw this, where somebody wanted to sign up and they decided against it because it was going to require a credit card, and they didn’t want to use their personal credit card even though there is a money-back guarantee because then afterwards they would have to go to their boss and if they liked it, they said, “Oh, I need to be reimbursed for this.” it was extra paperwork they didn’t want to have to do.
Going with the trial route was a better option than the money-back guarantee. Again, who you’re selling to is going to make a difference there. If you’re selling more to consumers then a money-back guarantee is probably going to work better, but if you’re selling to somebody who’s on a team, then they don’t want to expend their own social capital in front of the eyes of their boss by signing up with the company credit card when it’s something that they don’t know if it’s going to work. There’s pluses and minuses of both approaches.
I was actually just talking to my wife about this the other day. There was a time where money-back guarantee was a fantastic option because you could also just refund somebody’s money, and it didn’t cost you anything. Stripe used to eat those costs, for example, and then they stopped doing that because it just got to be too costly because there were info marketers out there that were selling $1000-$2000 products, and then they’d have to issue refunds for 50% of them, so Stripe basically, just killed that. Depending on how many of those refunds you have to do, it may or may not work. You may just want to eat those costs, but it may not be viable for you to do.
Another option I’ve seen people try is having an onboarding fee. Instead of just saying, “Hey, here’s a free trial,” or whatever, say that there’s also an onboarding fee of $300 or $500 or something like that, which sounds outrageous like, “Why would you ask somebody to pay more when you’re just trying to get them in the door.” But it’s a prequalification process. You’re saying, “Hey, if somebody’s willing to sign-up and they’re willing to pay this extra $750 just to get on-boarded, that’s a great way to do it,” just because you’re going to filter out the people who aren’t necessarily serious about the product.
Rob: I know that you get a chargeback fee if you’re charged back, if it’s a dispute, but I don’t believe there’s any expense for refunds unless you have an unusually high refund rate.
Mike: I have seen that there were. I could be wrong. I could be misremembering this.
Rob: Maybe someone can write in and let us know. I’m on their pricing page, and it’s talking about chargebacks, but if the chargeback dispute is in your favor, you don’t have a fee. If it’s a chargeback and you lose it, then it’s $15. I’ve been on services every 25 or 30 for chargebacks. The only articles that mentions that I can find on Stripe refunds talk about how the entire fee, and it says right here in the docs, “There’s no fee to refund a charge.” Someone write in if you know because Mike and I have different memory. There’s always a chance that this stuff is out-of-date. I’m looking at a page that hasn’t been updated, and they just changed that.
That’s one thing. It’s kind of beside the point if it’s a couple percent. It’s not a big deal. Your refund rat will be higher if you do a money-back guarantee upfront, but it’s not going to bankrupt you as a SaaS app. Your margins are high enough that they can handle it even if there is a a cost.
I think there are a handful of apps that I’ve seen do the money-back guarantee. WP Engine was one, I remember. Pluggio, Justin Vincent did that. I believe, ConvertKit used to do that. I’m not sure. I think they still do. They charge you right up front, there’s no trial, and then they have a money-back guarantee there. There are certainly other apps that do it.
I think the default and normal assumption is to have a free trial rather than money-back guarantee for exactly the reason that you mentioned. If you’re at a company, and you put your own credit card on, and then it gets charged, you need to go reimbursed. It’s kind of a hassle. It’s just one more piece of friction.
Like I said, it really depends on who you’re selling to because if you’re selling to individuals or nascent entrepreneurs or people who it’s like, “Hey, they’re pulling up their personal credit card to buy this and they are convinced that it’s the tool. It’s being recommended by some expert they know and they think it’s going to help them start their business,” then yeah, maybe this isn’t an issue.
But if you’re selling B2B, money-back guarantee will be a blocker. I’ll tell you that right now. Even just asking for credit card upfront for a free trial can be a blocker and you will get a lot of people who won’t go through with the sign-up because of that. You have to look around. There’s a couple of things. Figure out who you’re selling to and if it’s truly your business says, I would shy away from a money-back guarantee, not saying I won’t do it, but the added friction will eliminate actual prospects who probably would buy from you because it can just become a deal breaker of some.
I would also look around at competition and actually in Tim’s email, he mentions that some of his competitors offer a one-year money-back guarantee and a discount for the first year because the churn is very low and because the switching cost are high. That right there tells me, “Oh, that’s interesting.” Could there even be a really limited free plan much like MailChimp, kind of one that ESP space early on because they were the only one that can get a free plan to work.
It’s risky as a bootstrapper, but if the switching cost are high, you can just get this massive funnel coming in. There can be value there. But even if you don’t do free plan, I would say I would lean towards as little friction as possible to get someone into that trial because the more people you get in if the switching cost are high, that’s how you’re going to build value in your SaaS app.
He says another competitor is actually seen to be free but then they have back-end per-transaction charges. What these competitors have figured out is since churn is low and you’re all fighting for new customers, that the least amount of friction upfront is the way to go. That’s where again, I would personally—as a rule of thumb that could be broken—I would lean away from money-back guarantees and I would look much more at a trial.
Then you have to ask yourself, “Do I have to do credit card upfront or not?” If you don’t do credit card upfront, you’re going to get a lot more people in that trial. Can you convert them? Are they still qualified? This is an experiment I would run. I may start with lower friction, given the load churn and the fact that people don’t switch out after they become customers.
Mike: Just a confirmation on that last piece where, in terms of Stripe, right on their refunds page they say, “There are no fees to refund a charge but the fees from the original charge are not returned,” so whatever the percentage is. That changed I think in 2017 because they couldn’t afford to do that.
Rob: Which is 3% plus 29 cents or something?
Mike: Yeah.
Rob: Okay. If it’s $100, you’re to pay him $3, essentially you’re eating $3.30 per refund and with the SaaS app, with the margins you have, that’s probably trivial. That wouldn’t be the reason I wouldn’t do it. If would be the other reasons I think I talked about.
Awesome. That’s a good question. Thanks for the question, Tim.
Mike: I think that about wraps us up for the day. If you have a question for us, you can call into our voicemail number at 1-888-801-9690 and Rob will put it to the top of the queue or be fired.
Rob: Next time, yeah.
Mike: Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 414 | Content Promotion Tactics
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about content promotion tactics. Breaking the tactics down in three categories (Social Media, SEO, and E-mail Marketing), the guys share thoughts and expand based on some previously written articles on the topic.
Items mentioned in this episode:
Episode Resources
Mike: In this episode of Startups For The Rest Of Us, Rob and I talk are going to be talking about content promotion tactics. This is Startups For The Rest Of Us 414.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: I’m Rob. You know, I’ve been thinking about my next act for a while.
Mike: Have you now?
Rob: I have.
Mike: Is this where people start cashing in on the pool?
Rob: Totally, yeah. What is Rob’s next startup going to be, right? This has been a question for a while.
Mike: I think it was my timing, actually. Not just what it was going to be.
Rob: Oh, was it?
Mike: Yeah.
Rob: Because Rob said I’m never going to do this again. Who put money on never? I think…
Mike: Probably nobody.
Rob: …no one. My wife definitely did not put money on never. Well, my next act is not a startup. It is an accelerator for bootstrappers. It’s actually a small fund and an accelerator for bootstrappers. It’s called TinySeed. You can check more info at tinyseedfund.com. But it’s really the first startup accelerator designed for bootstrappers, so startup accelerators is something like Y Combinator, TechStars, and as you and I have talked many times, those are geared around people who have these unicorn ideas, who are going to move to a location for three months, work the 80 hours for little pay and little sleep, and that doesn’t necessarily fit with the rest of us. I mean, the name of our podcast is Startups For The Rest of Us, right? You did this after Y Combinator came out.
Mike: Yup.
Rob: That’s what this accelerator is. It’s designed for folks like you, me, listeners of the podcast, attendees of MicroConf–kind of the people in our ecosystem and our community where building $1 million SaaS app, $5 million, $10 million annual SaaS app, is actually quite lucrative and there are so few funding sources for folks like us. The idea is, to put more money where my mouth has been for the past several years.
I’ve made a dozen angel investments, half of those have been in these businesses that only want to raise a single round of funding. Often $100,000, $250,000, maybe $400,000, whatever some small-ish amount, and then they want to get to profitability and never do that institutional money. The idea is, we know a lot of founders, I know a lot of founders, who are somewhere between idea and $10k a month MRR–is the sweet spot. Because most of these folks are unable to work full-time on their business and that’s kind of the value prop of TinySeed is it gives you runway for a year.
It basically provides you with a small amount of capital but it’s going to be enough capital to basically live on for a year and keep you from having the nights and weekends stuff, to be able to focus full-time, and you don’t have to relocate so it’s remote. It’s going to be in a cohort model […] maybe it’s 10 in the first cohort, and weekly Zoom calls, and I’m assuming like a Slack or chat group, and then weekly office hours. Basically, all the things you hear about in an accelerator except that it’s designed for us, by us; it is remote and it’s just another option.
I think the other thing is, it’s longer term. You and I both know, I don’t think we could’ve built and launched Drip or Bluetick in three months. It’s just not long enough. The idea is to get longer runway to get more traction and since people are remote, it winds up being easier. Because Y Combinator couldn’t be a one-year thing because you’re not going to relocate to a place for a year. There’re different elements to it but that’s the basic gist.
Mike: We’ll have to talk about it. I almost think that we might want to talk about it for either longer period of time and it’s part of a direct episode on funding. I think there’s different ways that it could work. Obviously, you guys have to talk internally about what you are going to publicly disclose now versus things that you’re just talking about or ruminated on for ideas. But I do think we should definitely revisit it as a part of a longer discussion topic as part of Startups For The Rest Of Us.
Rob: Yeah, that sounds like fun. I would say, at this point, we’re about probably 80% locked down on terms and ideas, and curriculum and thoughts, and all that. But definitely more than happy to talk about it. The wee of it is, myself and Einar Volsett, who has been at MicroConf many times, he’s a YC Y Combinator alum, he’s had a couple of exits, and right now, he’s a Micro-Cap M&A advisor, which I think, he’s like a scout for private equities; he works with private equity companies. But you know him. I think you’ve talked a bunch of times.
Mike: Yeah. I’ve had dinner with him a couple of times at MicroConf. He’s a super sharp guy. He used to teach at Cornell, I think.
Rob: Yeah, he was a CS Professor at Cornell for a couple of years.
Mike: Right. He’s got a Ph.D. in computer science but he also knows a lot about the business side of things. What was the startup that he ran? It was inbox spelled backwards, it’s xobni, something like that?
Rob: It wasn’t xobni, it was something else. There was one called AppAftercare which he exited in 2016.
Mike: Oh, ReMail
Rob: Yep, ReMail, that was it. Y Combinator and it was acquired by Google in 2010. He has some experience and that’s where he has more of the fundraising and the private equity venture capital, more knowledge of that and the terms, so he’s good at figuring out models and running IRR calculations. If you don’t know what those are, you don’t need to unless you’re going to run a fund but that’s one of the reasons that I’ve never wanted to get into this is I didn’t want to do all that side of things.
Mike: Well, like I said, it will definitely be interesting to see how this plays out. I think that you guys are the first ones that are doing this in this particular space. We used to talk about why Y Combinator was aimed at people who are just going straight for funding versus like, “Hey, let me build a product. Let me get a little bit of traction for it and then go out for some funding, but I still want to not have to grow it into his giant thing.”
Rob: That’s right. I, of course, did a bunch of market research on accelerators and incubators and remote accelerators, they’re really–you can find a list of remote accelerators, but almost of them, they’re rather defunct now or it’s like a remote accelerator tied to like a city government launch or a university and it just kind of feels like a ghost town. No one has nailed this model. That of course could be a risk if you have no competition. Are you first or is it not going to work? Are you going down a wrong path? That’s always the question but I personally believe I wouldn’t be doing it if I didn’t think that it was going to work.
Mike: I think every single entrepreneur […] of doing business. If I’m first, it’s like I’m seeing things that other people aren’t seeing. But it’s one of those things that you have to let it play out to find out whether history will remember you for being right or wrong.
Rob: Absolutely. That’s the game of being a founder, I think. If you’re listening to this and you’re just interested in hearing more whether it’s from the founder side, whether you are experienced, interested in being a mentor, somehow being involved, or just wanting to hear more about it, tinyseedfund.com. There, of course, is an email opt-in form in there. We’ll be communicating with that list as more details come out.
Mike: Awesome. On my end, I’ve come to the conclusion that I need to schedule a personal retreat in the very near future just to straighten out where my marketing efforts are going to go for Bluetick. Because I’ve had things all over the place for several months now and I haven’t really had a solid thought on what the direction should be and where, strategically, I should be going with the marketing efforts.
Unfortunately, it’s hard to take that time right now just because my wife teaches on Saturdays, and my son has soccer games on Saturdays. For the next three or four weeks, he’s got those games. It’s just like she can’t be in both places at the same time, so I kind of have to wait, push off on that a little bit, but that is on my short-term road map, I’ll say.
Rob: That’s always a good idea. Frankly, since I started doing retreats, there always comes this time where you just don’t know what to do next, you don’t know what to try next, and you need some distance in order to do that. Because if you sit around at your laptop, at your home office, you’re just going to write code, you’re going to respond to fires and support requests and all that stuff and getting away for a couple of days–super valuable.
Do you have Sherry’s retreat guide, The Zen Founder Guide to Founder Retreats?
Mike: I’m not sure. I think I might. I’m not sure if I have it or not.
Rob: It’s just a very good guide to revisit. Every time I go on a retreat, I’d pull it up. If you’re listening to this, haven’t heard of it, go to zenfounder.com. I think there’s a products link in there. It’s $19 or something and it’s 30, 40-page e-book, in essence, but it’s kind of everything. Because Sherry introduced me to Founder Retreats and I talked about it on this podcast and it’s kind of spread from there which I think is a great thing. I’ve always found them so valuable. Sherry put together the guide and had me add as much as fill-in-the-gaps basically on it, and so it’s really, in my opinion, kind of the definitive guide for things you should think about as you go into your retreat.
I hope you’re able to do that soon. It’s a bummer to have schedule be the issue. Is there a way—just to throw out ideas—like he has soccer game on Saturday, could you leave Saturday evening and come back, basically 48 hours, come back Monday evening or Monday afternoon before the kids get home from school?
Mike: Probably. Last week was a holiday so I could not have done it that week. Then this coming week, I can’t leave on Saturday night because we’re basically going out to dinner for our wedding anniversary to celebrate that. Then the following week I leave for MicroConf.
Rob: You just cancel.
Mike: Oh, yeah. Sure. I’ll just cancel that.
Rob: Oh, for Pete’s sake.
Mike: I’ll cancel either our anniversary dinner or MicroConf. One or the other. It’s going to be several weeks no matter what at this point. There’s no way around it, I think.
Rob: I have a great idea. Do your retreat in Croatia. Just extend your trip a couple of extra days. Be like, “Hey, Ally, I’ll be back. Peace out. Have fun with the kids. I’ll be back.”
Mike: If I were leaving early, I can’t though. Just because she teaches during the week […] like Sundays.
Rob: I’m joking.
Mike: I know.
Rob: Yeah, man. It’s hard. I totally get it.
Mike: Oh, well, moving on. I guess we’re going to move on to our actual topic for today. We’re going to talk about content promotion tactics.
Rob: I am digging it. We’re revisiting a topic that we covered in 2010.
Mike: Yes. This is a little bit from episode six. In episode six, it was all about how to get traffic to your website. I went back, and I took a look at that, some of the links that we had in there like seobuilding.com just totally defunct at this point. You can buy that domain if you’re really interested for like $3500. If anyone’s interested…
Rob: You’ll at least be getting graphic from us at this point. No, not some of the links, Mike. I think, 40% of the links that we listed, and the approaches are just completely, they either don’t work anymore, they’re just gone, but this was eight years ago. It’s an eternity.
Mike: Yes. But I went back, and I looked at it. I was kind of inspired by, I was reading the SaaS mag article that’s put out by FE International. They launched it at MicroConf. You can go to saasmag.com, we’ll link that up in the show notes, and sign-up, and start getting issues of that. It’s aimed at SaaS founders. It talks about various things that are related to the industry and they interview experts from different fields on what they’re doing and kind of what the future looks like, and how they got to where they are, etc.
Most recent one I saw has interviews from Patrick Campbell from Price Intelligently, Brennan Dunn from Double Your Freelancing and RightMessage, also David Cancel from Drip. There’s a bunch of different people they’ve interviewed. But on one of the pages they had, it was kind of a poll that they have taken inside of a Facebook group called SaaS Growth Hacks. They asked the question, “What are the best marketing channels for SaaS companies?” and people voted on different things. Content, by far, was the highest voted thing. Below that you have forums, and Quora posts–answering questions there, and then cold email, and paid ads ranks about the same. Then below that was partnerships, word-of-mouth. Below that, free tools, and then the last couple of ones on the list were Twitter, conferences, and LinkedIn messaging.
The way that that shook out does not necessarily surprise me, but the fact the content was still so far up above, I felt like that was a little surprising.
Rob: I find that really interesting too, actually. I think, as you mentioned, it’s from basically marketers, so whether it’s founders or growth marketers or whatever, it’s what they are doing these days. I wonder if they’re doing these because they’re measuring, and it works or they’re doing it because this is kind of the current wave. The current mindset is, content is king, and it’s the thing that you should start with.
I don’t know that that’s worth even diving into, going down that rabbit trail. But it is something that comes to mind is, is there a group thing going on and zigging when everyone else is zagging, is the best way to go or is this really right now with social and the fact email marketing is so powerful in with the SEO benefits of content that content really is where it’s at and that’s why everyone’s there.
Mike: I think it’s partially because of the fact that with content, you can create an article through your website and it’s going to continue drawing traffic in versus if you do cold calling or a joint venture with somebody, I call them one-off activities even though you can do them repeatedly, but you don’t continue to reap rewards if you’re not picking-up the phone and cold calling, for example. You have to keep doing it versus if you go through the effort to creating an article, put it on your site, and you do well enough with the SEO, you will continue to get traffic much further down the road. You can also promote that piece of content multiple times.
It’s not about that content is king so much as this that content is reusable and it allows you to put it in front of people, not just multiple times, but put it in front of new people because you’re creating this asset of some kind that other people could find useful. You can’t really point somebody to an empty page on your website and expect that it’s going to continue to drive clicks.
Rob: Right. That’s the thing. We’ve talked in the past about how if you’re in super early stage, you’ve pre-product market fit or pre-product then content’s probably not the right play for you because content is a long game. But once you’ve found your audience, your product is something people want, and you’re scaling, that’s when I think, in general, content is going to be a really good play for you to get you that 5K or 10K MRR that you’ve just scratched and clawed and manually done maybe cold email, whatever it is to get your first 100 customers. But once you want to go from there, I think you need more scalable things and content is one of those avenues, and that’s why we’re talking about it today.
Mike: I think what we’re going to focus on is, we have a couple of resources that we’ll link to in the show notes. One if from orbitmedia.com and the other one is from neilpattel.com. one of the things that this really points to is the fact that when you are promoting content there are three essential pieces or channels you can look at. There’s SEO, then there’s sending out emails to drive people on your mailing list back to your site, and there’s social sharing. Where those intersect is you can promote your content into each of those places but depending on what your needs are, you’re going to put more effort into one versus the other.
The whole idea of this is, if you do it through social media, you’re going to try and get additional shares or followers. If you’re trying to get additional subscriptions to your mailing list, it’s going to help you grow your list for email marketing. If a visitor comes in and they link to your content from someplace else, you’re going to rank higher in search engines. The idea is to create this feedback loop, of you doing all of those three things in order to amplify your traffic and from that, you essentially end up with leads on the other side of it. It’s really just an engine that you’re creating.
If you have a ton of people on your mailing list, you can start asking them in trying to help promote on other things. You can say, “Hey, can you promote this on social media?” You can leverage them back and forth between each other to amplify the entire system.
