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In this episode of Startups For The Rest Of Us, Rob and Mike talk about bootstrapping versus funding. It is a common question new entrepreneurs ask themselves and based on an article on the subject, the guys comment and elaborate on some of these questions.
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Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about 19 questions to ask when considering bootstrapping versus raising funding. This is Startups For The Rest Of Us episode 411.
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. Where this week, sir?
Mike: Well, there is a book recommendation that you’ve given awhile ago called, The Hard Thing About Hard Things. I’ve commented it, I’ve bought the book, but I haven’t read it yet. I’ve been kind of diving into that a little bit. I find it fascinating probably more so from a historical perspective because Ben Horowitz, who’s the author, he’s talking about his journey through the startup after he had left PayPal, and running this other company, and they basically only had one customer that was providing 90% of the revenue and basically spun that business off into its own separate entity and got rid of a bunch of assets with it, and talks about he built up the company from there.
What I find fascinating about it is that the new company is called Opsware. I remember back in those days when I was doing sales demos and presentations and stuff, I was actually in some cases, competing against Opsware.
Rob: That’s a trip. That book–it is brutal. Have you finished it?
Mike: I’ve not, no.
Rob: I was so stressed. It’s a good book but I don’t know if I could listen to it again because what he has to go through to grow and keep his company from basically going under and then he sells it for $1 billion or multiple billions of dollars and then he starts Andreessen Horowitz—that part is not in the book but he talks a little bit about it—but he is the Horowitz of Andreessen Horowitz. I remember listening to it and being like, “Yup, I could not have done this. I would have imploded.” It is, The Hard Thing About Hard Things is a good title for it.
Mike: Yeah, definitely. I do not think that I would have wanted to go through all the stuff that he’s gone through especially just the financial challenge of trying to go public at the time that he did, right after the economy kind of cratered. What did he say? Like there was 200 plus IPOs the year before and then there was 6 or 12 or something like that the year that he did it. Wow!
Rob: It’s crazy. He went public, he didn’t get acquired, I forgot what…
Mike: No, he went public first and it was in a bad environment. The reason they went public was because they couldn’t get anymore investment capital from investors. Then it was a bunch of years later, like 2007 or something like that where they ended up selling to HP for, I think, it was $1 or $2 billion.
Rob: Got it. That was my memory, but I have forgotten they went public. It’s agonizing. It really is the shoot for the $1 billion exit. You don’t need to be a several hundred-million-dollar revenue journey raising venture capital and all that stuff. A lot of it just did not sound like something I ever want to experience in my life, even for payout like that. I don’t it’d be worth it.
Mike: How about you? What’s going on this week?
Rob: Well, you and I just had a conversation before this episode started recording. We are evaluating potentially having sponsorships on Startups For The Rest Of Us. If you are a company, whether you’re a startup or if you think that you would be interested in reaching the Startups For The Rest Of Us audience—it’s a lot of bootstrappers but it’s also a lot of people running six and seven figure businesses, drop us a line at questionsforstartupsfortherestofus.com and just put “Sponsor” or “Sponsorship” in the subject line, and we’ll talk about it.
Obviously, as a listener, we’re been doing this for eight years, and we appreciate the trust that you put in Mike and I to produce high-quality content and to deliver value to you. We have no intention of “screwing up” the podcast by adding a bunch of sponsorship roles in the thing and interrupting your flow, but we are at a point where it does cost us money and it does cost us time away from our businesses to do this, so we’re just evaluating it. It’s a preliminary thing, we definitely have not made up our mind about it, but we do want to explore this as an option.
Mike: Again, that email address is questionsforstartupsfortherestofus.com and just put “Sponsorship” or “Sponsor” in the subject line, and we’ll take a look at it. Again, we’ll just kind of evaluate how things go. To reiterate what Rob had said, we appreciate you guys listening and we don’t want to screw up the whole thing. I think like a lot of things that we’ve done at MicroConf every year I think is just kind of a play it safe approach, but at the same time, look for ways to change things to make things better.
Rob: Yeah, we’ve experimented a lot with things at MicroConf over the years. Some have worked, some haven’t. But one thing that I think we’ve done a good job is recognizing when they work and don’t and basically changing it up when things don’t. Even if we try it, if it suddenly becomes a […] or something like that, I could imagine pivoting.
Today, we’re going to be running through an article by a listener and commenter name Don Gooding. The title of his article is Bootstrapping versus Venture Capital: 19 Questions to Ask. But what I find interesting about the article is it’s not just about venture capital, it is about angel investment as well. But before we get there, we have a comment from Adam on episode 406, and 406 was five episodes ago when you and I discussed, “Should bootstrappers raise money?” was the title of the episode. Adam said, “I’m so glad you jumped in, Mike, and said something about Rob hitting 21k MRR saying that it wasn’t a fair comparison.” Because I believe I was saying, “Drip hit 21k MRR quickly and if it took me four years to get there then I would’ve […] it down.” And you said, “Well, that’s not a fair comparison because you’re in a different place and if you’re building something on the side, maybe it is four years.”–to that point.
Back to Adam. He says, “I’m still trying to hit 21k MRR after four year, but I don’t think I’m failing at what I’m doing. Maybe an episode on what you think that growth is, that people should be aiming for, this was a good episode. A follow-up question to Mike would be, why have you or have you not fun strapped Bluetick?”
Mike: Oh, that’s a good question that I don’t have a good answer for.
Rob: It’s something evaluated, no?
Mike: Oh, yeah. I’ve looked at it a couple of times. I had a few conversations privately with people I know who have raised money, and just asked them what their take on it was, what their experiences was after going through it, what were the drawbacks, what would they have done differently. I got a sense that it was going to be rather complicated and time-consuming, and I didn’t have the time to spend on it. I continue to kind of look at it and continue to think about but it’s not something where I’ve said, “Yeah, I definitely want to do that. I’m all in. I’m going to dedicate the next X weeks or months whatever going out and raising funding.”
I’ve probably spent a lot more time working on getting Bluetick to a better place. I think I have been open about the fact that early on, I had hired a bunch of contractors to build a lot of the core infrastructure of Bluetick. Quite frankly, it was not done very well so there’s a lot of things that are generally screwed up and it makes it difficult to make changes. I would prefer to move fast if I can help it, but the problem is a lot of the architecture and the choices that were made at the time make that difficult. I have a hard time pulling away from those things and doing some of the clean-up work to basically make myself be able to move faster.
Because I feel like if I had like a pile of money, I would feel obligated to expand things a lot quicker and maybe even more than I’m possibly comfortable with, and I just know that there are certain parts of the app that if I were to dump 50 or 100 users on it all at once, it’s not going to scale very well. There are certain processes that need to run and it’s just not going to take a large influx of people very well. It can do it, I’d probably have to tweak a couple of settings to make it happen, but I’m not real comfortable doing that. I think it’s partly out of obligation, partly out of complexity and the time that I would have to spend on it.
Rob: You have technical debt already.
Mike: Yes. I think you have technical debt as soon as you write a single line of code.
Rob: Well, not if it’s fully unit tested, though. I think of […] there’s that, I don’t if it’s a joke or it if it’s truly the definition but it’s like, “Legacy code is code that is not highly unit tested.” Yeah, you have a little bit of technical debt but to hear that it’s hard to make changes, that’s a real bummer to hear given how early stage you are, and that you’re a technical founder. That’s the whole point of us being technical founders, that’s our skill set, we shouldn’t have that.
Mike: Maybe I should caveat that a little bit more. It’s not that it’s hard to make changes, it’s that I feel uncomfortable making changes to certain places because they’re not as well unit tested as I would like them to be. The software does a lot. There’s some changes I’ll just push out. It’s just like, “Hey, this is a frontend UI changes, it’s not that big of a deal.” But then when you get into things like, how mailboxes are stored and how the data is synchronized, I’m real hesitant to make changes to those because there is, in one particular case I can think off the top of my head, there was literally no way for me to unit test it whatsoever.
It’s hard to justify going in there and just making whole scale changes that would make things easier because I know that it’s working and if it breaks, it does a lot of work every second, and things could go seriously sideways very, very quickly. The new build server I put in place a couple of weeks ago would actually make rolling back pretty easy, but then I’d have to go through and figure out what in the code broke. Again, it’s not easy to unit tested that piece.
Rob: Yeah, I feel like, “Next time, should we just build, I don’t know, simple project management that just pulls things out of databases. It’s that no connections to any external sources and no queues. I don’t want any queues, I want everything synchronize.
Mike: Honestly, that’s part of it is the queues and stuff that I have to deal with. Queues processing, storing data, being able to filter certain things out and, “Oh, somebody deleted this piece of data.” It kind of sucks to have things moving while you’re also writing the code on it. I’m sure you went through this with Drip. There’s so much…
Rob: That’s SaaS though.