Rob: Content does have this unique advantage which is one of the reasons that marketers like it so much is, it really has this trifecta of value that it brings, these three uses. I’ll step to another example; let’s say I’m running Facebook ads and I’m getting that to work. Facebook ads send typically cold traffic to a page, you might get trial sign-ups, you might have to retarget them, you might have to get them on an email list, but those ads you’re paying for—and they really have one purpose—and it’s to drive some traffic one time.
Content on the other hand has three uses, maybe it has more, but the three main ones that I’ve seen, and I’ve used, and it worked really well. The first one is social media. It’s getting that buzz because you put out a new article or essay or e-book or video or whatever, but you get people to talk about you on Twitter and LinkedIn, Facebook or wherever else your folks reside, and you can get that quick social media bump of, “Hey, everyone’s talking about this cool new thing that came out.” Then it dies down and that would be one use.
But another use for this exact same content is you email your whole list. That can help with the social media aspect. It helps if more people know about it then more people talk about. But it gives you an excuse to contact your email list. Every time you contact your email list, you’re probably going to get more trials, more interests in your product.
The third use is this long play of SEO. If you put out good content and it hits the right keywords, and you do have links back or you have social shares that are pointing back, it rises in the ranks. Long-term, people searching for these terms in Google, come back to it.
I haven’t given it a ton of thought, but I don’t know, off hand, of another marketing approach that has that many solid benefits, this super short-term bump, the email list bump, and then the long-term paly of SEO. I believe it’s pretty unique in that respect.
Mike: Let’s dive into the first section which is social media. What we’re going to do is we’re going to throw in, just very briefly, highlight some of the different tactics that are listed on a couple of these reference articles that we pointed to earlier.
The first one is to mention people who are going to like your article, they liked the content of it or directly reference people who are quoted in the article. One example of how well this would work is if you’ve interviewed somebody and they are relatively high-profile in the industry that you serve, for example. If you’ve mentioned them in the social media posts, they are more likely to share it than if you were to email them directly and then say, “Hey, can you tweet this out for me?” Because then you’re asking them, “Hey, can you create a tweet and then post this?” versus they see it in their social media feed and they can just literally hit retweet and they don’t have to do any work. It’s just a matter of what your ask is of them.
If I see something where it has referenced me for example and I’ve commented on an article or was on a podcast, I’m almost certain to retweet that and like it just to give it more of a visibility.
Rob: That’s a nice tactic. I’ve definitely seen that. At a minimum, I’m going to like something if I click through and it’s like, “Oh, yeah. That was that quote I gave you two months ago.” Then like you said, if it’s a legit post, because sometimes you’ll get asked for a quote or a comment on, what’s the hardest thing about validating product or what are the market approaches that are working today or whatever, and they’re doing an expert roundup and I’m just cool to participate in those. Some of them are really, really good and really well put together and others are kind of someone doing a halfway job or maybe they’re new or whatever. But the best ones, when I get a mention like that, it’s pretty certain I’m going to click through and then based on the quality of it, decent likelihood that I will retweet that.
Mike: Another one is to tweet quotes from the content. The nice things about this is you can create multiple tweets and schedule them using Buffer, a variety of other tools, and get them out there in such a way that you’re not repeating yourself. Different quotes are going to attract different types of people. There’s a quote about, I don’t know, a search engine marketing for example, you could put that in there, and then there could be something else which is optimizing search engine marketing. One is very broad and then the other one is a little bit more specific, depending on the person who sees it, if they’re more interested in one or the other, they’re going to click on it.
Rob: Another approach is you’re not just going to tweet this once especially if it’s a big piece of content because the longer form, frankly, more expensive, whether it’s time-expense or actual cost in paying someone to build it. The longer form more expensive pieces of content are the ones that are winning today and the ones that are getting the tweets. You’re not just going to tweet this once and be done. A good strategy is to tweet it once and then schedule some near future and distant future tweets because, if you think about it, in three months, the buzz from this e-book or audio piece or whatever, blog post, will have died off but it’s probably still relevant and valuable. It’s something not to bother people with but to bring back up and remind them, “Hey, this is still is valuable and legitimate.” Obviously, even within the first week, I forgot what the number is, but isn’t it like 5% of your followers see any of your individual tweets?
Mike: That’s not a per day basis, I think.
Rob: Yeah. One approach is to, as we’ve said in the past, kind of have a once a day tweet this out for the first three, four, five days, so that people more people see it especially if it’s a really big piece of content. It can be worth it. You can also irritate people and they’ll unfollow you if you’re just spamming them with the same links over and over. You have to use your head here, like any other strategy, but this is definitely something I’ve seen marketers are doing.
Mike: It’s offshoot is that is to share a short video on Twitter, Facebook, whether it’s Facebook groups or one of your Facebook page or inside of LinkedIn. The idea of the short video is to more or less give a very quick overview or summary of what the piece of content you have is not to talk about the entire content. It’s not that you’re trying to drive people to watch the video. What you’re really just trying to do is help get those people who prefer a different medium. Some people like to skim things and read it, and then there’s people out there who like to watch a video. But you also don’t want to overwhelm them with, “Oh, I just popped on to Twitter and I’m expecting to be here for a couple of minutes.” They’re not going to have time for a 30-minute video. But they may sit down and watch a 30-second video or a 15-second video that just talks about like, “Hey, if you’re interested in this, come over and check it out.” You just want to be sensitive to the fact that some people like to consume that information in different formats. The other nice benefit of sharing it like that is that you tend to get the videos will be shared on Twitter, on Facebook, and LinkedIn as your face and there’s a very different type of algorithms that those companies use in order to highlight those types of posts.
Rob: Another approach is to syndicate your content on LinkedIn, Medium, and other avenues. Syndication is just a fancy word for either reposted there or taking excerpt from it and repost there. You can imagine if you’ve written this 100-page e-book, the definitive guide to social media marketing or email marketing or whatever, you don’t post that whole thing on LinkedIn. But maybe you take, because you can put LinkedIn kind of blog post-ish, you take a really great 1000-words from that, and you post it on LinkedIn and then you link out the book.
You can do same with Medium although you can go longer form there. You can post an entire chapter from that book, so maybe you do 5000, 3000, 5000-words on Medium. Again, say, “This is an excerpt from this book.” Or if it’s a video, maybe you’d do a transcript part of.
These are ways that if you have built a following, or if you think that those networks with be intrigued by the title and the content and stuff, then reusing this content is a nice way to reuse that effort because if you spent a month or two writing this e-book or making this amazing tutorial video or whatever, you want to get it out in as many forms as possible. That’s what syndication is.
Mike: The next section we’re going to talk about is email marketing. Many of these, I think, are probably going to be pretty familiar to most people listening to this, but we’re going to go through them anyway because this is kind of a major section of the, as Rob talked about the trifecta here of content marketing.
The first one is sending out the links to it through your email list. One thing you definitely want to make sure that you’re doing here is you’re putting calls to action in there. I have mixed feeling on whether or not you should post the entire piece of content in the email versus having it on your website. Because there’s advantages and disadvantages to both. I think you just need to make a judgement call about whether you want it on your website where people can go to it versus, you’re just trying to make sure that you get it in front of people on your email list. If it’s something that you want exclusively for people on your mailing list, obviously, you’d put it in there. But people also have a somewhat limited attention span if it comes to something in their email. I do think it’s worth being cautious and making some measurements around, “Are people actually reading that and then taking action on it?” But again, that’s a judgement call.
Rob: Yeah. My default rule of thumb for this is if you’re doing personal brand stuff, if it’s Patrick Mackenzie or Brennan Dunn or Rob Walling blogging, and then sending it to their list, it’s probably fine if you post the entire article in the email. Because people are engaged with you and the content is really gripping and they tend to want to—or hopefully, it’s really gripping—and they tend to want to read the whole thing and they could read it on their phone or whatever. That’s my general rule.
If you’re doing it as a business, when Dripping was sending it out or if Bluetick were sending out a post, I would probably do a teaser and a really snazzy excerpt with an image, and then say, “Click through to read the full thing.” Some people will click, and some people won’t, but it will get you traffic. The end goal there is to get traffic to your site. Hopefully, get people to share it from there, and sign-up for a trial or whatever.
Again, that’s my general rule, how I link. But I think you can certainly break those rules if you know your audience better or as you said, if you look at the numbers, it’s telling you that that’s not the best way to do it.
Mike: If you had an email course for example, a lot of times you’re going to put the course directly in the email, and you may not want that course directly on your website. You may want to reserve it just for people on your mailing list, and maybe that’s because they don’t get to the mailing list until there’s certain amount of trust gained, or maybe the purpose of that email sequence is to establish trust, and then you send them shorter emails later on with the links back to the articles. But again, as you said, there’s lots of different ways to do it.
Rob: Right. This particular point, of whether to include all the content in an email, is really only relevant for probably blog posts because if you’re putting out an e-book it’s going to be too long. If you’re putting out a video course or one video, you can’t embed that in email, you can certainly embed an image that links out somewhere. If you create any kind of downloadable content, you’re not going to be able to put that in email anyways. It’s only if you’re doing kind of the blog content engine or short essays.
Mike: As kind of an addendum to this, you can send out, “In case you missed it,” follow-up emails. Obviously, you can put those directly into the email campaigns and it works really well because I’ve seen Drip actually put this in their directive and specifically for that reason. But you get anywhere from 20%-40% lift in opens just by resending an email with a different subject line for the exact same emails. If somebody didn’t open it, you basically resend them that email.
Rob: We did that. It’s quite successful. Another tactic you can do is, let’s say you’ve put out three blog posts a week, you can recap either at the end of the week or at the end of the month, and just have a separate email that you pull up, “Hey, in case you missed it, here are all the posts from the past week or the month,” or, “Here are our top picks or the most popular five from the past month.” and it’s just one more way to reach out to the audience, provide them with additional content, and you didn’t have to produce that content. It’s just linking back to stuff that they’ve probably missed because they probably didn’t read every article.
Mike: Next on the list is you can also send those notifications directly to some of your high-value contacts. You can either do this as personal emails instead of broadcast emails or you can find people that are on your list, who may not necessarily be subscribed to a particular campaign or they’re tagged in a certain way or segmented somehow and you say, “Hey, I think that these people would be really great candidate to receive this particular piece of content.” Maybe it they opted-in to a particular lead magnet, then you would send the content to them. But it’s really about being a lot more targeted about who you’re sending it to.
Again, this is where personal emails to people can really shine just because if they do see an email coming in and it’s from your company versus from you personally, they’re probably a little less likely to treat it as, “Hey, this person took the time to really reach out to me, so I’m going to pay a little bit more attention to it.” But sometimes the emails that are coming in from a general newsletter email address, sometimes people have rules or filters set-up so that they go into a certain place. By sending it directly, a lot of times, it will bypass those defaults because they just didn’t think to set them up.
Rob: There are 50 content promotion ideas in the Orbit Media post alone, but another one that you pulled out is to notify your source of a new post. I think this is similar to doing it on social media but emailing people directly, “Hey, do you remember the article where I interviewed you for? That’s live. If you’d like to share it, it’d be great. Here’s a link.” Or, if there’s 10 people because it’s a roundup, you do the same thing. You notify them all and certainly a few people will likely help promote that for you.
Mike: If you give them a short snippet or a summary, you can also ask them to promote it to their own email list, and then you’re essentially amplifying the efforts there.
Rob: Let’s dive into SEO.
Mike: When you’re looking at SEO, obviously, what you want to do is you want to align the content of those posts with key phrases that you have pulled out after doing some keyword research. There’s a lot of different tools that you can use for that. We’ve talked about them in the past. But the other thing that you can do is when you take that phrase and you plug it into Google, scroll all the way to the bottom, and there’s a place where it says, “Related phrases.” Those are things that Google also recognizes that people are searching for. It doesn’t tell you numbers or how many people are searching for them but there’s a good chance that if you were to take those and put them into the article and sprinkle them around, you’re also going to pick up additional SEO benefit and additional traffic by using those phrases and it’s going to end up in front of more people.
Rob: SEO is such a–it’s a large and ever more complex subject than eight years ago, we could probably give you the five things you have to do to rank. These days, the list is just longer and longer and it’s more complicated. I don’t think we can do a full treatment of, “How to SEO your blog post or your e-books.” It’s probably, not only an entire podcast, but at this point, probably an entire e-book or book. You need a way to get it down.
But another tactic is to crosslink from other posts you have or other resources or other websites you have because obviously, while links are slightly less valuable than they used to be, you could just build links in the old days and rank for everything, links are still very valuable especially from authority sites. If you have control of an authority site or authority sites, you can crosslink from relevant posts or relevant sites and help that new content rank higher in Google.
Mike: Previously, you had mentioned that you can create a short video and post it on various social media sites, you can also use the video there to embed into the website itself just to give people the top of a brief intro to what they’re going to be reading about. The nice benefit is that when people are doing searches inside of Google, they have a tendency to show videos very, very high up in the list because most people aren’t creating videos that they’re using directly for content. They’re really trying to push people in that direction. I do see a lot of videos get posted or show up in the search results even though I’m not personally looking specifically for videos, but there is a significant benefit that I’ve seen for posts that included video in them.
Rob: Of course, they’re submitting to the–there are social platforms, there is Reddit, Hacker News, Product Hunt, even Digg, although I’m not sure that’s worth doing at this point. You and I were just looking at it before this episode, but those are the things and that whole list shifts based on what your content is and who your content is. You can also do paid promotion on StumbleUpon, Outbrain, LinkWithin, Tabula, they’re often lower quality and they’re more consumer-oriented and its people just kind of skipping from one thing to the next, so if you’re a true B2B enterprise SaaS, it’s probably not worth doing any of these. I would look more at LinkedIn paid promotion or something like that. But there’s this whole world of both these social new platform, social discovery platforms, and these kinds of paid ways to get in front of them. Getting on those, if you can get a backlink, if you can get voted up, it will help in the short-term with the social media bump because more people know about it, but then in the longer term, it’s going to link back to you.
With that, I think we’re wrapped up for the day.
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Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: I’m Rob. You know, I’ve been thinking about my next act for a while.
Mike: Have you now?
Rob: I have.
Mike: Is this where people start cashing in on the pool?
Rob: Totally, yeah. What is Rob’s next startup going to be, right? This has been a question for a while.
Mike: I think it was my timing, actually. Not just what it was going to be.
Rob: Oh, was it?
Mike: Yeah.
Rob: Because Rob said I’m never going to do this again. Who put money on never? I think…
Mike: Probably nobody.
Rob: …no one. My wife definitely did not put money on never. Well, my next act is not a startup. It is an accelerator for bootstrappers. It’s actually a small fund and an accelerator for bootstrappers. It’s called TinySeed. You can check more info at tinyseedfund.com. But it’s really the first startup accelerator designed for bootstrappers, so startup accelerators is something like Y Combinator, TechStars, and as you and I have talked many times, those are geared around people who have these unicorn ideas, who are going to move to a location for three months, work the 80 hours for little pay and little sleep, and that doesn’t necessarily fit with the rest of us. I mean, the name of our podcast is Startups For The Rest of Us, right? You did this after Y Combinator came out.
Mike: Yup.
Rob: That’s what this accelerator is. It’s designed for folks like you, me, listeners of the podcast, attendees of MicroConf–kind of the people in our ecosystem and our community where building $1 million SaaS app, $5 million, $10 million annual SaaS app, is actually quite lucrative and there are so few funding sources for folks like us. The idea is, to put more money where my mouth has been for the past several years.
I’ve made a dozen angel investments, half of those have been in these businesses that only want to raise a single round of funding. Often $100,000, $250,000, maybe $400,000, whatever some small-ish amount, and then they want to get to profitability and never do that institutional money. The idea is, we know a lot of founders, I know a lot of founders, who are somewhere between idea and $10k a month MRR–is the sweet spot. Because most of these folks are unable to work full-time on their business and that’s kind of the value prop of TinySeed is it gives you runway for a year.
It basically provides you with a small amount of capital but it’s going to be enough capital to basically live on for a year and keep you from having the nights and weekends stuff, to be able to focus full-time, and you don’t have to relocate so it’s remote. It’s going to be in a cohort model […] maybe it’s 10 in the first cohort, and weekly Zoom calls, and I’m assuming like a Slack or chat group, and then weekly office hours. Basically, all the things you hear about in an accelerator except that it’s designed for us, by us; it is remote and it’s just another option.
I think the other thing is, it’s longer term. You and I both know, I don’t think we could’ve built and launched Drip or Bluetick in three months. It’s just not long enough. The idea is to get longer runway to get more traction and since people are remote, it winds up being easier. Because Y Combinator couldn’t be a one-year thing because you’re not going to relocate to a place for a year. There’re different elements to it but that’s the basic gist.
Mike: We’ll have to talk about it. I almost think that we might want to talk about it for either longer period of time and it’s part of a direct episode on funding. I think there’s different ways that it could work. Obviously, you guys have to talk internally about what you are going to publicly disclose now versus things that you’re just talking about or ruminated on for ideas. But I do think we should definitely revisit it as a part of a longer discussion topic as part of Startups For The Rest Of Us.
Rob: Yeah, that sounds like fun. I would say, at this point, we’re about probably 80% locked down on terms and ideas, and curriculum and thoughts, and all that. But definitely more than happy to talk about it. The wee of it is, myself and Einar Volsett, who has been at MicroConf many times, he’s a YC Y Combinator alum, he’s had a couple of exits, and right now, he’s a Micro-Cap M&A advisor, which I think, he’s like a scout for private equities; he works with private equity companies. But you know him. I think you’ve talked a bunch of times.
Mike: Yeah. I’ve had dinner with him a couple of times at MicroConf. He’s a super sharp guy. He used to teach at Cornell, I think.
Rob: Yeah, he was a CS Professor at Cornell for a couple of years.
Mike: Right. He’s got a Ph.D. in computer science but he also knows a lot about the business side of things. What was the startup that he ran? It was inbox spelled backwards, it’s xobni, something like that?
Rob: It wasn’t xobni, it was something else. There was one called AppAftercare which he exited in 2016.
Mike: Oh, ReMail
Rob: Yep, ReMail, that was it. Y Combinator and it was acquired by Google in 2010. He has some experience and that’s where he has more of the fundraising and the private equity venture capital, more knowledge of that and the terms, so he’s good at figuring out models and running IRR calculations. If you don’t know what those are, you don’t need to unless you’re going to run a fund but that’s one of the reasons that I’ve never wanted to get into this is I didn’t want to do all that side of things.
Mike: Well, like I said, it will definitely be interesting to see how this plays out. I think that you guys are the first ones that are doing this in this particular space. We used to talk about why Y Combinator was aimed at people who are just going straight for funding versus like, “Hey, let me build a product. Let me get a little bit of traction for it and then go out for some funding, but I still want to not have to grow it into his giant thing.”
Rob: That’s right. I, of course, did a bunch of market research on accelerators and incubators and remote accelerators, they’re really–you can find a list of remote accelerators, but almost of them, they’re rather defunct now or it’s like a remote accelerator tied to like a city government launch or a university and it just kind of feels like a ghost town. No one has nailed this model. That of course could be a risk if you have no competition. Are you first or is it not going to work? Are you going down a wrong path? That’s always the question but I personally believe I wouldn’t be doing it if I didn’t think that it was going to work.
Mike: I think every single entrepreneur […] of doing business. If I’m first, it’s like I’m seeing things that other people aren’t seeing. But it’s one of those things that you have to let it play out to find out whether history will remember you for being right or wrong.
Rob: Absolutely. That’s the game of being a founder, I think. If you’re listening to this and you’re just interested in hearing more whether it’s from the founder side, whether you are experienced, interested in being a mentor, somehow being involved, or just wanting to hear more about it, tinyseedfund.com. There, of course, is an email opt-in form in there. We’ll be communicating with that list as more details come out.
Mike: Awesome. On my end, I’ve come to the conclusion that I need to schedule a personal retreat in the very near future just to straighten out where my marketing efforts are going to go for Bluetick. Because I’ve had things all over the place for several months now and I haven’t really had a solid thought on what the direction should be and where, strategically, I should be going with the marketing efforts.
Unfortunately, it’s hard to take that time right now just because my wife teaches on Saturdays, and my son has soccer games on Saturdays. For the next three or four weeks, he’s got those games. It’s just like she can’t be in both places at the same time, so I kind of have to wait, push off on that a little bit, but that is on my short-term road map, I’ll say.
Rob: That’s always a good idea. Frankly, since I started doing retreats, there always comes this time where you just don’t know what to do next, you don’t know what to try next, and you need some distance in order to do that. Because if you sit around at your laptop, at your home office, you’re just going to write code, you’re going to respond to fires and support requests and all that stuff and getting away for a couple of days–super valuable.
Do you have Sherry’s retreat guide, The Zen Founder Guide to Founder Retreats?
Mike: I’m not sure. I think I might. I’m not sure if I have it or not.
Rob: It’s just a very good guide to revisit. Every time I go on a retreat, I’d pull it up. If you’re listening to this, haven’t heard of it, go to zenfounder.com. I think there’s a products link in there. It’s $19 or something and it’s 30, 40-page e-book, in essence, but it’s kind of everything. Because Sherry introduced me to Founder Retreats and I talked about it on this podcast and it’s kind of spread from there which I think is a great thing. I’ve always found them so valuable. Sherry put together the guide and had me add as much as fill-in-the-gaps basically on it, and so it’s really, in my opinion, kind of the definitive guide for things you should think about as you go into your retreat.
I hope you’re able to do that soon. It’s a bummer to have schedule be the issue. Is there a way—just to throw out ideas—like he has soccer game on Saturday, could you leave Saturday evening and come back, basically 48 hours, come back Monday evening or Monday afternoon before the kids get home from school?
Mike: Probably. Last week was a holiday so I could not have done it that week. Then this coming week, I can’t leave on Saturday night because we’re basically going out to dinner for our wedding anniversary to celebrate that. Then the following week I leave for MicroConf.
Rob: You just cancel.
Mike: Oh, yeah. Sure. I’ll just cancel that.
Rob: Oh, for Pete’s sake.
Mike: I’ll cancel either our anniversary dinner or MicroConf. One or the other. It’s going to be several weeks no matter what at this point. There’s no way around it, I think.
Rob: I have a great idea. Do your retreat in Croatia. Just extend your trip a couple of extra days. Be like, “Hey, Ally, I’ll be back. Peace out. Have fun with the kids. I’ll be back.”
Mike: If I were leaving early, I can’t though. Just because she teaches during the week […] like Sundays.
Rob: I’m joking.
Mike: I know.
Rob: Yeah, man. It’s hard. I totally get it.
Mike: Oh, well, moving on. I guess we’re going to move on to our actual topic for today. We’re going to talk about content promotion tactics.
Rob: I am digging it. We’re revisiting a topic that we covered in 2010.
Mike: Yes. This is a little bit from episode six. In episode six, it was all about how to get traffic to your website. I went back, and I took a look at that, some of the links that we had in there like seobuilding.com just totally defunct at this point. You can buy that domain if you’re really interested for like $3500. If anyone’s interested…
Rob: You’ll at least be getting graphic from us at this point. No, not some of the links, Mike. I think, 40% of the links that we listed, and the approaches are just completely, they either don’t work anymore, they’re just gone, but this was eight years ago. It’s an eternity.
Mike: Yes. But I went back, and I looked at it. I was kind of inspired by, I was reading the SaaS mag article that’s put out by FE International. They launched it at MicroConf. You can go to saasmag.com, we’ll link that up in the show notes, and sign-up, and start getting issues of that. It’s aimed at SaaS founders. It talks about various things that are related to the industry and they interview experts from different fields on what they’re doing and kind of what the future looks like, and how they got to where they are, etc.
Most recent one I saw has interviews from Patrick Campbell from Price Intelligently, Brennan Dunn from Double Your Freelancing and RightMessage, also David Cancel from Drip. There’s a bunch of different people they’ve interviewed. But on one of the pages they had, it was kind of a poll that they have taken inside of a Facebook group called SaaS Growth Hacks. They asked the question, “What are the best marketing channels for SaaS companies?” and people voted on different things. Content, by far, was the highest voted thing. Below that you have forums, and Quora posts–answering questions there, and then cold email, and paid ads ranks about the same. Then below that was partnerships, word-of-mouth. Below that, free tools, and then the last couple of ones on the list were Twitter, conferences, and LinkedIn messaging.
The way that that shook out does not necessarily surprise me, but the fact the content was still so far up above, I felt like that was a little surprising.
Rob: I find that really interesting too, actually. I think, as you mentioned, it’s from basically marketers, so whether it’s founders or growth marketers or whatever, it’s what they are doing these days. I wonder if they’re doing these because they’re measuring, and it works or they’re doing it because this is kind of the current wave. The current mindset is, content is king, and it’s the thing that you should start with.
I don’t know that that’s worth even diving into, going down that rabbit trail. But it is something that comes to mind is, is there a group thing going on and zigging when everyone else is zagging, is the best way to go or is this really right now with social and the fact email marketing is so powerful in with the SEO benefits of content that content really is where it’s at and that’s why everyone’s there.
Mike: I think it’s partially because of the fact that with content, you can create an article through your website and it’s going to continue drawing traffic in versus if you do cold calling or a joint venture with somebody, I call them one-off activities even though you can do them repeatedly, but you don’t continue to reap rewards if you’re not picking-up the phone and cold calling, for example. You have to keep doing it versus if you go through the effort to creating an article, put it on your site, and you do well enough with the SEO, you will continue to get traffic much further down the road. You can also promote that piece of content multiple times.
It’s not about that content is king so much as this that content is reusable and it allows you to put it in front of people, not just multiple times, but put it in front of new people because you’re creating this asset of some kind that other people could find useful. You can’t really point somebody to an empty page on your website and expect that it’s going to continue to drive clicks.
Rob: Right. That’s the thing. We’ve talked in the past about how if you’re in super early stage, you’ve pre-product market fit or pre-product then content’s probably not the right play for you because content is a long game. But once you’ve found your audience, your product is something people want, and you’re scaling, that’s when I think, in general, content is going to be a really good play for you to get you that 5K or 10K MRR that you’ve just scratched and clawed and manually done maybe cold email, whatever it is to get your first 100 customers. But once you want to go from there, I think you need more scalable things and content is one of those avenues, and that’s why we’re talking about it today.
Mike: I think what we’re going to focus on is, we have a couple of resources that we’ll link to in the show notes. One if from orbitmedia.com and the other one is from neilpattel.com. one of the things that this really points to is the fact that when you are promoting content there are three essential pieces or channels you can look at. There’s SEO, then there’s sending out emails to drive people on your mailing list back to your site, and there’s social sharing. Where those intersect is you can promote your content into each of those places but depending on what your needs are, you’re going to put more effort into one versus the other.
The whole idea of this is, if you do it through social media, you’re going to try and get additional shares or followers. If you’re trying to get additional subscriptions to your mailing list, it’s going to help you grow your list for email marketing. If a visitor comes in and they link to your content from someplace else, you’re going to rank higher in search engines. The idea is to create this feedback loop, of you doing all of those three things in order to amplify your traffic and from that, you essentially end up with leads on the other side of it. It’s really just an engine that you’re creating.
If you have a ton of people on your mailing list, you can start asking them in trying to help promote on other things. You can say, “Hey, can you promote this on social media?” You can leverage them back and forth between each other to amplify the entire system.
Rob: Content does have this unique advantage which is one of the reasons that marketers like it so much is, it really has this trifecta of value that it brings, these three uses. I’ll step to another example; let’s say I’m running Facebook ads and I’m getting that to work. Facebook ads send typically cold traffic to a page, you might get trial sign-ups, you might have to retarget them, you might have to get them on an email list, but those ads you’re paying for—and they really have one purpose—and it’s to drive some traffic one time.
Content on the other hand has three uses, maybe it has more, but the three main ones that I’ve seen, and I’ve used, and it worked really well. The first one is social media. It’s getting that buzz because you put out a new article or essay or e-book or video or whatever, but you get people to talk about you on Twitter and LinkedIn, Facebook or wherever else your folks reside, and you can get that quick social media bump of, “Hey, everyone’s talking about this cool new thing that came out.” Then it dies down and that would be one use.
But another use for this exact same content is you email your whole list. That can help with the social media aspect. It helps if more people know about it then more people talk about. But it gives you an excuse to contact your email list. Every time you contact your email list, you’re probably going to get more trials, more interests in your product.
The third use is this long play of SEO. If you put out good content and it hits the right keywords, and you do have links back or you have social shares that are pointing back, it rises in the ranks. Long-term, people searching for these terms in Google, come back to it.
I haven’t given it a ton of thought, but I don’t know, off hand, of another marketing approach that has that many solid benefits, this super short-term bump, the email list bump, and then the long-term paly of SEO. I believe it’s pretty unique in that respect.
Mike: Let’s dive into the first section which is social media. What we’re going to do is we’re going to throw in, just very briefly, highlight some of the different tactics that are listed on a couple of these reference articles that we pointed to earlier.
The first one is to mention people who are going to like your article, they liked the content of it or directly reference people who are quoted in the article. One example of how well this would work is if you’ve interviewed somebody and they are relatively high-profile in the industry that you serve, for example. If you’ve mentioned them in the social media posts, they are more likely to share it than if you were to email them directly and then say, “Hey, can you tweet this out for me?” Because then you’re asking them, “Hey, can you create a tweet and then post this?” versus they see it in their social media feed and they can just literally hit retweet and they don’t have to do any work. It’s just a matter of what your ask is of them.
If I see something where it has referenced me for example and I’ve commented on an article or was on a podcast, I’m almost certain to retweet that and like it just to give it more of a visibility.
Rob: That’s a nice tactic. I’ve definitely seen that. At a minimum, I’m going to like something if I click through and it’s like, “Oh, yeah. That was that quote I gave you two months ago.” Then like you said, if it’s a legit post, because sometimes you’ll get asked for a quote or a comment on, what’s the hardest thing about validating product or what are the market approaches that are working today or whatever, and they’re doing an expert roundup and I’m just cool to participate in those. Some of them are really, really good and really well put together and others are kind of someone doing a halfway job or maybe they’re new or whatever. But the best ones, when I get a mention like that, it’s pretty certain I’m going to click through and then based on the quality of it, decent likelihood that I will retweet that.
Mike: Another one is to tweet quotes from the content. The nice things about this is you can create multiple tweets and schedule them using Buffer, a variety of other tools, and get them out there in such a way that you’re not repeating yourself. Different quotes are going to attract different types of people. There’s a quote about, I don’t know, a search engine marketing for example, you could put that in there, and then there could be something else which is optimizing search engine marketing. One is very broad and then the other one is a little bit more specific, depending on the person who sees it, if they’re more interested in one or the other, they’re going to click on it.
Rob: Another approach is you’re not just going to tweet this once especially if it’s a big piece of content because the longer form, frankly, more expensive, whether it’s time-expense or actual cost in paying someone to build it. The longer form more expensive pieces of content are the ones that are winning today and the ones that are getting the tweets. You’re not just going to tweet this once and be done. A good strategy is to tweet it once and then schedule some near future and distant future tweets because, if you think about it, in three months, the buzz from this e-book or audio piece or whatever, blog post, will have died off but it’s probably still relevant and valuable. It’s something not to bother people with but to bring back up and remind them, “Hey, this is still is valuable and legitimate.” Obviously, even within the first week, I forgot what the number is, but isn’t it like 5% of your followers see any of your individual tweets?
Mike: That’s not a per day basis, I think.
Rob: Yeah. One approach is to, as we’ve said in the past, kind of have a once a day tweet this out for the first three, four, five days, so that people more people see it especially if it’s a really big piece of content. It can be worth it. You can also irritate people and they’ll unfollow you if you’re just spamming them with the same links over and over. You have to use your head here, like any other strategy, but this is definitely something I’ve seen marketers are doing.
Mike: It’s offshoot is that is to share a short video on Twitter, Facebook, whether it’s Facebook groups or one of your Facebook page or inside of LinkedIn. The idea of the short video is to more or less give a very quick overview or summary of what the piece of content you have is not to talk about the entire content. It’s not that you’re trying to drive people to watch the video. What you’re really just trying to do is help get those people who prefer a different medium. Some people like to skim things and read it, and then there’s people out there who like to watch a video. But you also don’t want to overwhelm them with, “Oh, I just popped on to Twitter and I’m expecting to be here for a couple of minutes.” They’re not going to have time for a 30-minute video. But they may sit down and watch a 30-second video or a 15-second video that just talks about like, “Hey, if you’re interested in this, come over and check it out.” You just want to be sensitive to the fact that some people like to consume that information in different formats. The other nice benefit of sharing it like that is that you tend to get the videos will be shared on Twitter, on Facebook, and LinkedIn as your face and there’s a very different type of algorithms that those companies use in order to highlight those types of posts.
Rob: Another approach is to syndicate your content on LinkedIn, Medium, and other avenues. Syndication is just a fancy word for either reposted there or taking excerpt from it and repost there. You can imagine if you’ve written this 100-page e-book, the definitive guide to social media marketing or email marketing or whatever, you don’t post that whole thing on LinkedIn. But maybe you take, because you can put LinkedIn kind of blog post-ish, you take a really great 1000-words from that, and you post it on LinkedIn and then you link out the book.
You can do same with Medium although you can go longer form there. You can post an entire chapter from that book, so maybe you do 5000, 3000, 5000-words on Medium. Again, say, “This is an excerpt from this book.” Or if it’s a video, maybe you’d do a transcript part of.
These are ways that if you have built a following, or if you think that those networks with be intrigued by the title and the content and stuff, then reusing this content is a nice way to reuse that effort because if you spent a month or two writing this e-book or making this amazing tutorial video or whatever, you want to get it out in as many forms as possible. That’s what syndication is.
Mike: The next section we’re going to talk about is email marketing. Many of these, I think, are probably going to be pretty familiar to most people listening to this, but we’re going to go through them anyway because this is kind of a major section of the, as Rob talked about the trifecta here of content marketing.
The first one is sending out the links to it through your email list. One thing you definitely want to make sure that you’re doing here is you’re putting calls to action in there. I have mixed feeling on whether or not you should post the entire piece of content in the email versus having it on your website. Because there’s advantages and disadvantages to both. I think you just need to make a judgement call about whether you want it on your website where people can go to it versus, you’re just trying to make sure that you get it in front of people on your email list. If it’s something that you want exclusively for people on your mailing list, obviously, you’d put it in there. But people also have a somewhat limited attention span if it comes to something in their email. I do think it’s worth being cautious and making some measurements around, “Are people actually reading that and then taking action on it?” But again, that’s a judgement call.
Rob: Yeah. My default rule of thumb for this is if you’re doing personal brand stuff, if it’s Patrick Mackenzie or Brennan Dunn or Rob Walling blogging, and then sending it to their list, it’s probably fine if you post the entire article in the email. Because people are engaged with you and the content is really gripping and they tend to want to—or hopefully, it’s really gripping—and they tend to want to read the whole thing and they could read it on their phone or whatever. That’s my general rule.
If you’re doing it as a business, when Dripping was sending it out or if Bluetick were sending out a post, I would probably do a teaser and a really snazzy excerpt with an image, and then say, “Click through to read the full thing.” Some people will click, and some people won’t, but it will get you traffic. The end goal there is to get traffic to your site. Hopefully, get people to share it from there, and sign-up for a trial or whatever.
Again, that’s my general rule, how I link. But I think you can certainly break those rules if you know your audience better or as you said, if you look at the numbers, it’s telling you that that’s not the best way to do it.
Mike: If you had an email course for example, a lot of times you’re going to put the course directly in the email, and you may not want that course directly on your website. You may want to reserve it just for people on your mailing list, and maybe that’s because they don’t get to the mailing list until there’s certain amount of trust gained, or maybe the purpose of that email sequence is to establish trust, and then you send them shorter emails later on with the links back to the articles. But again, as you said, there’s lots of different ways to do it.
Rob: Right. This particular point, of whether to include all the content in an email, is really only relevant for probably blog posts because if you’re putting out an e-book it’s going to be too long. If you’re putting out a video course or one video, you can’t embed that in email, you can certainly embed an image that links out somewhere. If you create any kind of downloadable content, you’re not going to be able to put that in email anyways. It’s only if you’re doing kind of the blog content engine or short essays.
Mike: As kind of an addendum to this, you can send out, “In case you missed it,” follow-up emails. Obviously, you can put those directly into the email campaigns and it works really well because I’ve seen Drip actually put this in their directive and specifically for that reason. But you get anywhere from 20%-40% lift in opens just by resending an email with a different subject line for the exact same emails. If somebody didn’t open it, you basically resend them that email.
Rob: We did that. It’s quite successful. Another tactic you can do is, let’s say you’ve put out three blog posts a week, you can recap either at the end of the week or at the end of the month, and just have a separate email that you pull up, “Hey, in case you missed it, here are all the posts from the past week or the month,” or, “Here are our top picks or the most popular five from the past month.” and it’s just one more way to reach out to the audience, provide them with additional content, and you didn’t have to produce that content. It’s just linking back to stuff that they’ve probably missed because they probably didn’t read every article.
Mike: Next on the list is you can also send those notifications directly to some of your high-value contacts. You can either do this as personal emails instead of broadcast emails or you can find people that are on your list, who may not necessarily be subscribed to a particular campaign or they’re tagged in a certain way or segmented somehow and you say, “Hey, I think that these people would be really great candidate to receive this particular piece of content.” Maybe it they opted-in to a particular lead magnet, then you would send the content to them. But it’s really about being a lot more targeted about who you’re sending it to.
Again, this is where personal emails to people can really shine just because if they do see an email coming in and it’s from your company versus from you personally, they’re probably a little less likely to treat it as, “Hey, this person took the time to really reach out to me, so I’m going to pay a little bit more attention to it.” But sometimes the emails that are coming in from a general newsletter email address, sometimes people have rules or filters set-up so that they go into a certain place. By sending it directly, a lot of times, it will bypass those defaults because they just didn’t think to set them up.
Rob: There are 50 content promotion ideas in the Orbit Media post alone, but another one that you pulled out is to notify your source of a new post. I think this is similar to doing it on social media but emailing people directly, “Hey, do you remember the article where I interviewed you for? That’s live. If you’d like to share it, it’d be great. Here’s a link.” Or, if there’s 10 people because it’s a roundup, you do the same thing. You notify them all and certainly a few people will likely help promote that for you.
Mike: If you give them a short snippet or a summary, you can also ask them to promote it to their own email list, and then you’re essentially amplifying the efforts there.
Rob: Let’s dive into SEO.
Mike: When you’re looking at SEO, obviously, what you want to do is you want to align the content of those posts with key phrases that you have pulled out after doing some keyword research. There’s a lot of different tools that you can use for that. We’ve talked about them in the past. But the other thing that you can do is when you take that phrase and you plug it into Google, scroll all the way to the bottom, and there’s a place where it says, “Related phrases.” Those are things that Google also recognizes that people are searching for. It doesn’t tell you numbers or how many people are searching for them but there’s a good chance that if you were to take those and put them into the article and sprinkle them around, you’re also going to pick up additional SEO benefit and additional traffic by using those phrases and it’s going to end up in front of more people.
Rob: SEO is such a–it’s a large and ever more complex subject than eight years ago, we could probably give you the five things you have to do to rank. These days, the list is just longer and longer and it’s more complicated. I don’t think we can do a full treatment of, “How to SEO your blog post or your e-books.” It’s probably, not only an entire podcast, but at this point, probably an entire e-book or book. You need a way to get it down.