Mike: I know. It’s like open heart surgery–it feels like sometimes.
Rob: Yeah, every time we did anything meaningful to scheduling or, I mean there’s all kinds of stuff that’s so easy to screw up. If you can figure out a way to smoke earn—not smoke test—but to get you in a test on that stuff because the fact that you don’t feel comfortable making changes to a part of your app, that’s going to be a hindrance forever. It’s not going to get better, it’s only going to get worst especially if it grows, if you start hiring people, that’s a big red zone there that I think you need to think about remedying early.
Mike: Yeah. […] is there’s a component that I’m using where to get into the technical details of it, there’s a C# Class and I have to serialize it. In order to do that, in order to store the data. The problem is they’ve marked it as sealed which means I can’t inherit from it, which means I can’t really do anything with it. I’ve been working with them to try and figure out like, “Is there a way I can get an interface for this or something like that so that I can create it?” Because they don’t have a public constructor for it because it’s a sealed class, it’s encapsulated in the assembly, I can’t narrow from it either. I really don’t have any other options other than faking it which is what I’ve done so far. I basically have my own object that very, very closely mimics theirs, but it’s not perfect, and that’s the problem. I’ve found a few edge cases here and there, it’s kind of scary. I’m hoping it will come up with a solution sooner rather than later, but I’ve been working with them for probably six months on it.
Rob: One minute while I update my spreadsheet. Let’s see, apps to not start as an unfunded single founder, email marketing for writer, cold email outreach–the list is getting longer and longer. It’s like, these things don’t seem that complicated when you look at it from the outside. “I want to build an ESP. This is going to be a piece of cake.” said Derek and I before we wrote code.
Mike: I think anything where you have an outside dependency that you don’t completely control or have complete access to, that’s where it gets hard. Or you’re relying on events coming in to the system and you have to do data processing on.
Rob: Alright. Well, let’s keep moving on with this episode. Our second comment on episode 406 was from Don Gooding. He linked over to a few articles he’s written and one of them which we’re going to discuss today. His comment was, “I write a lot about bootstrapping versus venture capital or angel funding. They’re definitely a bunch of issues to consider both early and later. I hope you’ll consider the following posts helpful and not spammy.” and I do consider them helpful. He links to three different articles. His blog is fourcolorsofmoney.com. Don, if you’re listening, register the 4colorsofmoney and also, redirect that over because I tried that as well and it just goes nowhere.
He linked to the first article which is, Bootstrapping Versus Venture Capital: 19 Questions to Ask–we’re going to talk about that today. He also linked to another article called, The Bootstrap to Funding Pivot Playbook which is about bootstrapping first and then raising funding later. He talks about revenue financing in that one. Then his last article is, Revenue-Based Financing: Five Different Options and he walks thru them which is pretty interesting.
His site is called Four Colors of Money because he looks at bootstrapping, he looks at grants, he looks at grant and equity–those are the four colors. He’s obviously—having read through it—pretty knowledgeable about this stuff. Again, we will include those three links in the show notes. You can always go back on those comments on episode 406 if you wanted to see his full comment.
But today, we are going to talk through his article Bootstrapping Versus Venture Capital: 19 Questions to Ask. We won’t have time to go through all 19 question, but the idea here is to think about whether you can and should bootstrap or whether you need to raise funding.
His first question is, “How much of your own capital do you have. Do you have a way to self-fund it?” Self-funding and bootstrapping sound like they’re the same thing, but they’re different. Bootstrapping is truly having almost no money. A few hundred dollars, a thousand dollars, a couple thousand dollars, and then growing a business based purely on its revenue and profits.
Self-funding is if I have $1000 in the bank or $200,000 in the bank, or I had another business that was throwing off money or another income stream that was throwing off money that I could then take and start my next business from.
Self-funding is a lot of what I did. In the early, early days, I bootstrapped everything right out of consulting revenue but spent very little money. Then the more business revenue I had, I stayed consulting during the day full-time, and I took that business revenue and used it to self-fund the next thing, and the next thing, and the next thing, and each of them got bigger and bigger. It took me a long time to get from having .net invoice doing $300 a month, 10 years later, even longer, 11 years later, it’s Drip doing seven figures a year and having exit.
I didn’t have to raise during that time because I self-funded, but it took me a lot longer than if I had come up with an idea and just raised funding early on. That’s kind of how I think about the trade-offs is I believe it takes longer if you’re in a self-fund unless you do have a rich uncle or a trust fund. But his first question to think about is how much capital on your own do you have that you can invest in the business?
Mike: I feel like this is more of a runway question because the money itself, you either have to when the business itself is generating money, how much is left over for you to leave versus how much are you going to be able to put back into the business. If you’re running a business on the side or on nights and weekends and stuff like that, then you presumably have a full-time job, and that is keeping your self alive and your family fed while the business is getting the rest of the profits. But at some point, things are going to transition, and you have to make some choices about like what your future looks like, do you have enough money to be able to spend $1000 on ad words or something like that to test out a market? You may even need that money early on.
That comes down to the fundamental question that he’s got here is, how much of your own capital do you have? Can you afford to run experiments early on? Do you have more time on your hands or do you have more money? This is getting more at the money side of the equation. If you have plenty of time, if your timeline is five years, you can take as long as you want to do most things. Certain industries of course will move very quickly, and competitors will swoop in, not ideal if you’re trying to take five years to do it but certain ones you can do that.
I think Patrick McKenzie, with Bingo Card Creator, he slowly built that up. Nobody else wanted to get into market because there wasn’t a lot there. But he was still able to make a pretty good business out of it. He just took a really long time to do it.
Rob: His next few questions look at ways that if you don’t have the money to self-fund, ways to look around and see if you can essentially raise funds but not from venture capitalists or angels. His second question is, how likely it is you can raise funds from family or friends. Third question is, “Can your product support a Kickstarter style campaign?” which I believe a lot of people overlook. Info products and even some software, not B2B, but have to really be B2C in general can use Kickstarter as well as obviously physical products would be a great way to do it. His fourth one is, “Will customers pay you well in advance of you delivering your product or service?” Can you essentially pre-sell it? His fifth one actually is, “Does it qualify for a grant?” I don’t think that applies to most of our listeners nor any business I’ve ever started, but it is one of the colors of money that he talks about.
Mike: You know, I’ve thought about this kind of crowd funding. I’ve heard people gone down that path, not on Kickstarter, but someplace else, I can’t remember the name of it.
Rob: Like Indiegogo or something?
Mike: I think, yeah, it was Indiegogo. The general consensus was people are much more willing to fund individual ventures and things where there’s a physical product. But when it comes to software, people are not particularly interested. Maybe that’s just because it’s kind of self-selecting where the people who are building those generally are targeting them at businesses versus if you’re going to do something where it’s like, “Oh, this is a way to organize baseball cards,” or something like that, if it’s something that has a wider appeal and it’s a non-business use, you’ll find the hobbyist into that or the people who are prosumers, so to speak, they are going to be into it, and they would probably fund it. But if you’re going to try and create a CRM or something like that, who’s going to fund that? I can’t think of anyone who would want to willingly throw in money unless it was for their own business at which point, it’s not really for the greater good so to speak.
Rob: Totally. When I look back at the 173 Kickstarter projects that I’ve backed. Mike, did you hear what I just said?
Mike: Oh my god.
Rob: Oh, no. That’s the number of successful projects I’ve backed. I’ve 185 Kickstarter projects. Oh, the humanity, Mike. It’s so embarrassing. I just love Kickstarter. But I don’t think I’ve backed a single piece of software. My taste, it’s a lot of graphic novels, it’s a lot of table top games, it’s a lot of little tech gadgets. There was a Kano–the open source computer that I could teach my kids how to put computers together and do that stuff. A lot of it is some learning, some teaching, and some gadgetry and stuff. I think that my gist is that my taste are not uncommon. I do agree that in trying to launch a project in Kickstarter would be hard. But there are a lot of listeners who are not just trying to do B2B software as we’ve talked about.
I’m going to skip over a couple of these questions. But another couple of questions that I think are interesting to ask because they imply that you should probably raise some type of at least angel and potentially go after venture funding. One is, “Do you think it will take more than $100,000 and/or longer than one year to develop your product or service to the point that it is generating revenue?” Another question is, “Does your business have network effects where only one or two companies will end up with 80% or 90% of the market?” because that’s a super protectable. There’s a moat around that product or around that business. That is something that can very likely be fundable.