But another tactic is to crosslink from other posts you have or other resources or other websites you have because obviously, while links are slightly less valuable than they used to be, you could just build links in the old days and rank for everything, links are still very valuable especially from authority sites. If you have control of an authority site or authority sites, you can crosslink from relevant posts or relevant sites and help that new content rank higher in Google.
Mike: Previously, you had mentioned that you can create a short video and post it on various social media sites, you can also use the video there to embed into the website itself just to give people the top of a brief intro to what they’re going to be reading about. The nice benefit is that when people are doing searches inside of Google, they have a tendency to show videos very, very high up in the list because most people aren’t creating videos that they’re using directly for content. They’re really trying to push people in that direction. I do see a lot of videos get posted or show up in the search results even though I’m not personally looking specifically for videos, but there is a significant benefit that I’ve seen for posts that included video in them.
Rob: Of course, they’re submitting to the–there are social platforms, there is Reddit, Hacker News, Product Hunt, even Digg, although I’m not sure that’s worth doing at this point. You and I were just looking at it before this episode, but those are the things and that whole list shifts based on what your content is and who your content is. You can also do paid promotion on StumbleUpon, Outbrain, LinkWithin, Tabula, they’re often lower quality and they’re more consumer-oriented and its people just kind of skipping from one thing to the next, so if you’re a true B2B enterprise SaaS, it’s probably not worth doing any of these. I would look more at LinkedIn paid promotion or something like that. But there’s this whole world of both these social new platform, social discovery platforms, and these kinds of paid ways to get in front of them. Getting on those, if you can get a backlink, if you can get voted up, it will help in the short-term with the social media bump because more people know about it, but then in the longer term, it’s going to link back to you.
With that, I think we’re wrapped up for the day.
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Episode 413 | How Lucidchart Grew to 13 Million Users with Freemium
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how Lucidchart grew to 13 million users with freemium. They point out effective ways to use freemium, viral loops, horizontal markets, and how you could incorporate some of these things in your bootstrapped startup.
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Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about how Lucidchart grew to 13 million users using the freemium model. This is Startups For The Rest Of Us 413.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Did you happen to see the announcement that FogBugz/Manuscript was being acquired by DevFactory?
Rob: I got an email out of the blue and was completely shocked by that. I shouldn’t be, right? Fog Creek, for those who don’t know, was founded by Joel Spolsky and Mike Pryor back in, I believe, it was 2000 or 2001. Joel was probably the first blogger I ever read. He had so many insights about how to start software company and how to project-manage and all that stuff that I was really enthralled by him. And then he launched FogBugz but then they went into Stack Overflow and Trello and all this other stuff. I was always like, “This is crazy. They’ve had a lot of successes.”
Mike: They also had a CityDesk which was their blogging tool, I don’t think that it ever really went anywhere. I think they got it to version 2.
Rob: Content management. It was a website content management territory, but it was desktop, right as the switch to SaaS was happening.
Mike: I think it was before WordPress came out or just about the same time. But it was published through the website, so everything was all straight HTML. I think they had an internal beta version that Joel was still using for a while, it was like version 3-A or something like that that just never got out there publicly. I find it interesting that they decided to sell that business to an outside company just because the way that they’ve kind of run the business, it’s odd.
Rob: Yeah, it’s definitely unexpected. I don’t know what else I expected though. I mean, it’s freaking 17 years later–these things don’t last forever. I remember when Joel stepped down as CEO of Fog Creek, I was like, “Oh my gosh!” but it’s like, “Well, of course, he’s going to do Stack Overflow.” I believe Mike Pryor stepped up at that point and then Mike Pryor went up to be CEO of Trello once that took off. They really used it as an incubator–Fog Creek itself. It’s no surprise that they had the third CEO and it’s running Fog Creek. I don’t even know who’s running FogBugz.
I don’t even know if Fog Creek still owns anything else. Do they or is the company just going to shut down? Because they sold Trello, Stack Overflow is its own entity at this point, they haven’t used Fog Creek developers for years. Probably 10 years at this point. Manuscript is the only thing I know that they still had.
Mike: No, they still have Glitch.
Rob: What is that?
Mike: I don’t even know because they’ve been working on it for three, four years at this point, and I still don’t understand what it actually is, which it seems like it’s some sort of a programming framework without the programming. I don’t really understand it, to be perfectly honest. It doesn’t make a lot of sense to me. I don’t know, I don’t know what to tell you about that.
Rob: I just googled Fog Creek Glitch and it says, “Fog Creek is renaming itself to Glitch. We’ve been thrilled to see the community embrace Glitch as the home for creating and discovering the coolest stuff on the web.” It sounds like Reddit. I’m confused at this point. I just haven’t followed this story. Fog Creek has been basically, a B2B software company–or at least Manuscript, Trello was, and then Stack Overflow was obviously VC-funded. Stack Overflow, I was going to say social network, but it’s more like a question and answer platform.
Yeah, it’s a trip man. I have mad respect for what Mike Pryor and Joel have built. You and I have both met them in person at BOS. I’ve had multiple conversations with them. These are smart, ethical-driven software developers who have done a lot I think for both the people that they’ve hired, but also in sharing their knowledge and building the tools. I have nothing but respect for these guys. The amount of success they’ve had, when you say, “Yeah, the same people that started Stack Overflow also started Trello and started this other seven or eight-figure company called FogBugz.” that’s a lot to do in a career.
Mike: I wonder if part of the reason they spun that off was because of the way that they want to run the business and the way that they want to treat the developers because I think early on, they had talked a lot about how they wanted to treat everybody—who’s working within the company—with respect and make sure that they participated in the successes of the business.
I remember some blog articles or some discussions on one of the podcasts that they had at one point talk about Stack Overflow, but because Stack Overflow and Trello were both born out of Fog Creek, at some point, they had to split the business. How do you compensate the people who were originally in Fog Creek and were excited and maybe helped out a little bit, but didn’t necessarily go with that team? There was also a question of like somebody had an idea for, I think it was co-pilot at the time, and it ended-up come in like a $1 million line of business for them, ARR. It’s just like, how do you compensate that person for the ideas and stuff that they’ve brought in?
At this point, FogBugz has been running for years, and there’s probably not a huge number of things that they’re going to add to it, I mean they could integrate it with other business processes and things like that, but there’s not a lot of other stuff they could do with it. It’s really just kind of the cash cow for them, but how do you translate that into a financial or monetary success for the people who are currently in the business and may have been there for anywhere up to 10 or 15 years at this point? It’s a private company, so I don’t think they hand out equity. I don’t know.
Rob: I think they did profit sharing, was my recollection. They did hand out dividends because like you just said, it was a pretty profitable company.
Mike: Got it.
Rob: On my end, I just got an email this morning that said, “Stripe is now valued at $20 billion.”
Mike: Oh, is that all?
Rob: Oh, man. Their last round was at $9 billion. I don’t normally follow these funding and valuation stories, but since we basically have had dinner with both the Collison brothers and been on stage with them at MicroConf, I kind of have a vested interest in keeping up with what they’re doing. Bravo to them. I have nothing but respect for those guys.
Mike: That’s an insane number but both of them are super, super smart guys. You stand near them and you just feel dumber.
Rob: Totally. When I’m around them, yeah, I feel dumber, but I feel my IQ points, I gain maybe 5 or 10 just in speaking to them. “Oh, you taught me a new word and a new concept today.”
Mike: “…that I thought I knew for 10 years, but you clearly know it better than me.”
Rob: Yeah, exactly.
Mike: Good for them. I think a lot of our audience probably still uses Stripe.
Rob: Still, what do you mean? Still uses. I wouldn’t go anywhere else, it’s insane to think of going back to the days of Authorize.net and PayPal web payments pro. I guess there’s Braintree now, right?
Mike: That’s what I was going to say. I hear that on a “higher-end” people are migrating to Braintree and, I don’t know if any other options actually other than Stripe and Braintree. But I don’t know anything about Braintree. It’s just interesting to see the ark that they’ve taken over the past, what, eight years or so? It’s just crazy how much they’ve grown and the things that they do are quite honestly, for the entrepreneurial community, they have enabled the vast majority of us to be able to do what we do. Without Stripe, most of the businesses that are out there just would not exist.
Rob: Or it’d be lot harder to get them off the ground. I remember trying to get an Authorize.net account and it just took weeks of literally sending stuff on paper and faxing it back and forth. This was only maybe six years ago, seven years–it wasn’t that long, and I’m not talking 2005. It was just insane to me that a) how are we not doing this online or at least e-signing things? But I literally was just printing out this 30-page document. It was such a nightmare. I’m glad Stripe came on the scene.
Mike: I’ve spent a fair amount of time over the past couple of weeks rebuilding and migrating some of my infrastructure in order to cut costs. I’ve doubled the number of servers. I’ve gone from two servers to four and I’ve reduced the costs of them by out 75% which is odd. I have everything hosted on Azure and they have these things called burstable virtual machines. Basically, if they are running below a certain threshold in terms of process or usage, then you pay basically, a discounted rate for it and you are gaining credits at that point. If you are using more than that percentage then you’re basically burning into your credits
I think they had maxed out the CPU with that but basically, I just paid less for this machine or these machines because I’m not using them all day every day. It’s like there are certain times a day where I need more processing power and rest of the time I just don’t need it. It’s nice to be able to have moved over to those types of servers and save a fair chunk of change. But I needed to split up my infrastructure anyway because I didn’t like having everything on just two servers.
Rob: That makes sense. It’s nice to put a few more bucks in your pocket.
Mike: Yeah. I pushed off on that division for probably about a year or so. It was kind of time to do it.
Rob: Anything else?
Mike: The last thing is, this is totally random but there’s a website that I stumbled across when I was trying to do calculations for my Dungeons and Dragons game, to kind of optimize my character. If you’re into figuring out probabilities on different dice rolls, you can head over to anydice.com. It will basically allow you to write functions that will essentially simulate what the dice rolls are, and then it will show you the percentages and distributions, and you can see crafts and stuff like that of exactly what those distributions look like.
You can say how many attacks or if you have advantage or disadvantage on different attacks or damage rolls or things like that then it will show you what those numbers look like and what’s your average rolls would be.
It’s pretty cool. You can probably spend a whole ton of time on it, but they do have some documentation there and some ready-built functions you just pull, and copy paste into the editor.
Rob: I see what you did there, Mike. Do you realize you started that segment off, you said, “This is totally random.” But any dice stuck. You can’t […] by me, man. Really bad puns. Alright. Cool.
Let’s dive into what we’re talking about today. It’s an article on a blog of freshworks.com. They have a sales CRM , it’s that section or that category of the blog, but the article is titled, “How Lucidchart Grew to 13 million Users on a land-and-expand Strategy.” I want to talk a little bit about the virality and the freemium part of it. It’s an interesting interview with, I believe, is the SVP of Sales and Customer Success of Lucidchart.
If you haven’t heard of Lucidchart, it is a Software as a Service with a freemium model, they have 13 million users and it is like Visio–it is how I think of it. It’s a diagram solution where you can create diagrams and share them and then collaborate on them. Is that an accurate description, Mike? You said you’ve used it.
Mike: Yeah. That’s probably pretty accurate. I think Visio seems like they started out much more for data modelling within a programming environment. But Vision also has a lot of different icons and stuff that you can put in there for like network map layouts and office maps layouts and stuff like that. You can use it for other things like org charts and stuff like that, but I think originally, it seemed like it started out as part of the MSDN suite, you get a few sign-ups for that, and it was primarily a programming tool.
Rob: Right. And it expanded into other things. Lucidchart, looks like it was started around 2010, 2011 and they raised $1 million in funding which you would need if you’re going to do freemium model, and then three years later they raised $5 million, and then two years after that—in 2016—they raised $36 million. I can imagine they probably hit a hockey stick moment where the user growth justified raising–because you raise that much money, you want to have really high valuation, so you don’t give away most of your company.
They said that 96% of Fortune 500 companies use it. They have customers at Google, Amazon, Cisco, and Intel, and they receive around 500,000 sign-ups every month. It’s a free tool, right? It’s free, no credit card, if I recall. That’s still a big number though. A nice horizontal market that these guys are in. They’ve obviously achieved success–13 million users is a ton of people; it’s a ton of people to support, it’s a ton of people just to have your software running.
I wish that they’d told us how many paying users or how many paying accounts because that’s really what I’m interested in. I’m interested to know if they are even profitable on revenue, above the amount of just sheer volume because they must have hundreds of employees, and I would like to know that. But all that said, what I want to talk about today is really the freemium and the viral one and they have some stuff about sales as well.
Mike: I’m sure their competitors would love to know how much money they’re making too.
Rob: Yeah, totally. I know. It’ll come out at some point. They’ll wind up talking about it.
Mike: Alright. Why don’t we dive right in then?
Rob: Sure. The first question for Dan Cook, which is the SVP of Sales, the interviewer asks him, “It runs on a freemium model, how do you pitch the product, and how do you scale it to an enterprise model?” His response is, “The freemium gives them an advantage because they have this—this is where the land-and-expand comes in within a company—they get employees within a company using the product and then they share it with other people in the company to collaborate and then they set-up accounts, so there’s a freemium plus virality there. The reason they sign-up for it is a) it’s free and b) because it’s a good tool.
In the early days it was good enough. It was not a great tool but as it developed, I bet these days, it is best in class or is becoming then. He said that, basically, they can have 15 or 20 paid or free users of Lucidchart within a company. Then they leverage that fact to say, “Alright, IT department, here’s a value proposition for you.” This is a similar model to other tools. Slack, I’ve heard them talk about this a lot. That one small development team within a huge org would start using it and of course, you have to invite other people for it to have any value. Once you have 10, 20, 30 users, IT Departments and frankly, CTOs and CIOs want to have control of that kind of stuff. It’s an interesting dual use of that freemium plus virality.
Mike: Yeah, I’ve seen that at a much, much smaller scale in Bluetick where somebody will sign-up for Bluetick and one of the earlier objections I’ve heard from somebody was like, “Oh, well. I wanted to sign-up for it but then I would have had to go to my boss and get his credit card.” That freemium model, even just the 14-day trial that I had or that I added in after talking to that customer, it allows them to sign-up for it without having to go to their boss and justify like, “Hey, I need the corporate credit card and it’s going to cost this much money.” Because in the enterprise environment, they’re probably going to not only have to go to their boss, but then their boss is going to have to justify it to somebody else.
Nobody really knows if it’s going to work. If they just start using it, in a freemium model, they can just use it and if it doesn’t work out for them, they just shut it down or just abandon it. If it does then as more people start using it then it becomes more visible. As a result of its success, then Lucidchart can go in and ask them for money for an enterprise license or a small group license within a department or something like that. But it is interesting to see that they seem to have intentionally done that or chosen that strategy.
Rob: Right. I want to point out some things that Lucidchart has or had that listeners to this podcast may not have, and if you don’t have all these things in place, it’s going to be difficult, if not impossible to pull off this strategy that they did–this freemium strategy.
Mike: Do you want to start with the $36 million or…?
Rob: That’s what I was going to say. Funding–that’s the first one. It wasn’t $36 million originally. For the first three years it was $1 million. That’s actually not that much money for three years. You can hire a few people but it’s not like you’re going to hire 20 employees and not bleed that out. But yes, funding was one advantage they had; $1 million in funding. Another $5 million three years later. The fact that they are a very horizontal market much like Trello and Dropbox and Slack, those are three other tools that have used the same approach–this freemium plus viral component.
If you’re in a horizontal market and you can raise enough funding or self-fund this thing to the point where you can provide the service to all the free users, it really can be this fascinating approach. The other thing is they have virality, not every tool has that. I think of a tool like Drip or even a proposal software, invoicing software, there’s a little bit of virality and that you can have a Powered By or a Sent From or a Sent With. But true, deep virality like Trello where–I mean, I use some Trello boards for that other people but there’s a lot of collaboration that goes on there. Slack is all about being viral. You have to invite other people to get any value.
Lucidchart does not need, need, need. You’d have another person to get value, but I would say, that’s probably a big reason that people would use it because it’s so easy to get you charts and collaborate. Of course, Dropbox has it’s all other things. Having virality plus that freemium I think is a big thing that people overlook. Because having freemium on its own without funding, being horizontal, and virality is not all it’s cracked up to be.
Mike: I think this is also a tool that because of what you’re using it for, you’re using it to help communicate, that helps it too. That kind of sets it apart from a lot of other tools. Trello, to some extent, just by inviting people, you get to have them take a look at what it is that you’re working on. But with Lucidchart, you can print those things out, you can embed them into Word document, or even just take screenshots, but by being able to invite people and say, “Hey, this is the process, or this is the workflow that I’m looking at. What do you think? Is this going to work for our team?” That right there—because it’s embedded in the communications—that just inherently makes it even more viral.
Because if people look at the tool and they like it and they want to use it because it’s a lot easier to use than something like Visio, it gives it those additional advantages. It gives people the “aha” moment that they need in order to say, “Yeah. I want to use this too.”
Rob: Another question that he asks this VP of Sales, which I thought was kind of cool, I don’t know, I hadn’t thought that much about it, but he says, “Let’s talk about your value proposition. How does it work when you’re convincing a company to buy the enterprise version? What to the teams and what does the enterprise get out of it? Why don’t they just keep using their individual accounts?” I like that because a) you’re asking why should they upgrade or why should they consolidate? He says, basically, the value to the end-user is that it’s all consolidated and it’s much easier to share among their co-workers. You don’t have to convert diagrams into other formats to be compatible. If everybody starts using it in your company then you don’t have to be like, “Oh, you’re using Visio? I’m using Lucidchart. Let’s convert to this format.” and blah blah blah.
Then to the IT department, the first one is consolidated billing, so there’s only one bill and you know you can negotiate that and manage it. It’s just easier to do it. Also, for training, a lot of big companies especially provide training for their tools. If you have just everybody using one tool, it’s easier. Then secure logins which is fine but the one that really gets them is document retention which is where someone leaves the company, as someone is running that company or running that IT department, you want to have access to everything they did while they were there because you might need to reference that later. If they take individual accounts away with them then you’ll never get that stuff back. It’s not even someone stealing it or taking it away, it kind of goes away. They forget about it or you just don’t have access to it.
That was a big one working at Leadpages and Drip is seeing people leave and being like, “Oh, yeah. There was that one thing that he shared with me and now I don’t have access to it.” It could be kind of a pain. It’s interesting to think—if you’re going to try to pull this off—about what the value prop is that you have to offer for people to upgrade.
Mike: The other interesting piece there that’s in that enterprise group subscription there is the idea that, it’s not just if somebody leaves the company, but what happens if you have to fire somebody. You want to be able to have like this master key that says, “Okay, we’re going to lock you out of everything before we follow through with letting this person go.” and then still have access to all that stuff. There’s that side of it to consider too. I think one and two-person businesses don’t tend to think about that because they just don’t experience it. But the larger companies that they are advertising to or agencies or other small businesses 50-100 people, those companies do think about that and it is important to them.
It’s good to understand that that is a value proposition that you can leverage as a marketing point to those larger companies and say, “Look, this is why you should upgrade or this is why you should buy higher-priced tier because we are including this for your account versus a freelancer account which doesn’t really have any of that stuff and oh, we have a 25 people have 25 different freelancer accounts.” Yeah, it’s not ideal because they get 25 different bills but at the same time, that master key is kind of what people are looking for.
Rob: And then he asked him a question about their outbound sales process. He says, “Yeah, we have 80 sales people and their core play is they basically target companies that already have some form of adoption.” You likely would, I’m guessing, you’re going to use some type of data augmentation tool, like a full contact, to augment you customer data to know who they work for or just look at the email address, look at the domain, the .com on the end of their email, and do a Group By and see how many people are using it. As simple as that.