Another questions is, “Do you have large capital equipment or other fixed investment needs that aren’t debt financeable?” those three would obviously imply that you probably need to raise some kind of funding.
Mike: Well, I look at those things as potential disqualifiers as well because if it’s a network effects type of business where only a couple of companies are going to end up with a large percentage of the market, to me, that’s kind of a disqualifier unless you’re going to go raise money, and which I guess is kind of what he’s saying, but you have no idea if other people are going to answer in there who have a lot more clout than you. That’s why you should probably go raise funding if you’re going to go for something like that. But you’re also going to look at that particular thing and say, “This is a disqualifier for me. I’m not just going to go in that direction because I don’t want to raise money.”
Rob: Another good one I like that he asks is, “Do you have potential customers that will see your small sizes of risks? For example, a potential career–a limiting decision.” In other words, if you’re selling to banks, large institutions, they’re going to require that you have some kind of backing, right? I shouldn’t say require. They’re going to be unlikely to go with a single founder building software out of his/her garage.
I remember talking to someone at Gumroad actually, because Gumroad was kind of bootstrapped early on, and they raised a big round, I believe it was 7 million if my memory serves me right. I was saying, “Why did your raise the round?” He said, “Well, we wanted to become a credit card processor.” And to actually process credit cards, you need a bunch of money in the bank. They just won’t let a bootstrapper do that, or a self-funded company do it. I think that’s definitely a case if you’re trying to start a Stripe or even a Gumroad which seems it could be a bootstrappable company, there maybe a case where you need to pony up and raise a little bit of money.
Mike: That’s just a social proof of creditability factor. You’ve got people who have been willing to invest $7 million in you than it serves to the banks as like, “Oh, these people have convinced these other seemingly smart people to give them $7 million. Clearly, they’re onto something and they know what they’re doing.” Doesn’t mean that that’s true, it just means that that’s what their perception is. You’re really just playing off their perceptions.
I think there’s certainly situations where you can either skirt that or use it to your advantage for a relationship or something like that. If the […] that you’re getting after like you get an introduction into them. That way, you’re not going in completely cold. If you can get those introductions from somebody that they trust, then that’s going to help out a lot. That’s a place where if you go into different reseller channels, and there’s tens of thousands of resellers across the world, that their sole business is to go in and sell software to other businesses.
There’s a bunch of large value-added resellers like Dell and HP, in companies like that where they have entire channel programs set-up such that they’re going to and work with small businesses or they will escort small businesses into a deal in order to provide the credibility, and then everything goes down on their paperwork.
That’s how Dell and HP have, like massive services businesses, it’s because they have all the relationships already, they have sales fields reps, they walk in because they have a relationship or they can just make a phone call and say, “Hey, I’m your Dell rep and I’d like to come in and talk to you.” And then they talk to you and find out what your problems are, and they escort a small partner in the door.
If you can get some of those relationships, you can basically get escorted in. You don’t need to have that $7 million in the bank or you don’t have to hire 300 sales people or call center in order to do outbound cold calling in order to find your leads. You can leverage those partners to help walk you in.
Rob: His last few questions are really surrounding this topic of, “Are you a fit for angels and VCs?” One is, “Will your business support growing sales by 50-100% annually for 5-7 years? Will annual sales reach $15-$50 million with that timeframe?” high-growth, right?
Another question is, “Are you comfortable selling your business in order to provide your investors their return in five to seven years?” or maybe earlier for VCs. “Are you comfortable sharing control of and decision making for your company with investors? Is your team plan and pitched in the top 10 percent of companies seeking financing in your region?” All interesting things to think about.
Mike: I think that a lot of those are hard questions to answer too. I’ll say they’re very personal questions and depending on the time and day that somebody asked you, you might also change your mind. It could be hard to come up with a solid answer that you stick with.
Rob: Yup. I would agree. I think these are good things to think about. I think long time listeners of the podcast will have heard us discuss these types of thought processes before. Well, if you’re new to the podcast, you probably think, “Boy, these guys really talk about funding a lot for a bootstrapping podcast.” because in the past five episodes we’ve talked about it twice.
But I do think that it’s becoming more and more relevant. I don’t expect us to talk about it every five episodes by any stretch, but it does seem to be this emerging trend that is coming into the startups space. I think back to 2007 to 2009 or ’10, and I was using a lot of email marketing in my info products, and then I started bringing them into software products and kind of the startups space, it was definitely this emerging trend that I recognized. I talked about it at BOS.
Split testing was something I had seen in info and people in the startups were not doing that, that also became a trend that took off. There’s a bunch of things that have come from different angles. Even customer development and a lot of lean startups stuff was taken from the automotive. You see these trends coming in.
While startups and software have traditionally been VC funded and the trend that you can I have been a part of is this bootstrapping and self-funding kind of spearheading it, I would say, or I mean at least part of the folks who have really driven it over the past eight plus years. I think we look back and the first time I had said “fun strapping” on the podcast was in 2013 or 2014. It’s becoming just a little bit more common for folks to raise a round and not go institutional, which is another trend that I see, not infiltrating because that sounds like it’s a bad thing, it’s just another trend in the space. I think we’re just continuing the dialogue about it to keep abreast of what we see is happening.
Mike: Yeah. Things just change over time. As time goes on, the entire software space has become more and more competitive. I mean, eight years ago when we started podcasting, it was easier to launch products in terms of getting in front of customers. Now, there’s lots of competitions. You have to have a more polished product, it’s got to be further along, it’s got to solve more of the customer’s problems because they’ve got other things that they can pay attention to.
It just makes it, I’ll say a little bit more challenging to launch a product today than it is yesterday, than with the day before. As time goes on, I think that that trend is just going to continue. I say that the natural evolution is you have to have more resources in order to launch something. It’s kind of where the industry is headed. I’m not going to say that that’s where it will end up and that you’re always going to have to raise funding in the future because I don’t think that’s true. But I do think that there are certain types of businesses where it makes a lot more sense to raise some funds than it is to not, especially with certain life circumstances as well.
Rob: Yup. The good news is that it’s easier, I would say, than it has been in the past to get some type of small amount of funding with a lot fewer strings attached than say, 10 years ago. On the flipside, like you said, I believe there’s always going to be bootstrapping. That’s not going to go away. There’s always going to be folks who are hacking away, launching small software products, getting a lot of learning, getting some revenue. I think that’ll last forever and I think that’s a really great thing.
I’ve said this before, we live at an amazing time in history where even 30, 40 years ago, you couldn’t do any of this, and 100 years ago it’s even worst. But now, someone with some type of technical acumen can basically start a whole side business and really never leave their house and have this thing making money while you sleep. It’s always been the big draw I think for a lot of us. Part of it might eb the adventure and the active creating, I think that’s a big deal, but to be able to literally make money from nothing more than your skill and your computer is just mind-blowing. When I think back to being a kid, I was in junior high in high school and it was like, “Well, I don’t really want to work in a cubicle but were my options?” Right? In the mid to late ‘80s. This stuff was just coming about and I didn’t know much about it but the fact that we live at this age–consider ourselves lucky.
Mike: I think at the end of the day when you’re trying to evaluate whether or not to raise funds, it’s all about that trade-off of time versus money. Do you have money to burn? Burn is probably not the great way to put it, but do you have money to spend in order to learn quickly or are you okay taking a much longer time to do it, and doing things slow and steady based on what your financial situation is like, your personal life, and how much time you have available. That’s going to be different for everyone. That’s what generally governs these types of decisions for most people. I think that about wraps us up for today.
If you have 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. Where this week, sir?
Mike: Well, there is a book recommendation that you’ve given awhile ago called, The Hard Thing About Hard Things. I’ve commented it, I’ve bought the book, but I haven’t read it yet. I’ve been kind of diving into that a little bit. I find it fascinating probably more so from a historical perspective because Ben Horowitz, who’s the author, he’s talking about his journey through the startup after he had left PayPal, and running this other company, and they basically only had one customer that was providing 90% of the revenue and basically spun that business off into its own separate entity and got rid of a bunch of assets with it, and talks about he built up the company from there.
What I find fascinating about it is that the new company is called Opsware. I remember back in those days when I was doing sales demos and presentations and stuff, I was actually in some cases, competing against Opsware.
Rob: That’s a trip. That book–it is brutal. Have you finished it?
Mike: I’ve not, no.
Rob: I was so stressed. It’s a good book but I don’t know if I could listen to it again because what he has to go through to grow and keep his company from basically going under and then he sells it for $1 billion or multiple billions of dollars and then he starts Andreessen Horowitz—that part is not in the book but he talks a little bit about it—but he is the Horowitz of Andreessen Horowitz. I remember listening to it and being like, “Yup, I could not have done this. I would have imploded.” It is, The Hard Thing About Hard Things is a good title for it.