If you get 20 people inside Disney or Target or BestBuy or something, it’s like they reach out and say, “Hey, you have 20 people that have signed-up for accounts. Do you want to aggregate that?” It’s an interesting thing. I’ve heard, I believe, it was either Slack or Trello also talk about this as an approach. It’s like warm outbound. It’s an interesting approach.
Mike: You just hope that their CEO or their CTO isn’t so totally paranoid that he says no outside tools that are based in the cloud and shuts them all down.
Rob: Yeah, it could happen, I supposed.
Mike: I think that’s a lot less common today than I think it was 5 or 10 years ago. But I have run into those people who say that kind of stuff and there’s usually exceptions for that. They can’t possibly have everything self-hosted. It is just not realistic.
Rob: Yup. There’s a couple more questions that I think are relevant. One is, he asks him, “Lucidchart is the popular alternative to Microsoft Visio, how do you differentiate yourself?” He basically gracefully says, “We’re grateful to Vision, but it’s outdated. It’s a classic Microsoft style product, and it has a lot of innovation on it since they acquired it in 2000.” That’s that whole thing where, yeah, you can have a better funded competitor but as a startup, your secret super power is you can move fast, and you can be closer to the customer. Because I’m guessing, a lot of the developers working on Visio—assuming there are some still—they’re not nearly in close contact as someone at Lucidchart is when they’re in their customer success department having one-on-one conversations with their clients.
Mike: I think that’s partly a difference in how the product was originally engineered. There is a cloud version of Visio, I believe, so it’s enabled for people to collaborate and stuff which has always been the biggest problem with Visio documents, is that it’s like a Word document that you have to basically send it back and forth. Even if you’re using something like Dropbox, you still have the problem of having multiple people trying to work on the same thing at the same time and it just doesn’t work very well.
That’s why Google docs has kind of come around and been such a massive upstart in the past, what was it, like 10, 15 years ago when that came out. But Word had been out in the mid-90s or the early 90s. Something like Lucidchart just has a fundamentally different delivery mechanism than Visio. Visio has to make that backward compatibility so they’re not able to do the same types of things versus Lucidchart, they’re like, “We don’t care about actually running locally on the desktop.” It just doesn’t matter to them which gives them some advantages right there.
Rob: Right. It’s interesting to think like if Microsoft really cared about the market—I just don’t think it’s big enough for them to care about probably—but they should have, would have built a web-based version back in 2008 because it was totally doable. But they didn’t and so, somebody decided at some point not to do that. I know they have collaboration features now built into the Office tools. I don’t use many of the Office tools anymore, only when absolutely need to. I’m just in Google docs all the time.
Mike: I bet they sunk all the resources into the Windows Vista.
Rob: Windows Vista, yeah. That must have been it.
Mike: It must have been it.
Rob: To round it out, he ask him, “What do you think are the top three reasons for Lucidchart’s success?” He says, “Well, people need visual communication tools and there wasn’t really anything that was that great. Second is, we made it enterprise ready, so selling into that enterprise, it was not hard. They have collaborations and integrations and all that stuff and freemium–those are the three things he says. I think he leaves out the virality. I actually believe the fact that a) the market is big, I think is a good thing. They chose a large market. I have a Lucidchart account. The reason I have it is because I got invited by two separate people on two separate diagrams. I would count as one of the 30 million users.
Now, I don’t go in, I never created a Lucidchart diagram myself, but I have collaborated with other people. I think that’s an element, a fourth thing that he didn’t mention that I do think is probably a decent driver of their trial sign-ups.
Mike: I do think the other thing that really helps them is the fact that it’s surprisingly easy to be able to get in and get started with Lucidchart, create some things that are generically applicable across the business without being locked into , “Oh, I have to use this for data modelling.” It sort of does these other things well but not really. That’s the way I would describe the difference between Visio and Lucidchart.
Whereas Lucidchart doesn’t necessarily have the data tie ins to be able to, let’s say for example, a database design, but there’s lots of other ways to do that these days. That makes Vision, I’ll say, that less powerful in that respect. But you don’t need that with Lucidchart. You can just create a generic process. Instead of sketching it out on paper and saying, “Oh well, I’ve got this customer support process that’s got to do this.” Or, “I’ve got this marketing process where I’ve got this email Drip campaign over here and the sales page over there.” You can wire them up in Lucidchart and use that to document your marketing sales funnel, for example. It works really, really well for that.
The downside is, you do have to keep it up-to-date because nothing is automatic but as long as you need to document it anyway, you may as well use something like Lucidchart where you can create good documentation that shows you how everything ties together.
Rob: 500,000 sign-ups every month, Mike. What would you do with that?
Mike: I don’t know. Take it to the bank, retire?
Rob: Yeah, that’s crazy. You can just imagine the processes they must have in place in order to even be able to support that many users.
Mike: You know, I’d be interested to see what they have for a backend infrastructure because I’m just like an engineering nerd like that. Like, “How the heck do you handle that much? How many is that per minute?”
Rob: I know. One point of data is I went to Crunchbase and it says, “According to owler.com that they have 7.1 million in annual revenue.” You don’t know how accurate that is but it’s an estimate by an outside company.
Mike: And at 500,000 sign-ups a month, that’s about one every five seconds which is insane.
Rob: Yup. I know, it’s crazy. They say, let’s see, employee count is between 101 and 250–it’s about what I expect. It says, “A team of 150 plus employees.” You don’t know when that was written but I would guess, if it was even a year ago, I bet they’re at probably over 200 by now. That gives you an idea of their size. That’s the thing, they’ve raised $42 million, if they are at $7 million or $10 million in recurring revenue, that’s not a home run. They need to get bigger than that in order to return that kind of funding because the valuation was definitely north of $100 million. I mean, $120 million, $180 million, somewhere in that range, if I were to guess. At that point, you need to sell for half a billion or a billion dollars to return venture returns. To get there, you need to have $100 million in ARR. They have a long way to go to get there.
I don’t want folks to take this entire episode the wrong way, I’m not saying that we should model ourselves after Lucidchart or anything like that, I was pointing out that the way to use freemium, viral loops, thinking about horizontal markets, thinking about other way to approach problems, how could you, in your little maybe B2B bootstrap niche try and corporate some of these things?
Mike: I think the other takeaway you could have for our audience of listeners is that, even with 500,000 sign-ups a month, as you said, financially, this is probably still not a home run.
Rob: Right. If they haven’t raised $40 million, it could be alright if they’d only raise up to $6 million and could have done it, then that’s a totally different story but that’s where I like raising a lot of funding and having this big valuation. It means you have much higher expectations at that point.
Mike: Right. All it does is dilute the founder and some of the investors, earlier investors maybe, but it makes it hard to have a spectacular exit if you’ve, I’ll say, weighed down by too much investment.
Well, on that note, I think that about wraps us up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Did you happen to see the announcement that FogBugz/Manuscript was being acquired by DevFactory?
Rob: I got an email out of the blue and was completely shocked by that. I shouldn’t be, right? Fog Creek, for those who don’t know, was founded by Joel Spolsky and Mike Pryor back in, I believe, it was 2000 or 2001. Joel was probably the first blogger I ever read. He had so many insights about how to start software company and how to project-manage and all that stuff that I was really enthralled by him. And then he launched FogBugz but then they went into Stack Overflow and Trello and all this other stuff. I was always like, “This is crazy. They’ve had a lot of successes.”
Mike: They also had a CityDesk which was their blogging tool, I don’t think that it ever really went anywhere. I think they got it to version 2.
Rob: Content management. It was a website content management territory, but it was desktop, right as the switch to SaaS was happening.
Mike: I think it was before WordPress came out or just about the same time. But it was published through the website, so everything was all straight HTML. I think they had an internal beta version that Joel was still using for a while, it was like version 3-A or something like that that just never got out there publicly. I find it interesting that they decided to sell that business to an outside company just because the way that they’ve kind of run the business, it’s odd.
Rob: Yeah, it’s definitely unexpected. I don’t know what else I expected though. I mean, it’s freaking 17 years later–these things don’t last forever. I remember when Joel stepped down as CEO of Fog Creek, I was like, “Oh my gosh!” but it’s like, “Well, of course, he’s going to do Stack Overflow.” I believe Mike Pryor stepped up at that point and then Mike Pryor went up to be CEO of Trello once that took off. They really used it as an incubator–Fog Creek itself. It’s no surprise that they had the third CEO and it’s running Fog Creek. I don’t even know who’s running FogBugz.
I don’t even know if Fog Creek still owns anything else. Do they or is the company just going to shut down? Because they sold Trello, Stack Overflow is its own entity at this point, they haven’t used Fog Creek developers for years. Probably 10 years at this point. Manuscript is the only thing I know that they still had.
Mike: No, they still have Glitch.
Rob: What is that?
Mike: I don’t even know because they’ve been working on it for three, four years at this point, and I still don’t understand what it actually is, which it seems like it’s some sort of a programming framework without the programming. I don’t really understand it, to be perfectly honest. It doesn’t make a lot of sense to me. I don’t know, I don’t know what to tell you about that.
Rob: I just googled Fog Creek Glitch and it says, “Fog Creek is renaming itself to Glitch. We’ve been thrilled to see the community embrace Glitch as the home for creating and discovering the coolest stuff on the web.” It sounds like Reddit. I’m confused at this point. I just haven’t followed this story. Fog Creek has been basically, a B2B software company–or at least Manuscript, Trello was, and then Stack Overflow was obviously VC-funded. Stack Overflow, I was going to say social network, but it’s more like a question and answer platform.
Yeah, it’s a trip man. I have mad respect for what Mike Pryor and Joel have built. You and I have both met them in person at BOS. I’ve had multiple conversations with them. These are smart, ethical-driven software developers who have done a lot I think for both the people that they’ve hired, but also in sharing their knowledge and building the tools. I have nothing but respect for these guys. The amount of success they’ve had, when you say, “Yeah, the same people that started Stack Overflow also started Trello and started this other seven or eight-figure company called FogBugz.” that’s a lot to do in a career.
Mike: I wonder if part of the reason they spun that off was because of the way that they want to run the business and the way that they want to treat the developers because I think early on, they had talked a lot about how they wanted to treat everybody—who’s working within the company—with respect and make sure that they participated in the successes of the business.
I remember some blog articles or some discussions on one of the podcasts that they had at one point talk about Stack Overflow, but because Stack Overflow and Trello were both born out of Fog Creek, at some point, they had to split the business. How do you compensate the people who were originally in Fog Creek and were excited and maybe helped out a little bit, but didn’t necessarily go with that team? There was also a question of like somebody had an idea for, I think it was co-pilot at the time, and it ended-up come in like a $1 million line of business for them, ARR. It’s just like, how do you compensate that person for the ideas and stuff that they’ve brought in?
At this point, FogBugz has been running for years, and there’s probably not a huge number of things that they’re going to add to it, I mean they could integrate it with other business processes and things like that, but there’s not a lot of other stuff they could do with it. It’s really just kind of the cash cow for them, but how do you translate that into a financial or monetary success for the people who are currently in the business and may have been there for anywhere up to 10 or 15 years at this point? It’s a private company, so I don’t think they hand out equity. I don’t know.
Rob: I think they did profit sharing, was my recollection. They did hand out dividends because like you just said, it was a pretty profitable company.
Mike: Got it.
Rob: On my end, I just got an email this morning that said, “Stripe is now valued at $20 billion.”
Mike: Oh, is that all?
Rob: Oh, man. Their last round was at $9 billion. I don’t normally follow these funding and valuation stories, but since we basically have had dinner with both the Collison brothers and been on stage with them at MicroConf, I kind of have a vested interest in keeping up with what they’re doing. Bravo to them. I have nothing but respect for those guys.
Mike: That’s an insane number but both of them are super, super smart guys. You stand near them and you just feel dumber.
Rob: Totally. When I’m around them, yeah, I feel dumber, but I feel my IQ points, I gain maybe 5 or 10 just in speaking to them. “Oh, you taught me a new word and a new concept today.”
Mike: “…that I thought I knew for 10 years, but you clearly know it better than me.”
Rob: Yeah, exactly.
Mike: Good for them. I think a lot of our audience probably still uses Stripe.
Rob: Still, what do you mean? Still uses. I wouldn’t go anywhere else, it’s insane to think of going back to the days of Authorize.net and PayPal web payments pro. I guess there’s Braintree now, right?
Mike: That’s what I was going to say. I hear that on a “higher-end” people are migrating to Braintree and, I don’t know if any other options actually other than Stripe and Braintree. But I don’t know anything about Braintree. It’s just interesting to see the ark that they’ve taken over the past, what, eight years or so? It’s just crazy how much they’ve grown and the things that they do are quite honestly, for the entrepreneurial community, they have enabled the vast majority of us to be able to do what we do. Without Stripe, most of the businesses that are out there just would not exist.
Rob: Or it’d be lot harder to get them off the ground. I remember trying to get an Authorize.net account and it just took weeks of literally sending stuff on paper and faxing it back and forth. This was only maybe six years ago, seven years–it wasn’t that long, and I’m not talking 2005. It was just insane to me that a) how are we not doing this online or at least e-signing things? But I literally was just printing out this 30-page document. It was such a nightmare. I’m glad Stripe came on the scene.
Mike: I’ve spent a fair amount of time over the past couple of weeks rebuilding and migrating some of my infrastructure in order to cut costs. I’ve doubled the number of servers. I’ve gone from two servers to four and I’ve reduced the costs of them by out 75% which is odd. I have everything hosted on Azure and they have these things called burstable virtual machines. Basically, if they are running below a certain threshold in terms of process or usage, then you pay basically, a discounted rate for it and you are gaining credits at that point. If you are using more than that percentage then you’re basically burning into your credits
I think they had maxed out the CPU with that but basically, I just paid less for this machine or these machines because I’m not using them all day every day. It’s like there are certain times a day where I need more processing power and rest of the time I just don’t need it. It’s nice to be able to have moved over to those types of servers and save a fair chunk of change. But I needed to split up my infrastructure anyway because I didn’t like having everything on just two servers.
Rob: That makes sense. It’s nice to put a few more bucks in your pocket.
Mike: Yeah. I pushed off on that division for probably about a year or so. It was kind of time to do it.
Rob: Anything else?
Mike: The last thing is, this is totally random but there’s a website that I stumbled across when I was trying to do calculations for my Dungeons and Dragons game, to kind of optimize my character. If you’re into figuring out probabilities on different dice rolls, you can head over to anydice.com. It will basically allow you to write functions that will essentially simulate what the dice rolls are, and then it will show you the percentages and distributions, and you can see crafts and stuff like that of exactly what those distributions look like.
You can say how many attacks or if you have advantage or disadvantage on different attacks or damage rolls or things like that then it will show you what those numbers look like and what’s your average rolls would be.
It’s pretty cool. You can probably spend a whole ton of time on it, but they do have some documentation there and some ready-built functions you just pull, and copy paste into the editor.
Rob: I see what you did there, Mike. Do you realize you started that segment off, you said, “This is totally random.” But any dice stuck. You can’t […] by me, man. Really bad puns. Alright. Cool.
Let’s dive into what we’re talking about today. It’s an article on a blog of freshworks.com. They have a sales CRM , it’s that section or that category of the blog, but the article is titled, “How Lucidchart Grew to 13 million Users on a land-and-expand Strategy.” I want to talk a little bit about the virality and the freemium part of it. It’s an interesting interview with, I believe, is the SVP of Sales and Customer Success of Lucidchart.
If you haven’t heard of Lucidchart, it is a Software as a Service with a freemium model, they have 13 million users and it is like Visio–it is how I think of it. It’s a diagram solution where you can create diagrams and share them and then collaborate on them. Is that an accurate description, Mike? You said you’ve used it.
Mike: Yeah. That’s probably pretty accurate. I think Visio seems like they started out much more for data modelling within a programming environment. But Vision also has a lot of different icons and stuff that you can put in there for like network map layouts and office maps layouts and stuff like that. You can use it for other things like org charts and stuff like that, but I think originally, it seemed like it started out as part of the MSDN suite, you get a few sign-ups for that, and it was primarily a programming tool.
Rob: Right. And it expanded into other things. Lucidchart, looks like it was started around 2010, 2011 and they raised $1 million in funding which you would need if you’re going to do freemium model, and then three years later they raised $5 million, and then two years after that—in 2016—they raised $36 million. I can imagine they probably hit a hockey stick moment where the user growth justified raising–because you raise that much money, you want to have really high valuation, so you don’t give away most of your company.
They said that 96% of Fortune 500 companies use it. They have customers at Google, Amazon, Cisco, and Intel, and they receive around 500,000 sign-ups every month. It’s a free tool, right? It’s free, no credit card, if I recall. That’s still a big number though. A nice horizontal market that these guys are in. They’ve obviously achieved success–13 million users is a ton of people; it’s a ton of people to support, it’s a ton of people just to have your software running.
I wish that they’d told us how many paying users or how many paying accounts because that’s really what I’m interested in. I’m interested to know if they are even profitable on revenue, above the amount of just sheer volume because they must have hundreds of employees, and I would like to know that. But all that said, what I want to talk about today is really the freemium and the viral one and they have some stuff about sales as well.
Mike: I’m sure their competitors would love to know how much money they’re making too.
Rob: Yeah, totally. I know. It’ll come out at some point. They’ll wind up talking about it.
Mike: Alright. Why don’t we dive right in then?
Rob: Sure. The first question for Dan Cook, which is the SVP of Sales, the interviewer asks him, “It runs on a freemium model, how do you pitch the product, and how do you scale it to an enterprise model?” His response is, “The freemium gives them an advantage because they have this—this is where the land-and-expand comes in within a company—they get employees within a company using the product and then they share it with other people in the company to collaborate and then they set-up accounts, so there’s a freemium plus virality there. The reason they sign-up for it is a) it’s free and b) because it’s a good tool.
In the early days it was good enough. It was not a great tool but as it developed, I bet these days, it is best in class or is becoming then. He said that, basically, they can have 15 or 20 paid or free users of Lucidchart within a company. Then they leverage that fact to say, “Alright, IT department, here’s a value proposition for you.” This is a similar model to other tools. Slack, I’ve heard them talk about this a lot. That one small development team within a huge org would start using it and of course, you have to invite other people for it to have any value. Once you have 10, 20, 30 users, IT Departments and frankly, CTOs and CIOs want to have control of that kind of stuff. It’s an interesting dual use of that freemium plus virality.
Mike: Yeah, I’ve seen that at a much, much smaller scale in Bluetick where somebody will sign-up for Bluetick and one of the earlier objections I’ve heard from somebody was like, “Oh, well. I wanted to sign-up for it but then I would have had to go to my boss and get his credit card.” That freemium model, even just the 14-day trial that I had or that I added in after talking to that customer, it allows them to sign-up for it without having to go to their boss and justify like, “Hey, I need the corporate credit card and it’s going to cost this much money.” Because in the enterprise environment, they’re probably going to not only have to go to their boss, but then their boss is going to have to justify it to somebody else.
Nobody really knows if it’s going to work. If they just start using it, in a freemium model, they can just use it and if it doesn’t work out for them, they just shut it down or just abandon it. If it does then as more people start using it then it becomes more visible. As a result of its success, then Lucidchart can go in and ask them for money for an enterprise license or a small group license within a department or something like that. But it is interesting to see that they seem to have intentionally done that or chosen that strategy.
Rob: Right. I want to point out some things that Lucidchart has or had that listeners to this podcast may not have, and if you don’t have all these things in place, it’s going to be difficult, if not impossible to pull off this strategy that they did–this freemium strategy.
Mike: Do you want to start with the $36 million or…?
Rob: That’s what I was going to say. Funding–that’s the first one. It wasn’t $36 million originally. For the first three years it was $1 million. That’s actually not that much money for three years. You can hire a few people but it’s not like you’re going to hire 20 employees and not bleed that out. But yes, funding was one advantage they had; $1 million in funding. Another $5 million three years later. The fact that they are a very horizontal market much like Trello and Dropbox and Slack, those are three other tools that have used the same approach–this freemium plus viral component.
If you’re in a horizontal market and you can raise enough funding or self-fund this thing to the point where you can provide the service to all the free users, it really can be this fascinating approach. The other thing is they have virality, not every tool has that. I think of a tool like Drip or even a proposal software, invoicing software, there’s a little bit of virality and that you can have a Powered By or a Sent From or a Sent With. But true, deep virality like Trello where–I mean, I use some Trello boards for that other people but there’s a lot of collaboration that goes on there. Slack is all about being viral. You have to invite other people to get any value.
Lucidchart does not need, need, need. You’d have another person to get value, but I would say, that’s probably a big reason that people would use it because it’s so easy to get you charts and collaborate. Of course, Dropbox has it’s all other things. Having virality plus that freemium I think is a big thing that people overlook. Because having freemium on its own without funding, being horizontal, and virality is not all it’s cracked up to be.
Mike: I think this is also a tool that because of what you’re using it for, you’re using it to help communicate, that helps it too. That kind of sets it apart from a lot of other tools. Trello, to some extent, just by inviting people, you get to have them take a look at what it is that you’re working on. But with Lucidchart, you can print those things out, you can embed them into Word document, or even just take screenshots, but by being able to invite people and say, “Hey, this is the process, or this is the workflow that I’m looking at. What do you think? Is this going to work for our team?” That right there—because it’s embedded in the communications—that just inherently makes it even more viral.
Because if people look at the tool and they like it and they want to use it because it’s a lot easier to use than something like Visio, it gives it those additional advantages. It gives people the “aha” moment that they need in order to say, “Yeah. I want to use this too.”
Rob: Another question that he asks this VP of Sales, which I thought was kind of cool, I don’t know, I hadn’t thought that much about it, but he says, “Let’s talk about your value proposition. How does it work when you’re convincing a company to buy the enterprise version? What to the teams and what does the enterprise get out of it? Why don’t they just keep using their individual accounts?” I like that because a) you’re asking why should they upgrade or why should they consolidate? He says, basically, the value to the end-user is that it’s all consolidated and it’s much easier to share among their co-workers. You don’t have to convert diagrams into other formats to be compatible. If everybody starts using it in your company then you don’t have to be like, “Oh, you’re using Visio? I’m using Lucidchart. Let’s convert to this format.” and blah blah blah.
Then to the IT department, the first one is consolidated billing, so there’s only one bill and you know you can negotiate that and manage it. It’s just easier to do it. Also, for training, a lot of big companies especially provide training for their tools. If you have just everybody using one tool, it’s easier. Then secure logins which is fine but the one that really gets them is document retention which is where someone leaves the company, as someone is running that company or running that IT department, you want to have access to everything they did while they were there because you might need to reference that later. If they take individual accounts away with them then you’ll never get that stuff back. It’s not even someone stealing it or taking it away, it kind of goes away. They forget about it or you just don’t have access to it.
That was a big one working at Leadpages and Drip is seeing people leave and being like, “Oh, yeah. There was that one thing that he shared with me and now I don’t have access to it.” It could be kind of a pain. It’s interesting to think—if you’re going to try to pull this off—about what the value prop is that you have to offer for people to upgrade.
Mike: The other interesting piece there that’s in that enterprise group subscription there is the idea that, it’s not just if somebody leaves the company, but what happens if you have to fire somebody. You want to be able to have like this master key that says, “Okay, we’re going to lock you out of everything before we follow through with letting this person go.” and then still have access to all that stuff. There’s that side of it to consider too. I think one and two-person businesses don’t tend to think about that because they just don’t experience it. But the larger companies that they are advertising to or agencies or other small businesses 50-100 people, those companies do think about that and it is important to them.
It’s good to understand that that is a value proposition that you can leverage as a marketing point to those larger companies and say, “Look, this is why you should upgrade or this is why you should buy higher-priced tier because we are including this for your account versus a freelancer account which doesn’t really have any of that stuff and oh, we have a 25 people have 25 different freelancer accounts.” Yeah, it’s not ideal because they get 25 different bills but at the same time, that master key is kind of what people are looking for.
Rob: And then he asked him a question about their outbound sales process. He says, “Yeah, we have 80 sales people and their core play is they basically target companies that already have some form of adoption.” You likely would, I’m guessing, you’re going to use some type of data augmentation tool, like a full contact, to augment you customer data to know who they work for or just look at the email address, look at the domain, the .com on the end of their email, and do a Group By and see how many people are using it. As simple as that.
If you get 20 people inside Disney or Target or BestBuy or something, it’s like they reach out and say, “Hey, you have 20 people that have signed-up for accounts. Do you want to aggregate that?” It’s an interesting thing. I’ve heard, I believe, it was either Slack or Trello also talk about this as an approach. It’s like warm outbound. It’s an interesting approach.
Mike: You just hope that their CEO or their CTO isn’t so totally paranoid that he says no outside tools that are based in the cloud and shuts them all down.
Rob: Yeah, it could happen, I supposed.
Mike: I think that’s a lot less common today than I think it was 5 or 10 years ago. But I have run into those people who say that kind of stuff and there’s usually exceptions for that. They can’t possibly have everything self-hosted. It is just not realistic.
Rob: Yup. There’s a couple more questions that I think are relevant. One is, he asks him, “Lucidchart is the popular alternative to Microsoft Visio, how do you differentiate yourself?” He basically gracefully says, “We’re grateful to Vision, but it’s outdated. It’s a classic Microsoft style product, and it has a lot of innovation on it since they acquired it in 2000.” That’s that whole thing where, yeah, you can have a better funded competitor but as a startup, your secret super power is you can move fast, and you can be closer to the customer. Because I’m guessing, a lot of the developers working on Visio—assuming there are some still—they’re not nearly in close contact as someone at Lucidchart is when they’re in their customer success department having one-on-one conversations with their clients.
Mike: I think that’s partly a difference in how the product was originally engineered. There is a cloud version of Visio, I believe, so it’s enabled for people to collaborate and stuff which has always been the biggest problem with Visio documents, is that it’s like a Word document that you have to basically send it back and forth. Even if you’re using something like Dropbox, you still have the problem of having multiple people trying to work on the same thing at the same time and it just doesn’t work very well.
That’s why Google docs has kind of come around and been such a massive upstart in the past, what was it, like 10, 15 years ago when that came out. But Word had been out in the mid-90s or the early 90s. Something like Lucidchart just has a fundamentally different delivery mechanism than Visio. Visio has to make that backward compatibility so they’re not able to do the same types of things versus Lucidchart, they’re like, “We don’t care about actually running locally on the desktop.” It just doesn’t matter to them which gives them some advantages right there.
Rob: Right. It’s interesting to think like if Microsoft really cared about the market—I just don’t think it’s big enough for them to care about probably—but they should have, would have built a web-based version back in 2008 because it was totally doable. But they didn’t and so, somebody decided at some point not to do that. I know they have collaboration features now built into the Office tools. I don’t use many of the Office tools anymore, only when absolutely need to. I’m just in Google docs all the time.
Mike: I bet they sunk all the resources into the Windows Vista.
Rob: Windows Vista, yeah. That must have been it.
Mike: It must have been it.
Rob: To round it out, he ask him, “What do you think are the top three reasons for Lucidchart’s success?” He says, “Well, people need visual communication tools and there wasn’t really anything that was that great. Second is, we made it enterprise ready, so selling into that enterprise, it was not hard. They have collaborations and integrations and all that stuff and freemium–those are the three things he says. I think he leaves out the virality. I actually believe the fact that a) the market is big, I think is a good thing. They chose a large market. I have a Lucidchart account. The reason I have it is because I got invited by two separate people on two separate diagrams. I would count as one of the 30 million users.
Now, I don’t go in, I never created a Lucidchart diagram myself, but I have collaborated with other people. I think that’s an element, a fourth thing that he didn’t mention that I do think is probably a decent driver of their trial sign-ups.
Mike: I do think the other thing that really helps them is the fact that it’s surprisingly easy to be able to get in and get started with Lucidchart, create some things that are generically applicable across the business without being locked into , “Oh, I have to use this for data modelling.” It sort of does these other things well but not really. That’s the way I would describe the difference between Visio and Lucidchart.
Whereas Lucidchart doesn’t necessarily have the data tie ins to be able to, let’s say for example, a database design, but there’s lots of other ways to do that these days. That makes Vision, I’ll say, that less powerful in that respect. But you don’t need that with Lucidchart. You can just create a generic process. Instead of sketching it out on paper and saying, “Oh well, I’ve got this customer support process that’s got to do this.” Or, “I’ve got this marketing process where I’ve got this email Drip campaign over here and the sales page over there.” You can wire them up in Lucidchart and use that to document your marketing sales funnel, for example. It works really, really well for that.
The downside is, you do have to keep it up-to-date because nothing is automatic but as long as you need to document it anyway, you may as well use something like Lucidchart where you can create good documentation that shows you how everything ties together.
Rob: 500,000 sign-ups every month, Mike. What would you do with that?
Mike: I don’t know. Take it to the bank, retire?
Rob: Yeah, that’s crazy. You can just imagine the processes they must have in place in order to even be able to support that many users.
Mike: You know, I’d be interested to see what they have for a backend infrastructure because I’m just like an engineering nerd like that. Like, “How the heck do you handle that much? How many is that per minute?”
Rob: I know. One point of data is I went to Crunchbase and it says, “According to owler.com that they have 7.1 million in annual revenue.” You don’t know how accurate that is but it’s an estimate by an outside company.
Mike: And at 500,000 sign-ups a month, that’s about one every five seconds which is insane.
Rob: Yup. I know, it’s crazy. They say, let’s see, employee count is between 101 and 250–it’s about what I expect. It says, “A team of 150 plus employees.” You don’t know when that was written but I would guess, if it was even a year ago, I bet they’re at probably over 200 by now. That gives you an idea of their size. That’s the thing, they’ve raised $42 million, if they are at $7 million or $10 million in recurring revenue, that’s not a home run. They need to get bigger than that in order to return that kind of funding because the valuation was definitely north of $100 million. I mean, $120 million, $180 million, somewhere in that range, if I were to guess. At that point, you need to sell for half a billion or a billion dollars to return venture returns. To get there, you need to have $100 million in ARR. They have a long way to go to get there.
I don’t want folks to take this entire episode the wrong way, I’m not saying that we should model ourselves after Lucidchart or anything like that, I was pointing out that the way to use freemium, viral loops, thinking about horizontal markets, thinking about other way to approach problems, how could you, in your little maybe B2B bootstrap niche try and corporate some of these things?
Mike: I think the other takeaway you could have for our audience of listeners is that, even with 500,000 sign-ups a month, as you said, financially, this is probably still not a home run.
Rob: Right. If they haven’t raised $40 million, it could be alright if they’d only raise up to $6 million and could have done it, then that’s a totally different story but that’s where I like raising a lot of funding and having this big valuation. It means you have much higher expectations at that point.
Mike: Right. All it does is dilute the founder and some of the investors, earlier investors maybe, but it makes it hard to have a spectacular exit if you’ve, I’ll say, weighed down by too much investment.
Well, on that note, I think that about wraps us up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 412 | The Pitfalls of Several Commonly Recommended Marketing Tactics
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the pitfalls of commonly recommended marketing tactics. This topic was inspired by a tweet from Scott Watermasysk from KickoffLabs. Some of the tactics discussed include split testing, affiliate programs, content marketing, and more.
Items mentioned in this episode:
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about the pitfalls of several commonly recommended marketing tactics. This is Startups For The Rest Of Us episode 412.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you with the same mistakes we’ve made. What’s going on, Mr. Rob?
Rob: We received a voicemail from someone, I believe he was in Brisbane, Australia, but it was definitely an Australian accent and I could barely make out the audio. The audio quality was so bad that we don’t even know his name or the question he asked. If that is you, please call us back or better yet, just record an MP3 on your local machine and just attach it or send us a Dropbox link to questions@startupsfortherestofus.com. Because it sounded like a good question but couldn’t really make out what he’s saying during that. How about you? What are you up to?
Mike: I’m in the middle of testing a new road map process with one of my customers using Teamwork. The basic idea is that I set up a project in Teamwork, mainly because this customer’s been with me for a while and it’s not a really complicated stuff that they’re asking for what they need, but they need assurances or like timeline and implementation and everything else.
I’ve got a road map that I’ve been using in the background using Trello for a while, but I just haven’t kept up with it. I’ve never really gotten into Trello like most people have. What I did was I created a project in Teamwork and then I invited them to look at it. I took their […], threw them in there. Basically, I’m working through them and it gives me the opportunity to comment on those things directly and allow them to comment back on them as well. It creates this really nice feedback loop between those things.
I haven’t added any other customers into it yet, but I think that that might be something that I’ll look into the future. But I’ve looked at other road mapping tools in the past and I’ve never really quite found one that suited me.
Rob: Is this for communicating your road map to customers?
Mike: If a customer asks for something, how do I communicate it to the rest of the customers, like, “This is what is going to be going on and this is what the priority is.” It’s a little bit different than like a bug tracker, obviously, if there’s a bug or somebody needs support or something like that, it’s different, but I’m the only one who can add stuff in so that it’s visible, but anybody can comment on it, at least so it seems like.
Rob: I’m trying to think there’s a tool that we use at Drip and of course, I can’t remember the name of it and we always used it to announce what we had built. It’s like, “This is what we released in September.” It’s like a change log tool but it was user-friendly. It was not super techie. I’m trying to think if you could use that pretty easily to suggest like, “Here’s what we’re working on in order.” I think there was actually a little feature where you could just add a bulleted list, but it was super stripped down. It was a very simple tool. It was $10 a month or something. It’s probably someone’s side project, although it’s pretty well-designed. Is that all you need is just a list of things? Why not just have, maybe a public Google doc or even just a static page on your website that’s like /roadmap? It’s just five things in bold list like, “Here are the next major five efforts we’re doing.”
Mike: There’s two things. One is we’ve been going back and forth through email and I said, “Look, I understand you got all these different things that you want to see, but I need a list of them. Just going back and forth one at a time is really not working. Send me the whole list.” They sent me the entire list and broke it out into three different sets like, “These are things we need very, very soon, these are things that can wait a little while, and these are things we’d like to eventually see down the road.” I looked at them and they all mapped pretty well like my internal road map anyway, which I have in my bug tracker, but I’m not going to pay for other people outside of business to have an account there just because it’s going to get expensive.
I was trying to figure out how do I work back and forth with them because I had a bunch of questions on some of them and there were comments on other things. It was a question of, “How do I work with them to flesh out what each of these things is?” because if I got an email that’s, let’s say, two pages or something like that, like bullets that they email to me, it’s hard to go back and forth about one line item and five line items in an email. I really needed something that was going to break them out so that I can comment on things individually and separate them a little bit more. Does that makes sense?
Rob: It does, yeah. It’s not just for outbound communication, it’s kind of like you’re almost collaborating with a client. It’s not that they’re paying you for this and not that you’re going to build it exactly as you’re expecting, but they really are. It’s much more customer development process than it is, “Hey, we’ve got suggestions in here is what’s we’re going to build.”
Mike: Yeah, I’d say customer development is probably a better way to phrase it than I did. It is a lot of back-and-forth to figure out like, “Is this going to work for you or what exactly did you mean by that? How are you going to use this?” for example. Because some of the questions are like, “I hear what you’re saying and it makes sense but where you going to use this for? I want to know, is there a better way to do this or is there something else that we could do either short-term or manually that would get them there faster?”
Rob: Right. Cool, it sounds interesting. I think of it as less of a road map process and more of, I guess, it is impacting your road map, but it’s more like a customer collaboration or a customer development process that you’re doing using Teamwork. That makes sense?
Mike: Yeah, it is.
Rob: Cool.
Mike: But I went on Google and searched for road map software a while back and I came across all these other things, like there’s ProductBoard, aha.io, ProductPlan, ProdPad, and things like that. It’s just none of them really seem to fit what I was looking for in terms of this back-and-forth communication with either individual customers or with small groups of them. I really think I just want to identify a couple of more customers to maybe work on this with, but it’s really a matter of, does it make sense in that particular context for that customer?
Rob: That makes sense. Have you seen MailChimp’s new branding?
Mike: I got an email about it, but I haven’t looked at it yet.
Rob: It’s a trip. I think I saw a news article. I think I was on SparkToro Trending. SparkToro is Rand Fishkin’s new startup and there’s a trending page and they talked–there was an article written about MailChimp’s new branding. Obviously, I think of MailChimp as the ESP. There are other email service providers but they are the biggest one. They are the ones that send a billion emails a day. Like the title tag on their homepage, which is what will appear on Google now, is marketing platform for small business.
I don’t know if it’s a pivot as much of just a rebrand. But like their homepage used to say, “We help you sell more stuff at MailChimp,” or something like that, it’s very much commerce-focused, but their headline is now, “Your business was born for this. Become the brand you want to be with smarter marketing built for big things.” It’s very, very interesting. It’s a gutsy move. The colors are different. I actually like the design of the site. It’s definitely jarring.
Remember when the Drip rebrand happened and there was the magenta and the other colors, I feel this is similar but different, but the headline and the value prop on it feels not nearly as focused as what I’ve always thought of as MailChimp. The fact that the sub-headline is “Become the brand you want to be with smarter marketing built for big things,” that doesn’t resonate with me as a customer and never would have at any point in my entrepreneurial career. I’m concerned. These guys are smart, let’s not fault MailChimp, but I feel like maybe they’ve made a misstep here.
Mike: I don’t know. I think it’s easy to think that if a company changes their brand name, that, “Oh, this company isn’t for me any more. This tool isn’t for me,” but at the same time, the tool itself hasn’t change. It’s really just a marketing message. I forget who said this, but the line is something along the lines of, “What got you here won’t get your there.” Like you said, they’re sending a billion emails a day but that doesn’t necessarily acquire them more customers faster, they need a marketing message that resonates with a larger group of people than they currently have or they’re currently after because they probably saturated the market. The ESP market is really highly saturated. There’s tons of players there so they need to differentiate themselves an go after people who are either just not using something or are using something else and want to find something that is going to fit them better.
Rob: Yeah. That makes sense and that’s thing. When you’re not inside an privy to the conversations that they’re having and who they’re competing against when they’re going for big deals, you don’t know. That’s where I’m like, “Who am I to say?” but this is my opinion on the outside. Again, with the Drip stuff when there was that rebrand, it was right before I was leaving the company. It was happening and rolling out. There were so many naysayers and haters on social media and all the stuff, but they were privy to the information that is actually going on inside the company.
I guess what I’m saying is, it could be so easy for me to sit here and just rail on this MailChimp rebrand because it’s “different,” but I trust that MailChimp is pretty damn smart and pretty good at what they do, and that they took the information. It’s either going to work or they’ll change. If that headline doesn’t resonate with people, they’ll change it. I think that’s the thing. When you make these big gutsy moves and you’re trying to land and expand or pivot into a larger space or whatever it is that they’re doing, apply to more people, as you said, you have to do risky stuff at some point.
What’s interesting is in the early days of a startup, you take a lot of risks but no one’s there to notice and no one cares. But when you have 1000, 10,000, 50,000 customers and you take these risks, a lot of people get up in arms over it, but really it’s the same risk that you’ve been taking all along.
Mike: I think for large companies like that, it doesn’t matter nearly as much as we might sit here in armchair quarterback it, you know Monday morning quarterback. Just because their existing customers are still going to be paying them money, it’s about them acquiring new customers, not appealing to the ones that they already have. That’s the way I see it.
Rob: That’s the thing. As long as you don’t do such a pivot that you completely turn your existing customers off and have a bunch of churn and stuff, man, that would be really hard to do, especially with ESPs where there is some lock-in in the space.
Mike: Yeah, it is hard to move from one to another. I’ve done that before. It sucks.