Mike: Yeah, definitely. I do not think that I would have wanted to go through all the stuff that he’s gone through especially just the financial challenge of trying to go public at the time that he did, right after the economy kind of cratered. What did he say? Like there was 200 plus IPOs the year before and then there was 6 or 12 or something like that the year that he did it. Wow!
Rob: It’s crazy. He went public, he didn’t get acquired, I forgot what…
Mike: No, he went public first and it was in a bad environment. The reason they went public was because they couldn’t get anymore investment capital from investors. Then it was a bunch of years later, like 2007 or something like that where they ended up selling to HP for, I think, it was $1 or $2 billion.
Rob: Got it. That was my memory, but I have forgotten they went public. It’s agonizing. It really is the shoot for the $1 billion exit. You don’t need to be a several hundred-million-dollar revenue journey raising venture capital and all that stuff. A lot of it just did not sound like something I ever want to experience in my life, even for payout like that. I don’t it’d be worth it.
Mike: How about you? What’s going on this week?
Rob: Well, you and I just had a conversation before this episode started recording. We are evaluating potentially having sponsorships on Startups For The Rest Of Us. If you are a company, whether you’re a startup or if you think that you would be interested in reaching the Startups For The Rest Of Us audience—it’s a lot of bootstrappers but it’s also a lot of people running six and seven figure businesses, drop us a line at questionsforstartupsfortherestofus.com and just put “Sponsor” or “Sponsorship” in the subject line, and we’ll talk about it.
Obviously, as a listener, we’re been doing this for eight years, and we appreciate the trust that you put in Mike and I to produce high-quality content and to deliver value to you. We have no intention of “screwing up” the podcast by adding a bunch of sponsorship roles in the thing and interrupting your flow, but we are at a point where it does cost us money and it does cost us time away from our businesses to do this, so we’re just evaluating it. It’s a preliminary thing, we definitely have not made up our mind about it, but we do want to explore this as an option.
Mike: Again, that email address is questionsforstartupsfortherestofus.com and just put “Sponsorship” or “Sponsor” in the subject line, and we’ll take a look at it. Again, we’ll just kind of evaluate how things go. To reiterate what Rob had said, we appreciate you guys listening and we don’t want to screw up the whole thing. I think like a lot of things that we’ve done at MicroConf every year I think is just kind of a play it safe approach, but at the same time, look for ways to change things to make things better.
Rob: Yeah, we’ve experimented a lot with things at MicroConf over the years. Some have worked, some haven’t. But one thing that I think we’ve done a good job is recognizing when they work and don’t and basically changing it up when things don’t. Even if we try it, if it suddenly becomes a […] or something like that, I could imagine pivoting.
Today, we’re going to be running through an article by a listener and commenter name Don Gooding. The title of his article is Bootstrapping versus Venture Capital: 19 Questions to Ask. But what I find interesting about the article is it’s not just about venture capital, it is about angel investment as well. But before we get there, we have a comment from Adam on episode 406, and 406 was five episodes ago when you and I discussed, “Should bootstrappers raise money?” was the title of the episode. Adam said, “I’m so glad you jumped in, Mike, and said something about Rob hitting 21k MRR saying that it wasn’t a fair comparison.” Because I believe I was saying, “Drip hit 21k MRR quickly and if it took me four years to get there then I would’ve […] it down.” And you said, “Well, that’s not a fair comparison because you’re in a different place and if you’re building something on the side, maybe it is four years.”–to that point.
Back to Adam. He says, “I’m still trying to hit 21k MRR after four year, but I don’t think I’m failing at what I’m doing. Maybe an episode on what you think that growth is, that people should be aiming for, this was a good episode. A follow-up question to Mike would be, why have you or have you not fun strapped Bluetick?”
Mike: Oh, that’s a good question that I don’t have a good answer for.
Rob: It’s something evaluated, no?
Mike: Oh, yeah. I’ve looked at it a couple of times. I had a few conversations privately with people I know who have raised money, and just asked them what their take on it was, what their experiences was after going through it, what were the drawbacks, what would they have done differently. I got a sense that it was going to be rather complicated and time-consuming, and I didn’t have the time to spend on it. I continue to kind of look at it and continue to think about but it’s not something where I’ve said, “Yeah, I definitely want to do that. I’m all in. I’m going to dedicate the next X weeks or months whatever going out and raising funding.”
I’ve probably spent a lot more time working on getting Bluetick to a better place. I think I have been open about the fact that early on, I had hired a bunch of contractors to build a lot of the core infrastructure of Bluetick. Quite frankly, it was not done very well so there’s a lot of things that are generally screwed up and it makes it difficult to make changes. I would prefer to move fast if I can help it, but the problem is a lot of the architecture and the choices that were made at the time make that difficult. I have a hard time pulling away from those things and doing some of the clean-up work to basically make myself be able to move faster.
Because I feel like if I had like a pile of money, I would feel obligated to expand things a lot quicker and maybe even more than I’m possibly comfortable with, and I just know that there are certain parts of the app that if I were to dump 50 or 100 users on it all at once, it’s not going to scale very well. There are certain processes that need to run and it’s just not going to take a large influx of people very well. It can do it, I’d probably have to tweak a couple of settings to make it happen, but I’m not real comfortable doing that. I think it’s partly out of obligation, partly out of complexity and the time that I would have to spend on it.
Rob: You have technical debt already.
Mike: Yes. I think you have technical debt as soon as you write a single line of code.
Rob: Well, not if it’s fully unit tested, though. I think of […] there’s that, I don’t if it’s a joke or it if it’s truly the definition but it’s like, “Legacy code is code that is not highly unit tested.” Yeah, you have a little bit of technical debt but to hear that it’s hard to make changes, that’s a real bummer to hear given how early stage you are, and that you’re a technical founder. That’s the whole point of us being technical founders, that’s our skill set, we shouldn’t have that.
Mike: Maybe I should caveat that a little bit more. It’s not that it’s hard to make changes, it’s that I feel uncomfortable making changes to certain places because they’re not as well unit tested as I would like them to be. The software does a lot. There’s some changes I’ll just push out. It’s just like, “Hey, this is a frontend UI changes, it’s not that big of a deal.” But then when you get into things like, how mailboxes are stored and how the data is synchronized, I’m real hesitant to make changes to those because there is, in one particular case I can think off the top of my head, there was literally no way for me to unit test it whatsoever.
It’s hard to justify going in there and just making whole scale changes that would make things easier because I know that it’s working and if it breaks, it does a lot of work every second, and things could go seriously sideways very, very quickly. The new build server I put in place a couple of weeks ago would actually make rolling back pretty easy, but then I’d have to go through and figure out what in the code broke. Again, it’s not easy to unit tested that piece.
Rob: Yeah, I feel like, “Next time, should we just build, I don’t know, simple project management that just pulls things out of databases. It’s that no connections to any external sources and no queues. I don’t want any queues, I want everything synchronize.
Mike: Honestly, that’s part of it is the queues and stuff that I have to deal with. Queues processing, storing data, being able to filter certain things out and, “Oh, somebody deleted this piece of data.” It kind of sucks to have things moving while you’re also writing the code on it. I’m sure you went through this with Drip. There’s so much…
Rob: That’s SaaS though.
Mike: I know. It’s like open heart surgery–it feels like sometimes.
Rob: Yeah, every time we did anything meaningful to scheduling or, I mean there’s all kinds of stuff that’s so easy to screw up. If you can figure out a way to smoke earn—not smoke test—but to get you in a test on that stuff because the fact that you don’t feel comfortable making changes to a part of your app, that’s going to be a hindrance forever. It’s not going to get better, it’s only going to get worst especially if it grows, if you start hiring people, that’s a big red zone there that I think you need to think about remedying early.
Mike: Yeah. […] is there’s a component that I’m using where to get into the technical details of it, there’s a C# Class and I have to serialize it. In order to do that, in order to store the data. The problem is they’ve marked it as sealed which means I can’t inherit from it, which means I can’t really do anything with it. I’ve been working with them to try and figure out like, “Is there a way I can get an interface for this or something like that so that I can create it?” Because they don’t have a public constructor for it because it’s a sealed class, it’s encapsulated in the assembly, I can’t narrow from it either. I really don’t have any other options other than faking it which is what I’ve done so far. I basically have my own object that very, very closely mimics theirs, but it’s not perfect, and that’s the problem. I’ve found a few edge cases here and there, it’s kind of scary. I’m hoping it will come up with a solution sooner rather than later, but I’ve been working with them for probably six months on it.