Rob: Yup. So what are we talking about today?
Mike: Today, we’re going to be talking about a couple of pitfalls of some commonly recommended marketing tactics. This topic was inspired by a tweet from Scott over at KickoffLabs and we’ll link that into the show notes. But he said, “One of the worst startup diseases is AB testing. Such a colossal waste of time when you don’t have significant traffic,” and it got me to thinking, what other things are there that are commonly recommended marketing tactics that I see and hear about or you’ve see and hear about, that are either colossal waste of time or there’s pitfalls or things that you don’t necessarily know about until you get into it, and only to realize that you’re walking into a hornet’s nest and there’s more trouble than it’s worth or it’s just not going to work for you or it’s something that you can do short term, but it’s not going to be sustainable for you.
Rob: Cool. Let’s dig in. I was pretty excited when you talked about doing this topic today because I think there are a lot of, I won’t say misinformation but it’s more like myths or people making things look easier than it actually is in order to sell things, in order to sell their software or sell their infoproducts.
Mike: I think that’s the big piece of it is that they think it look easier or sound easier than it actually is. For split testing, we’ll start off there because of the tweet from Scott but you need substantial traffic and most early entrepreneurs don’t have it. It’s not just that you need substantial traffic, you need substantial traffic and a short enough time window where your test is going to be able to give you at least some sort of significant results.
The other thing that I think is a little bit misleading is about whether or not the split testing that you actually could do, if you were to get 1% results or an increase every month for 12 months, would you actually be that much better off? I have seen some odd anecdotes where people will say, “Hey, we did all these split test or we split tested something against itself and one was significantly different than the other.” It does make me wonder a little bit as to whether or not with the resources that we as small business owners have available, can we actually even effectively execute on that stuff in a way that is going to move the needle for our business?
Rob: If you’re thinking about the early days of your startup and you’re trying to build something people want, you’re in customer development, you have a website, a little bit of traffic, split testing is the furthest thing from your mind or should be the furthest thing from your mind. You need to be talking to customers in those early days, to figure out what is that I can build that people are willing to pay for, that’s different enough from the competition that I can communicate that and people will sign up.
Typically, you’re going to split test your home page or your pricing page or your sign-up funnel, and I would not even consider it before I had, let’s say 5000 or 10,000 uniques a month. Really, at that point, it depends on what revenue is and if I have the time to test the headline here or there. But if I were to do split testing at that point, let’s say I had 10,000 uniques a month coming to their home page, I would probably just set up one or two alternate headlines and just let it run and see what happens. But it wouldn’t be some massive effort where I would be redesigning the entire page to spending a bunch of time to try to get some major difference in conversions, because there are other levers you should be pulling at that point. When you have 5000 or 10,000 uniques, you should be worrying about more traffic, or you should be worrying about, frankly, converting more of the existing trials you have to pay the customer. It’s going to tend to move the needle more than spending a lot of time on split testing.
Mike: The next marketing tactic is using affiliate programs. I see a lot of startups from Product Hunt, BetaList, and a couple of other places that startup it up where they’re pitching this affiliate program and saying, “Hey you can manage your affiliate program through our SaaS and you’ll be able to get more customers for your business.” But the reality is that the attribution itself is fine within those pieces of software, but finding the affiliates who are able to bring in enough leads to make it worth your time is actually pretty hard.
I’ve done this a couple of times. It seems to me the software itself is reasonably straightforward in most cases to implement, but finding the people who are actually going to bring leads that are qualified to you is a lot more challenging. It’s just, you have to do a lot of education to those people, you have to make it worth their time, and you have to be finding affiliates who have a substantial traffic source already or existing list where you can point them back to your website, give them an affiliate code or something like that, and give them an offer that’s actually going to get them to convert. If you don’t have all of those things, then it’s just not going to work. It doesn’t matter how many people you sign up for your affiliate program. You need the qualified leads to be coming in.
Rob: Yeah. Finding affiliates is way harder than most people think unless this is a primary strategy for you and you have a network. The people who I’ve seen make it work—let’s talk about Clay Collins of LeadPages—it was built mostly on the affiliate model. He did that because he knew all the people in the internet marketing space. He had the clout to get them to do webinars with him. It wasn’t just, “Hey, send me some traffic.” It was, “Let’s do a webinar,” and then he pitch an annual deal and it was 50% off, there was time pressure and there were bonuses, I should say, that you got if you sold there. That’s how he grew it that fast.
ConvertKit did the same thing. It was the same playbook. If you’re going to do that, then do that and go all in on it. I recall, at one point, Clay was doing 20 webinars a month or something in the early days, 15 or 20. It was crazy. He’s just a machine. In that case, you’re an exception. You’re not going to start from a cold network where you don’t know other people who have big audiences and make affiliate programs work from the start. It’s going to be a ton of work. In addition, the process side I just talked about, I’ve only seen it work in one niche and it’s in this aspirational business niche. It’s in the people who want to be bloggers or be info marketers and they’re being sold info on how to start your own biz from home.
You look at LeadPages and ConvertKit and they both serve that same path Flynn-ish niche. You can’t just go to enterprise software and think you’re going to do this big affiliate model, sell to Fortune 500 companies or Fortune 1000 companies using that. Or even freelancers would be possible because there are people with those audiences, but it wouldn’t work to the same extent that it does because the audience is just aren’t as big and they aren’t as prone to buy. I’d say there is one or two other spaces that I know of that are similar to that, that aspirational thing where you can sell them the idea or the promise of, “Hey, you’re going to have a landing page provider or here’s an ESP and here’s how to start your blog and make money.” But beyond those, it is really hard to get an affiliate program profitable one off the ground.
I had affiliate program with HitTail and Drip, and they made money, they were profitable, but they were not major driving factors. Even when we did joint ventures and we did joint venture webinars, we’d do JV mailings, it made money and it was fine, but these were not the major drivers of growth that I’ve seen in most of my startups. Again, not saying it can’t work but it’s definitely different than it appears.
Mike: Yeah, it’s definitely a lot harder than it appears. You have mentioned enterprise software sales where affiliate models wouldn’t really work and I agree with that, but there’s a slightly different model for those enterprise deals where it’s basically a reseller arrangement. You don’t have direct contact with the enterprise companies, you resell to other companies, you sign them on as resellers which is a slightly different take on an affiliate program, but it’s not substantially that much different. It’s the same basic idea–somebody else is bring in the lead in. The difference with a reseller is that the reseller is basically managing the customer relationship versus with the affiliate, they’re bringing them in and then they’re hands-off at that point.
The next one is content marketing. I think that the content marketing has been all the rage for the past several years and I don’t see it necessarily ending anytime soon, but I think the bottom line for content marketing is that it is time and resource intensive to general content on a repeated basis. If you’re trying to blog once a week or put out a few articles each week or each month, that’s fine, but it’s not just the generation of those which is time and resource intensive, it’s also the marketing and distribution of those. If you’re trying to post it to Quora and various startup list and out your email newsletter and social media, that gets to be time and resource intensive, especially if you’re trying to cross-promote between different channels and schedule everything–it just gets complicated.
There’s also very long lead time to getting results and getting measurable results from them. It could be anywhere from three to six months, it could be as much as a year or 18 months. Regardless if that, it’s a lot of time and effort to get that engine running. But once it’s running, you’ll do really well with it but it just takes a long to get there and there’s probably better places for you to spend your time if you’re early on.
Rob: Yeah, this one is tough because content marketing can and does work. You just got to remember content marketing is more about SEO and it is a long-term play. That’s why when we get the questions from someone like, “Hey, I’m at $2000 MRR. Should I start my content marketing?” It depends. Probably not, but it really depends what niche are you in? Are there distribution networks? Not even networks but like growthhackers.com and YCombinator are distribution avenues for you to get the content out and are there people daily reading stuff like this? Are you going to be able to drive it? Are you going to build your list? And then long term, are you targeting SEO terms? Organic terms that are going to bring traffic? That’s how the play has really been successful for these larger companies.
Of the three we’ve talked about so far, I think content marketing is the best and most viable, but your critiques are absolutely correct in that it often takes a long time to get results and it is very resource intensive to generate content at the quality, and these days at the length that’s required to make it dent because there’s so much noise, man. I have not been on the social news sites like inbound.org used to be one but it shut down. growthhackers.com is still there, Hacker News, even SparkToro Trending, I had not been on any of those. I just don’t go on them regularly.
I’ve looked at a few of them this morning and the volume of content is crazy. It’s so much more and so much of it is highly targeted and you can tell it’s targeted to try to just get clicks to it. It’s a startup that is trying to get people to come through from Hacker News or from Product Time or from whatever to generate traffic to then funnel into the leads. We’ve all been there. I totally know that playbook. I was doing it back in 2012-2013 or even before that from my blog in 2010, but there is just a lot of noise out there. To rise above that, it’s a lot of time and money to create content that is good enough to warrant people’s attention.
Mike: The fourth item on our list is social media marketing and by this, I don’t mean paid ads like if you’re going on Twitter or Facebook or Instagram, whatever you like. You can pay for advertising, but that’s not what I’m talking about. I’m talking about building an audience and then trying to market content to them. I think the reason that this can be a substantial pitfall for people is that it seems like it should be easy but it’s time-intensive to gain followers. When you post things, a lot of times only a fraction of your followers are going to see a particular piece of content.
For example, I think on Twitter, the stuff that I’ve heard is about 5% of your followers are going to see any given tweet that you put out. So even if you have 100,000 followers, only about 5000 of them are going to see that. So the strategy to overcome that is you tweet multiple times a day and use something like Buffer to put those tweets out at different times a day to try and catch people on different time zones.
At that point, I feel like you’re also oversaturated in the people who are on Twitter a lot and it could very well be a turn-off to those people, but again, it’s a matter of, “What type of product are you promoting to people and is it going to be relevant to the people who are on Twitter?” I tried Twitter advertising for AuditShark, for example, and it just absolutely did not work because the people who are in the enterprise are just not the type of people who are looking for security software on Twitter.
Rob: Yeah and that’s not to say that Twitter advertising won’t work for anyone. I also think LinkedIn could be better for you, but I tried LinkedIn many times with multiple products and never got LinkedIn advertising to pay itself back. Again, not saying it won’t work, it’s just going to take trial and error if you can get it to work at all.
Mike: On that note, James Kennedy is going to be speaking at MicroConf Europe on a LinkedIn strategy for acquiring leads, so that might be interesting to you.
Rob: Awesome. That would be a cool one. I agree, man, social media marketing is great for B2C and it can be great for prosumer stuff, aspirational entrepreneurship, or even photographers–they tend to be aspirational. But when you’re talking about real sales tools, or real email marketing tools, or real tools that you want people to buy and use for years, and you need businesses that are making decisions, comparing you to competitors and all that, social media is a nice to have. It is not something in general that’s going to drive your bottom line if you are a B2B SaaS app. I’m sure there’s one exception to this, maybe two, I’m sure there are a couple, but overall as a bootstrapper or as someone who is really just trying to block and tackle, there are so many more things that you could be doing than to tooling around on Facebook and Twitter.
Mike: I think the real challenge here is just the fact that entrepreneurs tend to be on the internet a lot, we see Twitter a lot and we see Facebook a lot, so it’s natural to assume, “Hey, I should test that out or use that as a marketing strategy.” But again, it’s time-intensive to gain the followers. The reality is that what you want and most of those cases is actually just send them over to an email list anyway so you […] email address. Assuming you can get an engine up and running that can do that for you then that’s fine, but you still need a way to make it work and it can be very time-intensive to gain those followers and it’s not obvious always how you’re going to be able to do that.
The last one we have on our list today is offline advertising. By this, you can take it a bunch of different directions. It could be billboard advertising, […] response in a conference or podcast or anything where the direct attribution is a little bit more challenging. That also include things like sending postcards or physical mailers to people. I think, is it GRC marketing that does that? They advocate that a lot for sending out the bulky mail to people just to get their attention. That works great for those situations where you have a higher price point product or it’s a service, and there’s going to be a relationship that you’re trying to establish with them or the dollar amount is high enough that it’s worth it to send those.
The biggest downside of those is that it’s extremely hard to do the attribution in most cases and then there’s also a much longer iteration cycle. Instead of looking at couple of weeks for paid ads on Facebook or Twitter, you’re looking at a month, two months, maybe three months for an iteration cycle to send out a mailer and then figure out whether or not you got results from it, track those back, then make some adjustments or tweaks, and then move on to the next group. It can get very complicated to juggle all of those things at once because even if you’re just doing it repeatedly over the course of a month or two, it’s just going to suck up all of your time and attention. You’re not really going to be able to do very much else.
Rob: Yeah, it is expensive, too. It’s a long turn-around time and the iteration cycles are just, I would say, too long for a startup. Now, once you’re down the line, you have product market fit and it you’re in a space where offline is a really good option, obviously you could experiment with it. But it’s not something I would be messing with in the early days. And as you said, attribution is rough. I did some trade publication magazine advertising for one of my products once or twice and it didn’t work. Again, it’s not saying it wouldn’t work for you, but I quickly realized how expensive it was and just how you can’t tell if it’s working.
There’s a little adage, “50% of advertising doesn’t work.” You just can’t tell which 50% and that’s when people are talking about magazine and TV and radio and that kind of stuff. Obviously, you can tell which 50% works when you’re online and we are spoiled by that, in all honesty. I think that’s a real boon to the online marketer today. Offline is not something that I think you should get into lightly unless you really know what you’re doing.
Mike: I do know people who make offline advertising work. The problem is just that the iteration cycles are anywhere from 8-12 weeks just to find out whether or not a particular mailer got through to the right people and whether they got those people into their sales funnel. It does work especially in his particular business, but again, it’s just the lead time for you to go from one iteration cycle to the next and get the information back. It’s just hard if you’re still trying to make ends meet.
I think generally speaking, when you are trying to evaluate a marketing tactic is to whether or not it’s going to work for you or decide whether it’s going to be something that you want to try, there’s a couple of things to keep in mind. The first one is, is there a complicated setup that needs to be done first? Are you going to need to go create a bunch of accounts or are you going to need to integrate a bunch of different tools together? Is there ongoing effort that needs to be done? Are you going to have to constantly be creating or doing things? Any of those things where it takes your involvement on a very repeated basis is going to eat into the feasibility of using that strategy in the long term.
For blogging, for example, or content marketing, if you have to do that every single week, it can be difficult. It’s not saying you can’t outsource it. If you have money, you can obviously substitute that in for your time, but again, that’s a resource trade-off that you’re going to need to make down the road. You can start off doing it yourself or you can outsource it to somebody else. But those are the type of things you need to think about when you’re trying to figure out, “Is this something that I’m going to try and do long-term?” or are there better places that you could be spending your time?
Rob: Right because it’s one thing to intentionally try something and know that it’s not going to scale, but to do it as an experiment. It’s another thing to try a bunch of different tactics that really you don’t have much hope of sustaining without really doubling down on them. If you shotgun it and you try five different things but all of them need a tremendous amount of resources and effort, and you only go 10% of the way with each of them, you’re throwing an article here and you set up an affiliate plan here, and you do a Twitter and Facebook post a week, it’s like you’re not doing anything well.
But if you dive into one and experiment, figure out is there any way to make this possible, you dig in for a month or six weeks or whatever it takes, and you do these sprints where you dig in, learn everything you can about it and execute on it or you hire someone to do that if you have the budget. Determine, “Is this going to work right now given my business, yes or no?” Answer that question and then move on to the next thing–that is much more of the approach that I would recommend and the approach that I’ve taken in the past. You don’t need many of those to work in order to scale your business. If you find one or two pretty substantial marketing practices and you figure out the angle and you figure out how to get in there, that can grow your business to well under seven figures. It doesn’t take 10 different marketing tactics to get there.
With that, we’ll wrap up for today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you with the same mistakes we’ve made. What’s going on, Mr. Rob?
Rob: We received a voicemail from someone, I believe he was in Brisbane, Australia, but it was definitely an Australian accent and I could barely make out the audio. The audio quality was so bad that we don’t even know his name or the question he asked. If that is you, please call us back or better yet, just record an MP3 on your local machine and just attach it or send us a Dropbox link to questions@startupsfortherestofus.com. Because it sounded like a good question but couldn’t really make out what he’s saying during that. How about you? What are you up to?
Mike: I’m in the middle of testing a new road map process with one of my customers using Teamwork. The basic idea is that I set up a project in Teamwork, mainly because this customer’s been with me for a while and it’s not a really complicated stuff that they’re asking for what they need, but they need assurances or like timeline and implementation and everything else.
I’ve got a road map that I’ve been using in the background using Trello for a while, but I just haven’t kept up with it. I’ve never really gotten into Trello like most people have. What I did was I created a project in Teamwork and then I invited them to look at it. I took their […], threw them in there. Basically, I’m working through them and it gives me the opportunity to comment on those things directly and allow them to comment back on them as well. It creates this really nice feedback loop between those things.
I haven’t added any other customers into it yet, but I think that that might be something that I’ll look into the future. But I’ve looked at other road mapping tools in the past and I’ve never really quite found one that suited me.
Rob: Is this for communicating your road map to customers?
Mike: If a customer asks for something, how do I communicate it to the rest of the customers, like, “This is what is going to be going on and this is what the priority is.” It’s a little bit different than like a bug tracker, obviously, if there’s a bug or somebody needs support or something like that, it’s different, but I’m the only one who can add stuff in so that it’s visible, but anybody can comment on it, at least so it seems like.
Rob: I’m trying to think there’s a tool that we use at Drip and of course, I can’t remember the name of it and we always used it to announce what we had built. It’s like, “This is what we released in September.” It’s like a change log tool but it was user-friendly. It was not super techie. I’m trying to think if you could use that pretty easily to suggest like, “Here’s what we’re working on in order.” I think there was actually a little feature where you could just add a bulleted list, but it was super stripped down. It was a very simple tool. It was $10 a month or something. It’s probably someone’s side project, although it’s pretty well-designed. Is that all you need is just a list of things? Why not just have, maybe a public Google doc or even just a static page on your website that’s like /roadmap? It’s just five things in bold list like, “Here are the next major five efforts we’re doing.”
Mike: There’s two things. One is we’ve been going back and forth through email and I said, “Look, I understand you got all these different things that you want to see, but I need a list of them. Just going back and forth one at a time is really not working. Send me the whole list.” They sent me the entire list and broke it out into three different sets like, “These are things we need very, very soon, these are things that can wait a little while, and these are things we’d like to eventually see down the road.” I looked at them and they all mapped pretty well like my internal road map anyway, which I have in my bug tracker, but I’m not going to pay for other people outside of business to have an account there just because it’s going to get expensive.
I was trying to figure out how do I work back and forth with them because I had a bunch of questions on some of them and there were comments on other things. It was a question of, “How do I work with them to flesh out what each of these things is?” because if I got an email that’s, let’s say, two pages or something like that, like bullets that they email to me, it’s hard to go back and forth about one line item and five line items in an email. I really needed something that was going to break them out so that I can comment on things individually and separate them a little bit more. Does that makes sense?
Rob: It does, yeah. It’s not just for outbound communication, it’s kind of like you’re almost collaborating with a client. It’s not that they’re paying you for this and not that you’re going to build it exactly as you’re expecting, but they really are. It’s much more customer development process than it is, “Hey, we’ve got suggestions in here is what’s we’re going to build.”
Mike: Yeah, I’d say customer development is probably a better way to phrase it than I did. It is a lot of back-and-forth to figure out like, “Is this going to work for you or what exactly did you mean by that? How are you going to use this?” for example. Because some of the questions are like, “I hear what you’re saying and it makes sense but where you going to use this for? I want to know, is there a better way to do this or is there something else that we could do either short-term or manually that would get them there faster?”
Rob: Right. Cool, it sounds interesting. I think of it as less of a road map process and more of, I guess, it is impacting your road map, but it’s more like a customer collaboration or a customer development process that you’re doing using Teamwork. That makes sense?
Mike: Yeah, it is.
Rob: Cool.
Mike: But I went on Google and searched for road map software a while back and I came across all these other things, like there’s ProductBoard, aha.io, ProductPlan, ProdPad, and things like that. It’s just none of them really seem to fit what I was looking for in terms of this back-and-forth communication with either individual customers or with small groups of them. I really think I just want to identify a couple of more customers to maybe work on this with, but it’s really a matter of, does it make sense in that particular context for that customer?
Rob: That makes sense. Have you seen MailChimp’s new branding?
Mike: I got an email about it, but I haven’t looked at it yet.
Rob: It’s a trip. I think I saw a news article. I think I was on SparkToro Trending. SparkToro is Rand Fishkin’s new startup and there’s a trending page and they talked–there was an article written about MailChimp’s new branding. Obviously, I think of MailChimp as the ESP. There are other email service providers but they are the biggest one. They are the ones that send a billion emails a day. Like the title tag on their homepage, which is what will appear on Google now, is marketing platform for small business.
I don’t know if it’s a pivot as much of just a rebrand. But like their homepage used to say, “We help you sell more stuff at MailChimp,” or something like that, it’s very much commerce-focused, but their headline is now, “Your business was born for this. Become the brand you want to be with smarter marketing built for big things.” It’s very, very interesting. It’s a gutsy move. The colors are different. I actually like the design of the site. It’s definitely jarring.
Remember when the Drip rebrand happened and there was the magenta and the other colors, I feel this is similar but different, but the headline and the value prop on it feels not nearly as focused as what I’ve always thought of as MailChimp. The fact that the sub-headline is “Become the brand you want to be with smarter marketing built for big things,” that doesn’t resonate with me as a customer and never would have at any point in my entrepreneurial career. I’m concerned. These guys are smart, let’s not fault MailChimp, but I feel like maybe they’ve made a misstep here.
Mike: I don’t know. I think it’s easy to think that if a company changes their brand name, that, “Oh, this company isn’t for me any more. This tool isn’t for me,” but at the same time, the tool itself hasn’t change. It’s really just a marketing message. I forget who said this, but the line is something along the lines of, “What got you here won’t get your there.” Like you said, they’re sending a billion emails a day but that doesn’t necessarily acquire them more customers faster, they need a marketing message that resonates with a larger group of people than they currently have or they’re currently after because they probably saturated the market. The ESP market is really highly saturated. There’s tons of players there so they need to differentiate themselves an go after people who are either just not using something or are using something else and want to find something that is going to fit them better.
Rob: Yeah. That makes sense and that’s thing. When you’re not inside an privy to the conversations that they’re having and who they’re competing against when they’re going for big deals, you don’t know. That’s where I’m like, “Who am I to say?” but this is my opinion on the outside. Again, with the Drip stuff when there was that rebrand, it was right before I was leaving the company. It was happening and rolling out. There were so many naysayers and haters on social media and all the stuff, but they were privy to the information that is actually going on inside the company.
I guess what I’m saying is, it could be so easy for me to sit here and just rail on this MailChimp rebrand because it’s “different,” but I trust that MailChimp is pretty damn smart and pretty good at what they do, and that they took the information. It’s either going to work or they’ll change. If that headline doesn’t resonate with people, they’ll change it. I think that’s the thing. When you make these big gutsy moves and you’re trying to land and expand or pivot into a larger space or whatever it is that they’re doing, apply to more people, as you said, you have to do risky stuff at some point.
What’s interesting is in the early days of a startup, you take a lot of risks but no one’s there to notice and no one cares. But when you have 1000, 10,000, 50,000 customers and you take these risks, a lot of people get up in arms over it, but really it’s the same risk that you’ve been taking all along.
Mike: I think for large companies like that, it doesn’t matter nearly as much as we might sit here in armchair quarterback it, you know Monday morning quarterback. Just because their existing customers are still going to be paying them money, it’s about them acquiring new customers, not appealing to the ones that they already have. That’s the way I see it.
Rob: That’s the thing. As long as you don’t do such a pivot that you completely turn your existing customers off and have a bunch of churn and stuff, man, that would be really hard to do, especially with ESPs where there is some lock-in in the space.
Mike: Yeah, it is hard to move from one to another. I’ve done that before. It sucks.
Rob: Yup. So what are we talking about today?
Mike: Today, we’re going to be talking about a couple of pitfalls of some commonly recommended marketing tactics. This topic was inspired by a tweet from Scott over at KickoffLabs and we’ll link that into the show notes. But he said, “One of the worst startup diseases is AB testing. Such a colossal waste of time when you don’t have significant traffic,” and it got me to thinking, what other things are there that are commonly recommended marketing tactics that I see and hear about or you’ve see and hear about, that are either colossal waste of time or there’s pitfalls or things that you don’t necessarily know about until you get into it, and only to realize that you’re walking into a hornet’s nest and there’s more trouble than it’s worth or it’s just not going to work for you or it’s something that you can do short term, but it’s not going to be sustainable for you.
Rob: Cool. Let’s dig in. I was pretty excited when you talked about doing this topic today because I think there are a lot of, I won’t say misinformation but it’s more like myths or people making things look easier than it actually is in order to sell things, in order to sell their software or sell their infoproducts.
Mike: I think that’s the big piece of it is that they think it look easier or sound easier than it actually is. For split testing, we’ll start off there because of the tweet from Scott but you need substantial traffic and most early entrepreneurs don’t have it. It’s not just that you need substantial traffic, you need substantial traffic and a short enough time window where your test is going to be able to give you at least some sort of significant results.
The other thing that I think is a little bit misleading is about whether or not the split testing that you actually could do, if you were to get 1% results or an increase every month for 12 months, would you actually be that much better off? I have seen some odd anecdotes where people will say, “Hey, we did all these split test or we split tested something against itself and one was significantly different than the other.” It does make me wonder a little bit as to whether or not with the resources that we as small business owners have available, can we actually even effectively execute on that stuff in a way that is going to move the needle for our business?
Rob: If you’re thinking about the early days of your startup and you’re trying to build something people want, you’re in customer development, you have a website, a little bit of traffic, split testing is the furthest thing from your mind or should be the furthest thing from your mind. You need to be talking to customers in those early days, to figure out what is that I can build that people are willing to pay for, that’s different enough from the competition that I can communicate that and people will sign up.
Typically, you’re going to split test your home page or your pricing page or your sign-up funnel, and I would not even consider it before I had, let’s say 5000 or 10,000 uniques a month. Really, at that point, it depends on what revenue is and if I have the time to test the headline here or there. But if I were to do split testing at that point, let’s say I had 10,000 uniques a month coming to their home page, I would probably just set up one or two alternate headlines and just let it run and see what happens. But it wouldn’t be some massive effort where I would be redesigning the entire page to spending a bunch of time to try to get some major difference in conversions, because there are other levers you should be pulling at that point. When you have 5000 or 10,000 uniques, you should be worrying about more traffic, or you should be worrying about, frankly, converting more of the existing trials you have to pay the customer. It’s going to tend to move the needle more than spending a lot of time on split testing.
Mike: The next marketing tactic is using affiliate programs. I see a lot of startups from Product Hunt, BetaList, and a couple of other places that startup it up where they’re pitching this affiliate program and saying, “Hey you can manage your affiliate program through our SaaS and you’ll be able to get more customers for your business.” But the reality is that the attribution itself is fine within those pieces of software, but finding the affiliates who are able to bring in enough leads to make it worth your time is actually pretty hard.
I’ve done this a couple of times. It seems to me the software itself is reasonably straightforward in most cases to implement, but finding the people who are actually going to bring leads that are qualified to you is a lot more challenging. It’s just, you have to do a lot of education to those people, you have to make it worth their time, and you have to be finding affiliates who have a substantial traffic source already or existing list where you can point them back to your website, give them an affiliate code or something like that, and give them an offer that’s actually going to get them to convert. If you don’t have all of those things, then it’s just not going to work. It doesn’t matter how many people you sign up for your affiliate program. You need the qualified leads to be coming in.
Rob: Yeah. Finding affiliates is way harder than most people think unless this is a primary strategy for you and you have a network. The people who I’ve seen make it work—let’s talk about Clay Collins of LeadPages—it was built mostly on the affiliate model. He did that because he knew all the people in the internet marketing space. He had the clout to get them to do webinars with him. It wasn’t just, “Hey, send me some traffic.” It was, “Let’s do a webinar,” and then he pitch an annual deal and it was 50% off, there was time pressure and there were bonuses, I should say, that you got if you sold there. That’s how he grew it that fast.
ConvertKit did the same thing. It was the same playbook. If you’re going to do that, then do that and go all in on it. I recall, at one point, Clay was doing 20 webinars a month or something in the early days, 15 or 20. It was crazy. He’s just a machine. In that case, you’re an exception. You’re not going to start from a cold network where you don’t know other people who have big audiences and make affiliate programs work from the start. It’s going to be a ton of work. In addition, the process side I just talked about, I’ve only seen it work in one niche and it’s in this aspirational business niche. It’s in the people who want to be bloggers or be info marketers and they’re being sold info on how to start your own biz from home.
You look at LeadPages and ConvertKit and they both serve that same path Flynn-ish niche. You can’t just go to enterprise software and think you’re going to do this big affiliate model, sell to Fortune 500 companies or Fortune 1000 companies using that. Or even freelancers would be possible because there are people with those audiences, but it wouldn’t work to the same extent that it does because the audience is just aren’t as big and they aren’t as prone to buy. I’d say there is one or two other spaces that I know of that are similar to that, that aspirational thing where you can sell them the idea or the promise of, “Hey, you’re going to have a landing page provider or here’s an ESP and here’s how to start your blog and make money.” But beyond those, it is really hard to get an affiliate program profitable one off the ground.
I had affiliate program with HitTail and Drip, and they made money, they were profitable, but they were not major driving factors. Even when we did joint ventures and we did joint venture webinars, we’d do JV mailings, it made money and it was fine, but these were not the major drivers of growth that I’ve seen in most of my startups. Again, not saying it can’t work but it’s definitely different than it appears.
Mike: Yeah, it’s definitely a lot harder than it appears. You have mentioned enterprise software sales where affiliate models wouldn’t really work and I agree with that, but there’s a slightly different model for those enterprise deals where it’s basically a reseller arrangement. You don’t have direct contact with the enterprise companies, you resell to other companies, you sign them on as resellers which is a slightly different take on an affiliate program, but it’s not substantially that much different. It’s the same basic idea–somebody else is bring in the lead in. The difference with a reseller is that the reseller is basically managing the customer relationship versus with the affiliate, they’re bringing them in and then they’re hands-off at that point.
The next one is content marketing. I think that the content marketing has been all the rage for the past several years and I don’t see it necessarily ending anytime soon, but I think the bottom line for content marketing is that it is time and resource intensive to general content on a repeated basis. If you’re trying to blog once a week or put out a few articles each week or each month, that’s fine, but it’s not just the generation of those which is time and resource intensive, it’s also the marketing and distribution of those. If you’re trying to post it to Quora and various startup list and out your email newsletter and social media, that gets to be time and resource intensive, especially if you’re trying to cross-promote between different channels and schedule everything–it just gets complicated.
There’s also very long lead time to getting results and getting measurable results from them. It could be anywhere from three to six months, it could be as much as a year or 18 months. Regardless if that, it’s a lot of time and effort to get that engine running. But once it’s running, you’ll do really well with it but it just takes a long to get there and there’s probably better places for you to spend your time if you’re early on.
Rob: Yeah, this one is tough because content marketing can and does work. You just got to remember content marketing is more about SEO and it is a long-term play. That’s why when we get the questions from someone like, “Hey, I’m at $2000 MRR. Should I start my content marketing?” It depends. Probably not, but it really depends what niche are you in? Are there distribution networks? Not even networks but like growthhackers.com and YCombinator are distribution avenues for you to get the content out and are there people daily reading stuff like this? Are you going to be able to drive it? Are you going to build your list? And then long term, are you targeting SEO terms? Organic terms that are going to bring traffic? That’s how the play has really been successful for these larger companies.
Of the three we’ve talked about so far, I think content marketing is the best and most viable, but your critiques are absolutely correct in that it often takes a long time to get results and it is very resource intensive to generate content at the quality, and these days at the length that’s required to make it dent because there’s so much noise, man. I have not been on the social news sites like inbound.org used to be one but it shut down. growthhackers.com is still there, Hacker News, even SparkToro Trending, I had not been on any of those. I just don’t go on them regularly.
I’ve looked at a few of them this morning and the volume of content is crazy. It’s so much more and so much of it is highly targeted and you can tell it’s targeted to try to just get clicks to it. It’s a startup that is trying to get people to come through from Hacker News or from Product Time or from whatever to generate traffic to then funnel into the leads. We’ve all been there. I totally know that playbook. I was doing it back in 2012-2013 or even before that from my blog in 2010, but there is just a lot of noise out there. To rise above that, it’s a lot of time and money to create content that is good enough to warrant people’s attention.
Mike: The fourth item on our list is social media marketing and by this, I don’t mean paid ads like if you’re going on Twitter or Facebook or Instagram, whatever you like. You can pay for advertising, but that’s not what I’m talking about. I’m talking about building an audience and then trying to market content to them. I think the reason that this can be a substantial pitfall for people is that it seems like it should be easy but it’s time-intensive to gain followers. When you post things, a lot of times only a fraction of your followers are going to see a particular piece of content.
For example, I think on Twitter, the stuff that I’ve heard is about 5% of your followers are going to see any given tweet that you put out. So even if you have 100,000 followers, only about 5000 of them are going to see that. So the strategy to overcome that is you tweet multiple times a day and use something like Buffer to put those tweets out at different times a day to try and catch people on different time zones.
At that point, I feel like you’re also oversaturated in the people who are on Twitter a lot and it could very well be a turn-off to those people, but again, it’s a matter of, “What type of product are you promoting to people and is it going to be relevant to the people who are on Twitter?” I tried Twitter advertising for AuditShark, for example, and it just absolutely did not work because the people who are in the enterprise are just not the type of people who are looking for security software on Twitter.
Rob: Yeah and that’s not to say that Twitter advertising won’t work for anyone. I also think LinkedIn could be better for you, but I tried LinkedIn many times with multiple products and never got LinkedIn advertising to pay itself back. Again, not saying it won’t work, it’s just going to take trial and error if you can get it to work at all.
Mike: On that note, James Kennedy is going to be speaking at MicroConf Europe on a LinkedIn strategy for acquiring leads, so that might be interesting to you.
Rob: Awesome. That would be a cool one. I agree, man, social media marketing is great for B2C and it can be great for prosumer stuff, aspirational entrepreneurship, or even photographers–they tend to be aspirational. But when you’re talking about real sales tools, or real email marketing tools, or real tools that you want people to buy and use for years, and you need businesses that are making decisions, comparing you to competitors and all that, social media is a nice to have. It is not something in general that’s going to drive your bottom line if you are a B2B SaaS app. I’m sure there’s one exception to this, maybe two, I’m sure there are a couple, but overall as a bootstrapper or as someone who is really just trying to block and tackle, there are so many more things that you could be doing than to tooling around on Facebook and Twitter.
Mike: I think the real challenge here is just the fact that entrepreneurs tend to be on the internet a lot, we see Twitter a lot and we see Facebook a lot, so it’s natural to assume, “Hey, I should test that out or use that as a marketing strategy.” But again, it’s time-intensive to gain the followers. The reality is that what you want and most of those cases is actually just send them over to an email list anyway so you […] email address. Assuming you can get an engine up and running that can do that for you then that’s fine, but you still need a way to make it work and it can be very time-intensive to gain those followers and it’s not obvious always how you’re going to be able to do that.
The last one we have on our list today is offline advertising. By this, you can take it a bunch of different directions. It could be billboard advertising, […] response in a conference or podcast or anything where the direct attribution is a little bit more challenging. That also include things like sending postcards or physical mailers to people. I think, is it GRC marketing that does that? They advocate that a lot for sending out the bulky mail to people just to get their attention. That works great for those situations where you have a higher price point product or it’s a service, and there’s going to be a relationship that you’re trying to establish with them or the dollar amount is high enough that it’s worth it to send those.
The biggest downside of those is that it’s extremely hard to do the attribution in most cases and then there’s also a much longer iteration cycle. Instead of looking at couple of weeks for paid ads on Facebook or Twitter, you’re looking at a month, two months, maybe three months for an iteration cycle to send out a mailer and then figure out whether or not you got results from it, track those back, then make some adjustments or tweaks, and then move on to the next group. It can get very complicated to juggle all of those things at once because even if you’re just doing it repeatedly over the course of a month or two, it’s just going to suck up all of your time and attention. You’re not really going to be able to do very much else.
Rob: Yeah, it is expensive, too. It’s a long turn-around time and the iteration cycles are just, I would say, too long for a startup. Now, once you’re down the line, you have product market fit and it you’re in a space where offline is a really good option, obviously you could experiment with it. But it’s not something I would be messing with in the early days. And as you said, attribution is rough. I did some trade publication magazine advertising for one of my products once or twice and it didn’t work. Again, it’s not saying it wouldn’t work for you, but I quickly realized how expensive it was and just how you can’t tell if it’s working.
There’s a little adage, “50% of advertising doesn’t work.” You just can’t tell which 50% and that’s when people are talking about magazine and TV and radio and that kind of stuff. Obviously, you can tell which 50% works when you’re online and we are spoiled by that, in all honesty. I think that’s a real boon to the online marketer today. Offline is not something that I think you should get into lightly unless you really know what you’re doing.
Mike: I do know people who make offline advertising work. The problem is just that the iteration cycles are anywhere from 8-12 weeks just to find out whether or not a particular mailer got through to the right people and whether they got those people into their sales funnel. It does work especially in his particular business, but again, it’s just the lead time for you to go from one iteration cycle to the next and get the information back. It’s just hard if you’re still trying to make ends meet.
I think generally speaking, when you are trying to evaluate a marketing tactic is to whether or not it’s going to work for you or decide whether it’s going to be something that you want to try, there’s a couple of things to keep in mind. The first one is, is there a complicated setup that needs to be done first? Are you going to need to go create a bunch of accounts or are you going to need to integrate a bunch of different tools together? Is there ongoing effort that needs to be done? Are you going to have to constantly be creating or doing things? Any of those things where it takes your involvement on a very repeated basis is going to eat into the feasibility of using that strategy in the long term.
For blogging, for example, or content marketing, if you have to do that every single week, it can be difficult. It’s not saying you can’t outsource it. If you have money, you can obviously substitute that in for your time, but again, that’s a resource trade-off that you’re going to need to make down the road. You can start off doing it yourself or you can outsource it to somebody else. But those are the type of things you need to think about when you’re trying to figure out, “Is this something that I’m going to try and do long-term?” or are there better places that you could be spending your time?
Rob: Right because it’s one thing to intentionally try something and know that it’s not going to scale, but to do it as an experiment. It’s another thing to try a bunch of different tactics that really you don’t have much hope of sustaining without really doubling down on them. If you shotgun it and you try five different things but all of them need a tremendous amount of resources and effort, and you only go 10% of the way with each of them, you’re throwing an article here and you set up an affiliate plan here, and you do a Twitter and Facebook post a week, it’s like you’re not doing anything well.
But if you dive into one and experiment, figure out is there any way to make this possible, you dig in for a month or six weeks or whatever it takes, and you do these sprints where you dig in, learn everything you can about it and execute on it or you hire someone to do that if you have the budget. Determine, “Is this going to work right now given my business, yes or no?” Answer that question and then move on to the next thing–that is much more of the approach that I would recommend and the approach that I’ve taken in the past. You don’t need many of those to work in order to scale your business. If you find one or two pretty substantial marketing practices and you figure out the angle and you figure out how to get in there, that can grow your business to well under seven figures. It doesn’t take 10 different marketing tactics to get there.
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