Rob: One minute while I update my spreadsheet. Let’s see, apps to not start as an unfunded single founder, email marketing for writer, cold email outreach–the list is getting longer and longer. It’s like, these things don’t seem that complicated when you look at it from the outside. “I want to build an ESP. This is going to be a piece of cake.” said Derek and I before we wrote code.
Mike: I think anything where you have an outside dependency that you don’t completely control or have complete access to, that’s where it gets hard. Or you’re relying on events coming in to the system and you have to do data processing on.
Rob: Alright. Well, let’s keep moving on with this episode. Our second comment on episode 406 was from Don Gooding. He linked over to a few articles he’s written and one of them which we’re going to discuss today. His comment was, “I write a lot about bootstrapping versus venture capital or angel funding. They’re definitely a bunch of issues to consider both early and later. I hope you’ll consider the following posts helpful and not spammy.” and I do consider them helpful. He links to three different articles. His blog is fourcolorsofmoney.com. Don, if you’re listening, register the 4colorsofmoney and also, redirect that over because I tried that as well and it just goes nowhere.
He linked to the first article which is, Bootstrapping Versus Venture Capital: 19 Questions to Ask–we’re going to talk about that today. He also linked to another article called, The Bootstrap to Funding Pivot Playbook which is about bootstrapping first and then raising funding later. He talks about revenue financing in that one. Then his last article is, Revenue-Based Financing: Five Different Options and he walks thru them which is pretty interesting.
His site is called Four Colors of Money because he looks at bootstrapping, he looks at grants, he looks at grant and equity–those are the four colors. He’s obviously—having read through it—pretty knowledgeable about this stuff. Again, we will include those three links in the show notes. You can always go back on those comments on episode 406 if you wanted to see his full comment.
But today, we are going to talk through his article Bootstrapping Versus Venture Capital: 19 Questions to Ask. We won’t have time to go through all 19 question, but the idea here is to think about whether you can and should bootstrap or whether you need to raise funding.
His first question is, “How much of your own capital do you have. Do you have a way to self-fund it?” Self-funding and bootstrapping sound like they’re the same thing, but they’re different. Bootstrapping is truly having almost no money. A few hundred dollars, a thousand dollars, a couple thousand dollars, and then growing a business based purely on its revenue and profits.
Self-funding is if I have $1000 in the bank or $200,000 in the bank, or I had another business that was throwing off money or another income stream that was throwing off money that I could then take and start my next business from.
Self-funding is a lot of what I did. In the early, early days, I bootstrapped everything right out of consulting revenue but spent very little money. Then the more business revenue I had, I stayed consulting during the day full-time, and I took that business revenue and used it to self-fund the next thing, and the next thing, and the next thing, and each of them got bigger and bigger. It took me a long time to get from having .net invoice doing $300 a month, 10 years later, even longer, 11 years later, it’s Drip doing seven figures a year and having exit.
I didn’t have to raise during that time because I self-funded, but it took me a lot longer than if I had come up with an idea and just raised funding early on. That’s kind of how I think about the trade-offs is I believe it takes longer if you’re in a self-fund unless you do have a rich uncle or a trust fund. But his first question to think about is how much capital on your own do you have that you can invest in the business?
Mike: I feel like this is more of a runway question because the money itself, you either have to when the business itself is generating money, how much is left over for you to leave versus how much are you going to be able to put back into the business. If you’re running a business on the side or on nights and weekends and stuff like that, then you presumably have a full-time job, and that is keeping your self alive and your family fed while the business is getting the rest of the profits. But at some point, things are going to transition, and you have to make some choices about like what your future looks like, do you have enough money to be able to spend $1000 on ad words or something like that to test out a market? You may even need that money early on.
That comes down to the fundamental question that he’s got here is, how much of your own capital do you have? Can you afford to run experiments early on? Do you have more time on your hands or do you have more money? This is getting more at the money side of the equation. If you have plenty of time, if your timeline is five years, you can take as long as you want to do most things. Certain industries of course will move very quickly, and competitors will swoop in, not ideal if you’re trying to take five years to do it but certain ones you can do that.
I think Patrick McKenzie, with Bingo Card Creator, he slowly built that up. Nobody else wanted to get into market because there wasn’t a lot there. But he was still able to make a pretty good business out of it. He just took a really long time to do it.
Rob: His next few questions look at ways that if you don’t have the money to self-fund, ways to look around and see if you can essentially raise funds but not from venture capitalists or angels. His second question is, how likely it is you can raise funds from family or friends. Third question is, “Can your product support a Kickstarter style campaign?” which I believe a lot of people overlook. Info products and even some software, not B2B, but have to really be B2C in general can use Kickstarter as well as obviously physical products would be a great way to do it. His fourth one is, “Will customers pay you well in advance of you delivering your product or service?” Can you essentially pre-sell it? His fifth one actually is, “Does it qualify for a grant?” I don’t think that applies to most of our listeners nor any business I’ve ever started, but it is one of the colors of money that he talks about.
Mike: You know, I’ve thought about this kind of crowd funding. I’ve heard people gone down that path, not on Kickstarter, but someplace else, I can’t remember the name of it.
Rob: Like Indiegogo or something?
Mike: I think, yeah, it was Indiegogo. The general consensus was people are much more willing to fund individual ventures and things where there’s a physical product. But when it comes to software, people are not particularly interested. Maybe that’s just because it’s kind of self-selecting where the people who are building those generally are targeting them at businesses versus if you’re going to do something where it’s like, “Oh, this is a way to organize baseball cards,” or something like that, if it’s something that has a wider appeal and it’s a non-business use, you’ll find the hobbyist into that or the people who are prosumers, so to speak, they are going to be into it, and they would probably fund it. But if you’re going to try and create a CRM or something like that, who’s going to fund that? I can’t think of anyone who would want to willingly throw in money unless it was for their own business at which point, it’s not really for the greater good so to speak.
Rob: Totally. When I look back at the 173 Kickstarter projects that I’ve backed. Mike, did you hear what I just said?
Mike: Oh my god.
Rob: Oh, no. That’s the number of successful projects I’ve backed. I’ve 185 Kickstarter projects. Oh, the humanity, Mike. It’s so embarrassing. I just love Kickstarter. But I don’t think I’ve backed a single piece of software. My taste, it’s a lot of graphic novels, it’s a lot of table top games, it’s a lot of little tech gadgets. There was a Kano–the open source computer that I could teach my kids how to put computers together and do that stuff. A lot of it is some learning, some teaching, and some gadgetry and stuff. I think that my gist is that my taste are not uncommon. I do agree that in trying to launch a project in Kickstarter would be hard. But there are a lot of listeners who are not just trying to do B2B software as we’ve talked about.
I’m going to skip over a couple of these questions. But another couple of questions that I think are interesting to ask because they imply that you should probably raise some type of at least angel and potentially go after venture funding. One is, “Do you think it will take more than $100,000 and/or longer than one year to develop your product or service to the point that it is generating revenue?” Another question is, “Does your business have network effects where only one or two companies will end up with 80% or 90% of the market?” because that’s a super protectable. There’s a moat around that product or around that business. That is something that can very likely be fundable.
Another questions is, “Do you have large capital equipment or other fixed investment needs that aren’t debt financeable?” those three would obviously imply that you probably need to raise some kind of funding.
Mike: Well, I look at those things as potential disqualifiers as well because if it’s a network effects type of business where only a couple of companies are going to end up with a large percentage of the market, to me, that’s kind of a disqualifier unless you’re going to go raise money, and which I guess is kind of what he’s saying, but you have no idea if other people are going to answer in there who have a lot more clout than you. That’s why you should probably go raise funding if you’re going to go for something like that. But you’re also going to look at that particular thing and say, “This is a disqualifier for me. I’m not just going to go in that direction because I don’t want to raise money.”
Rob: Another good one I like that he asks is, “Do you have potential customers that will see your small sizes of risks? For example, a potential career–a limiting decision.” In other words, if you’re selling to banks, large institutions, they’re going to require that you have some kind of backing, right? I shouldn’t say require. They’re going to be unlikely to go with a single founder building software out of his/her garage.
I remember talking to someone at Gumroad actually, because Gumroad was kind of bootstrapped early on, and they raised a big round, I believe it was 7 million if my memory serves me right. I was saying, “Why did your raise the round?” He said, “Well, we wanted to become a credit card processor.” And to actually process credit cards, you need a bunch of money in the bank. They just won’t let a bootstrapper do that, or a self-funded company do it. I think that’s definitely a case if you’re trying to start a Stripe or even a Gumroad which seems it could be a bootstrappable company, there maybe a case where you need to pony up and raise a little bit of money.
Mike: That’s just a social proof of creditability factor. You’ve got people who have been willing to invest $7 million in you than it serves to the banks as like, “Oh, these people have convinced these other seemingly smart people to give them $7 million. Clearly, they’re onto something and they know what they’re doing.” Doesn’t mean that that’s true, it just means that that’s what their perception is. You’re really just playing off their perceptions.
I think there’s certainly situations where you can either skirt that or use it to your advantage for a relationship or something like that. If the […] that you’re getting after like you get an introduction into them. That way, you’re not going in completely cold. If you can get those introductions from somebody that they trust, then that’s going to help out a lot. That’s a place where if you go into different reseller channels, and there’s tens of thousands of resellers across the world, that their sole business is to go in and sell software to other businesses.
There’s a bunch of large value-added resellers like Dell and HP, in companies like that where they have entire channel programs set-up such that they’re going to and work with small businesses or they will escort small businesses into a deal in order to provide the credibility, and then everything goes down on their paperwork.
That’s how Dell and HP have, like massive services businesses, it’s because they have all the relationships already, they have sales fields reps, they walk in because they have a relationship or they can just make a phone call and say, “Hey, I’m your Dell rep and I’d like to come in and talk to you.” And then they talk to you and find out what your problems are, and they escort a small partner in the door.
If you can get some of those relationships, you can basically get escorted in. You don’t need to have that $7 million in the bank or you don’t have to hire 300 sales people or call center in order to do outbound cold calling in order to find your leads. You can leverage those partners to help walk you in.
Rob: His last few questions are really surrounding this topic of, “Are you a fit for angels and VCs?” One is, “Will your business support growing sales by 50-100% annually for 5-7 years? Will annual sales reach $15-$50 million with that timeframe?” high-growth, right?
Another question is, “Are you comfortable selling your business in order to provide your investors their return in five to seven years?” or maybe earlier for VCs. “Are you comfortable sharing control of and decision making for your company with investors? Is your team plan and pitched in the top 10 percent of companies seeking financing in your region?” All interesting things to think about.
Mike: I think that a lot of those are hard questions to answer too. I’ll say they’re very personal questions and depending on the time and day that somebody asked you, you might also change your mind. It could be hard to come up with a solid answer that you stick with.
Rob: Yup. I would agree. I think these are good things to think about. I think long time listeners of the podcast will have heard us discuss these types of thought processes before. Well, if you’re new to the podcast, you probably think, “Boy, these guys really talk about funding a lot for a bootstrapping podcast.” because in the past five episodes we’ve talked about it twice.
But I do think that it’s becoming more and more relevant. I don’t expect us to talk about it every five episodes by any stretch, but it does seem to be this emerging trend that is coming into the startups space. I think back to 2007 to 2009 or ’10, and I was using a lot of email marketing in my info products, and then I started bringing them into software products and kind of the startups space, it was definitely this emerging trend that I recognized. I talked about it at BOS.
Split testing was something I had seen in info and people in the startups were not doing that, that also became a trend that took off. There’s a bunch of things that have come from different angles. Even customer development and a lot of lean startups stuff was taken from the automotive. You see these trends coming in.
While startups and software have traditionally been VC funded and the trend that you can I have been a part of is this bootstrapping and self-funding kind of spearheading it, I would say, or I mean at least part of the folks who have really driven it over the past eight plus years. I think we look back and the first time I had said “fun strapping” on the podcast was in 2013 or 2014. It’s becoming just a little bit more common for folks to raise a round and not go institutional, which is another trend that I see, not infiltrating because that sounds like it’s a bad thing, it’s just another trend in the space. I think we’re just continuing the dialogue about it to keep abreast of what we see is happening.
Mike: Yeah. Things just change over time. As time goes on, the entire software space has become more and more competitive. I mean, eight years ago when we started podcasting, it was easier to launch products in terms of getting in front of customers. Now, there’s lots of competitions. You have to have a more polished product, it’s got to be further along, it’s got to solve more of the customer’s problems because they’ve got other things that they can pay attention to.
It just makes it, I’ll say a little bit more challenging to launch a product today than it is yesterday, than with the day before. As time goes on, I think that that trend is just going to continue. I say that the natural evolution is you have to have more resources in order to launch something. It’s kind of where the industry is headed. I’m not going to say that that’s where it will end up and that you’re always going to have to raise funding in the future because I don’t think that’s true. But I do think that there are certain types of businesses where it makes a lot more sense to raise some funds than it is to not, especially with certain life circumstances as well.
Rob: Yup. The good news is that it’s easier, I would say, than it has been in the past to get some type of small amount of funding with a lot fewer strings attached than say, 10 years ago. On the flipside, like you said, I believe there’s always going to be bootstrapping. That’s not going to go away. There’s always going to be folks who are hacking away, launching small software products, getting a lot of learning, getting some revenue. I think that’ll last forever and I think that’s a really great thing.
I’ve said this before, we live at an amazing time in history where even 30, 40 years ago, you couldn’t do any of this, and 100 years ago it’s even worst. But now, someone with some type of technical acumen can basically start a whole side business and really never leave their house and have this thing making money while you sleep. It’s always been the big draw I think for a lot of us. Part of it might eb the adventure and the active creating, I think that’s a big deal, but to be able to literally make money from nothing more than your skill and your computer is just mind-blowing. When I think back to being a kid, I was in junior high in high school and it was like, “Well, I don’t really want to work in a cubicle but were my options?” Right? In the mid to late ‘80s. This stuff was just coming about and I didn’t know much about it but the fact that we live at this age–consider ourselves lucky.
Mike: I think at the end of the day when you’re trying to evaluate whether or not to raise funds, it’s all about that trade-off of time versus money. Do you have money to burn? Burn is probably not the great way to put it, but do you have money to spend in order to learn quickly or are you okay taking a much longer time to do it, and doing things slow and steady based on what your financial situation is like, your personal life, and how much time you have available. That’s going to be different for everyone. That’s what generally governs these types of decisions for most people. I think that about wraps us up for today.
If you have 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 410 | Customer Development for Dummies
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about customer development. Based on a Sujan Patel article, the guys walk through 5 tips for doing customer development the right way.
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 customer development. This is Startups For The Rest Of Us episode 410.
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’ve been drinking coffee.
Mike: It’s not whiskey?
Rob: It’s not whiskey. It’s 10:00 in the morning, so I was hoping it wouldn’t be whiskey. Mike, I don’t drink coffee very much anymore. I’m having coffee right now so this is going to be good.
Mike: I have a coffee cup that says, “This is probably whiskey,” on it.
Rob: Nice. I like that.
Mike: Anyway, we’re here to share experiences, help avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: Aside from drinking just a tiny bit of coffee this morning, which will hopefully come across as making me energized and sharp rather than wandering all over the place and to crazy tangents, I’ve been listening to a book called Valley Of Genius. It is the history of Silicon Valley, all the way back into the, I believe it’s 50s and 60s as Fairchild Semiconductor came up. It’s told in the words of the people who were involved. There’ll be a chapter telling the history and there’s a chapter or a bunch of quotes from Steve Jobs and Fairchild himself, and a bunch of people who worked in Atari, Nolan Bushnell and people who worked there.
Right now, I believe I’m in the early 80s. I don’t know when it’s going to end, if it’s going to keep going all the way to Facebook and Google or where it goes. I’ve really enjoyed books like this. I grew up there and I remember a lot of orchards and stuff that wasn’t developed and all these concrete tilt up started coming. My dad was in construction and he’s in charge of building a lot of fabs for Intel and they shipped that overseas. Then it was biotech. Then it’s was dot com stuff in the 90s. Then it became just more data centers.
It has a special place for me because I was there but even if you’re not, it’s not like you need to have lived there to get something out of this. It is purely history book. This is a fascinating telling of how these things all developed and really how Silicon Valley became Silicon Valley pretty much by accident. If you’re interested in that kind of history and hearing how things developed, Valley of Genius. It’s a decent book.
Mike: On my end, I’ve got a book recommendation that was sent to me from Keith Gillette and he runs tasktrain.app. He suggested Slicing Pie based on a previous episode where we talked about finding co-founders and how to split equity. I looked into it and it’s a very interesting book.
The Slicing Pie book talks about how to divide equity between co-founders based on a variety of different factors in it. Seems like it’s generally applicable to just about any situation. The general concept is that you divide the equity based on people’s contributions and if you believe in your startup, you’ll probably going to work more on it and you’re going to put more time, effort, and resources into it. But at the end of the day, it’s a gamble. You’re essentially placing bets with your time and money and those are essentially translated into equity points for lack of a better way to put it. Those equity points are divided among the co-founders and that’s how you come out with a final equity split.
I think it’s a fascinating way of looking at it. I didn’t dig into all the details. I’m sure there’s some interesting edge cases but definitely want to say thanks to Keith for sending that over to us.
Rob: Yeah. Definitely, appreciate it. I read that book or at least skimmed it when I first came out because I believe the author sent it to me or maybe he sent it to us. This was a few years ago. I thought it was interesting, although it was probably not an approach I would take.
I’m trying to remember even what it was but I think it was all the founders were starting off and it was a developer and a marketer and you’re just dividing. It’s three developers or whatever and I’ve always felt when I started businesses, we’ve always had brought different things to the table but might not just be task-based.
It’s like, “Oh, so-and-so has $1000 to bring to the table.” That really set things different. Or, “So-and-so has an audience they’re bringing and we’re going to build that on it,” and that has a lot more value than, say, building a certain feature or whatever. I think it’s a good model and frankly, it’s the only book I know that’s been written on this topic. It’s something to be thinking about. What are we talking about today?
Mike: Today’s we’re going to be talking about customer development. The title of this episode is actually Customer Development For Dummies but this is based on an article that was written by Sujan Patel on his blog and we’ll link that up in the show notes.
Sujan was a speaker at MicroConf Growth Edition in 2017 but he talks about customer development in a way that I think that most people can at least get a few takeaways from it and obviously, we’ll add our own perspectives on different pieces of this particular blog post.
Rob: And we’ll, of course, link that up in the show notes. It’s an article at sujanpatel.com and it’s called Five Tips For Doing Customer Development The Right Way.
Mike: His first tip is to talk to your customers, which I think is one of those intuitively obvious things that most of us try to do but I wouldn’t say that we’re all necessarily successful at it. But he’s got a lot of advice in here about how he went about approaching the market for when they were developing Mailshake and they going out to talk to customers.
The one thing that I think he pointed out here which is extremely interesting was that if you’re just trying to validate a product, you don’t have customers yet. So, instead you have to talk to new customers, you can go out and talk to the customers of your competitors, which I think is a really fascinating idea. It’s not just because it’s brutally obvious if you don’t think about it, but I hear a lot of people say like, “Oh, if I don’t have customers, who do I go talk to?” I think that’s just a perfect piece of advice for those people.
Rob: Yup and as a strategy, he says to find your competitor’s customers, going to a site like Capterra or GetApp where people are rating your competitors, and you’ll notice that most of the sites let people connect their LinkedIn or Twitter profiles, then you can reach out. He said, reach out to 30 or 40 people and in his experience, you’ll get 20%-30% success rate, and then ask what they like or don’t like about your competitor’s product. I think it’s a pretty clever hack.
Obviously, you could use something like BuiltWith or Datanyze but those are really expensive sales prospecting tools where you can get list of folks who were using things and this should be more of a freeway. Takes a little bit more time on your end, but more of a freeway to reach out to competitor’s customers.
There’s a lot of value in talking to competitor’s customers and even former employees of competitors, frankly, is an interesting avenue. I guess you wouldn’t get as much customer development. Maybe you can find out more about internal processes or at least approaches if that’s something that you need. It’s probably not something you need this early on but it’s something to keep in mind as you grow.
Mike: The other thing I like about talking to customers or prospective customers and ask them what they don’t like about the products is that it gives you a punch list of challenges that they’re probably having with those products and you can cater your own development to trying to solve those. That’s not to say that, that is going to lead directly to success but if you hear enough people saying the same things over and over that are bad about a particular competitor, then you can use that as a marketing point as well as an engineering point to say, “We are going to make sure that we solve this so that when people are looking for an alternative to this because they are so angry about this particular thing that happens, then we’re the obvious choice for them.”
Rob: Here’s a pro-tip. If you start doing customer development like this and you get the feeling or you get the sense that you’re going to have to build your entire competitor feature set, then make changes, adjustments, or additions in order to get the customers, that’s a red flag. Building out features that’s going to take forever. The best kind of market that you can get into is where a competitor or competitors are bloated and have huge feature sets but a lot of different niches or a lot of different verticals are using say, 20% or 30% of it and that 20% or 30% is broken but it’s the best option.
An example of that is QuickBooks. QuickBooks is a huge tool. It can do inventory management. It can do invoicing, AR, and AP. It can do all this accounting stuff. There’s probably a slice of small businesses that just need a pretty simple, kind of based like freelancers, where they just need some basic invoicing and keeping track of expenses. That’s where startups like Xero and LessAccounting came up, and they just built that part of it. They didn’t have to build inventory management because they were just pulling off of that part that didn’t work.
Another example is Infusionsoft. As we were growing Drip, we realized Infusionsoft has landing pages, shopping carts, affiliate management program, payment processing I believe is built-in, then they had email marketing, they had marketing automation, they had CRM, they had a lot of stuff. We did not build all of that. We just needed to be really good at the email marketing and marketing automation, and we were able to pull a lot of customers from Infusionsoft.
So, two examples of how I view markets. If you had to build all of the Infusionsoft or all of QuickBooks, you just can’t do it. It’s going to take you years to do it.
Mike: That leads to the natural question to ask while you’re talking to those customers is, what things do you not use at all? Or do you use very little? That will help give you an idea of some sort of relative ranking of the features of the competitor that you probably have to implement versus the ones that are probably complicated and going to take a long period of time to develop but most customers don’t use. If it’s not used by 80% of the customers, you probably get away without it.
Rob: Yup and one question that I ask during Drip customer development was, what’s your biggest pain point with tool X? Whether that was Infusionsoft or whether it was MailChimp or HubSpot or Marketo or Ontraport, what do you like the least about it or what do you wish they would fix or what do you wish they would add or how could they do better? AWeber is on that list as well.
The cool part is I started seeing patterns of, “Well, I like MailChimp and AWeber and they’re solid tools, but they don’t do this. You can’t tag people, you can do automations.” Someone said, “I like Infusionsoft but it’s really buggy. The Campaign Builder is too complicated. It’s way too expensive for what it is. Didn’t like the $2000 upfront.” There’s some real specific things that everyone referenced back to. If you’ll notice, that’s what we attack really early on with our marketing. We’re like these guys but better, we’re like this but different. It wound up being something that in 10, 20, 30 conversations that I had, could translate into our entire marketing message.
Mike: Yeah and you’ll find that there’s definite hot spots in those areas as well. As you said, you talked to 30, 40, 50 people, you start to hear the same things over and over again, and you just know where to focus your time and effort.
The next tip that Sujan has is to track your competitor’s pros and cons. I think that goes a little bit back to the previous one where there’s a difference between feature set versus what people like and what they don’t like, and what things they wished that the competitors had. The feature set is what they advertise versus how well they mash the customers’ expectations in terms of the pros and cons. There’s obviously some overlap in the feature set in that but there’s a definite difference between how the customer feels about the features versus what their marketing message is saying.
Rob: Yeah and Sujan says to google things like competitor’s name review, like QuickBooks review or QuickBooks testimonials, and visit as many results as you can trying to come up with a list of the top 10 things people like about each of the competitors as well as what they don’t like.
This is a way to do it without having conversations and I would view this as day zero research. You’re trying to put together a list or get a sense of the pros and cons of your competitors and you’re going to do this for multiple competitors. It’s not just one in general. Typically, more than one competitor has a decent market share.
The next step for me would be then to start having those conversations with either people who have signed up for your early bird list. Even if you don’t have customers, you can ask them, “What do you expect? What do you want? Do you use one of these competitors? Do you use QuickBooks? Do you use Infusionsoft and what do you think about them?” Or, if you don’t have that yet, start building it today and then go and do what we talked about in the previous step which was to go to Capterra, GetApp, and start having conversations with your competitor’s customers.
Mike: The other thing he recommends is that you track the changes to this list over time. I think that’s also an important piece that I’ve not really thought about in the past but tend to agree with them because the technology is going to change over time. The entire market itself is going to change over time. As time plods on, there’s going to be a set of features that is standard across all of your competitors and you need to make sure that you have those features. If you don’t, you’re going to end up being left behind.
That’s not say you should always copy every single feature that your competitors have but if you’re the only one who doesn’t have a particular feature, you might want to seriously consider adding it.
Rob: Tip number three from Sujan is to test before you build. He talks about how Hiten Shah does a really good job of going through a lot of testing. If you want to see someone who is really at the top of the game of pre-validating products and doing customer development, go to hitenism.com––it’s called Product Habits now. Sign up for his email list and just watch what he does because Hiten is, like I said, one of the best at this.
Mike: The reason why you want to test these things before you start building them is that you don’t want to waste a lot of time on building stuff that nobody’s going to use or that isn’t actually solving a problem that your customers have. If you’re just blindly copying a competitor, for example, they may have implemented a feature that they didn’t necessarily know that their customers wanted. They may have just said, “Oh, we think that they need this or somebody mentioned this and we’re going to build it,” and then you spend several weeks or a couple of months building something that, because you didn’t test the market, you didn’t know that nobody needed it either. You’re just copying somebody else. You want to find places where you can save time, not waste it.
Rob: You know why I realize is that we didn’t even really define customer development when we started. Some folks may have heard that and they may have an idea of what it is but there is a pretty solid definition because Steve Blank, who’s a serial entrepreneur and he’s now a professor or was a professor, was it Stanford or Berkeley, somewhere in California. He developed this concept called customer development.
It’s a four-step process. It’s customer discovery to start with. There’s a lot of conversations proposing an MVP, trying to figure things out. Then there’s customer validation once you start building it. And then it’s customer creation which is where you’re scaling and then you’re bringing in customers. And then it’s company building, which is where you scale operations and stuff.
If you google what is customer development, there is a pretty nice diagram of all that and we don’t need to go into those pieces for you to understand it, but just in case you are listening, thinking, “What is this customer development term?” it really just means we are focusing really on the first and second steps here, which are the conversations with your customers and then trying to find product-market fit. I think maybe Sujan is really focused on even just the first step in this article, because second, third, and fourth is more company building, scaling, and organization.
Mike: We talked a little bit about the types of ways that you can test things before you start building them. One that I used during the validation process for Bluetick was, I created a set of Balsamiq mockups and then showed those to people. Instead of building codes and instead of creating CSS mockups or Photoshop mockups of exactly what the app was going to look like, I just sketch it all out using Balsamiq and was able to link the pages together. You can see how the application was going to work without writing any of the code for it. It took me probably 20-30 hours or so to put that together, but that’s a lot less time than it took to build the application and put something that was completely functional together.
During the process of showing it to people, I got a lot of questions about, “Oh, what does this piece do?” or, “How would I go about doing this other action over here,” and it gives you a sense of where your design essentially is going to either fall short of what their expectations are or other areas where you should probably spend a little bit more time on it.
Rob: Sujan suggests getting a wireframe and going to sets like in five-second test or user insights, usertesting.com is another one, and that will give you UX stuff but it won’t tend to give you customer insights like you’re talking about, Mike, where you are actually talking to a group who you knew was interested in the solution that you’re going to be providing. I think yours is harder to do but it’s more valuable in my opinion.
Tip number four is to go to conferences or events where your customers are. This is an obvious one but one that a lot of people overlook. I think you can get a ton of value in a two- or three-day conference. You could talk to 50 or 100 people if you scheduled well. Maybe not 100, that actually sounds like a lot but maybe let’s say 30 or 40 people really quickly in person if you really made a point of having your stuff together, you’ve been having mock-ups.
I was at a startup pitch, was a competition. It was more like a demo day for local accelerator here in town the other day. Someone was talking about something and then pulled out an iPad Pro and was like, “Here, let me just walk you through.” He had, it was either mock-ups or maybe it was an actual app running on it. It was kind of funny to see him just pull it out during a conversation as we were having drinks and it got a better picture of what he was up to. Frankly, I was able to give him feedback of like, “Oh, I was confused by that,” or, “I don’t see my people would use that,” or, “That screen’s really nice.”
Mike: I have something that you can actually show to people. It leaps and bounds above just explaining it to them. When you’re explaining it to them, they’re going to have their own vision in mind of what the thing’s going to look like, how it works, and what it does even. You might say something like, for Bluetick it’s an email automation follow-up software or something like that. They’re going to have in their own head this impression of what something like that does based on their previous experiences and it doesn’t necessarily reflect what you are building. So keep in mind that if you can show them anything at all as opposed to leaving it up to their imagination, you’re going to be much further along.
The other thing Sujan points out is that in an informal setting such as a conference or an event, is much more conducive to getting feedback from people because if you’re getting people on to webinar and you’re doing a sales demo or something like that, people have a tendency to hold back a little bit. In an informal situation, you get, I’d say a little bit more honest feedback because they’ve realized they’re not really being sold to and they’d like to help you out. They want to give you feedback that is going to help you. In just any informal setting, that alone is going to help do that.
Rob: And his fifth tip for customer development is to live a day in the life of your customer. He talks about dogfooding your own product. It helps you smooth out the rough edges. This is one of the benefits of scratching your own itch. Scratching your own itch has been thrown around since 37signals said, “Hey, this is all you got to do because that’s what we did, and look, it worked.” It is cool. It is easier if you can do that but it’s not required. It’s not required to scratch your own itch to build a great product. I’ve seen it done for people entering a market that they’re not part of. However, either way, whether you’re scratching your own itch or not, you should dog food that product. You should try to use it as if your customer was using it.
If I recall, dogfooding was coined by—was it Bill Gates or someone at Microsoft because he learned that the CEO of a dog food company would eat the dog food to test it. Bill Gates was like, “We need to basically eat our own dog food which means we need to use our own software to make it better.” So if you’re curious about where that term comes from, that’s at least my anecdotal memory of where it comes from.
Mike: I experienced this first hand with Bluetick. It was a lot harder when I was working on AuditShark just because there’s only so many servers that I have, for example, so scaling things up is a little challenging in terms of using the app for a large number of servers. With Bluetick, I’ve used it to go out and do email follow-ups. It’s interesting to see the places where I’m running into challenges and whether it’s UI- or UX-related issue, things were just not as quick.
For example, there’s a bunch of shortcuts that have been added and it’s explicitly because I found that it was too many clicks to click between different things. Not one customer ever really said that to me but I also knew just from using it, that it was painful to do that if I had to use the main navigation without those shortcuts.
Those are the types of things that you’re going to find and by finding those things that are painful for your customers to use, you’re also going to be able to fix them and prevent them from moving off to other products because they get so fed up with those and they say, “Oh, this has got UI or UX issues and I can’t get around or it takes me too long to do my job.” You don’t ever want your customers to feel using your tool is a chore because you’re trying to solve problems for them and save them time and money. If you’re causing them more headaches, it’s just not worth it for them and they’ll move on to something else.
Rob: Right and using your own product shouldn’t just be done in the early days because once you have customers, you need to use it on an ongoing basis in a perfect world. That’s where, if it is something you use, you have that leg up because you will get in there and you’ll notice things that bother you about it that don’t bother your customers, and it keeps your product at that really high level of refinement, high usability.
You’ll notice a tiny, like a little misspelling or a like a four-pixel difference between this and that and it’s just something that, if you can catch that, because no customer is going to screenshot that and send it into you. Maybe a typo they will, but there’s just these little things that I used to see in Drip all the time when I was using it. It was like, “Man, that bothers me that that is not perfect.” I would send it over to our design team and say, “Hey, we got to fix this little thing.” It came across as a refinement rather than a complaint. It was like, “Let’s make this tool better.” All that’s safe if you’re able to use a product on a daily or weekly basis you think that there’s a lot of value there.
Mike: Just over time, just by doing that it will naturally get better and smoother over time. That’s really what you’re looking to do is just smooth out the rough edges there and make it a nice, clean experience. When people get that experience from one product and have used others where they didn’t get that experience, they talk about it.
Rob: That about 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 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 build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’ve been drinking coffee.
Mike: It’s not whiskey?
Rob: It’s not whiskey. It’s 10:00 in the morning, so I was hoping it wouldn’t be whiskey. Mike, I don’t drink coffee very much anymore. I’m having coffee right now so this is going to be good.
Mike: I have a coffee cup that says, “This is probably whiskey,” on it.
Rob: Nice. I like that.
Mike: Anyway, we’re here to share experiences, help avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: Aside from drinking just a tiny bit of coffee this morning, which will hopefully come across as making me energized and sharp rather than wandering all over the place and to crazy tangents, I’ve been listening to a book called Valley Of Genius. It is the history of Silicon Valley, all the way back into the, I believe it’s 50s and 60s as Fairchild Semiconductor came up. It’s told in the words of the people who were involved. There’ll be a chapter telling the history and there’s a chapter or a bunch of quotes from Steve Jobs and Fairchild himself, and a bunch of people who worked in Atari, Nolan Bushnell and people who worked there.
Right now, I believe I’m in the early 80s. I don’t know when it’s going to end, if it’s going to keep going all the way to Facebook and Google or where it goes. I’ve really enjoyed books like this. I grew up there and I remember a lot of orchards and stuff that wasn’t developed and all these concrete tilt up started coming. My dad was in construction and he’s in charge of building a lot of fabs for Intel and they shipped that overseas. Then it was biotech. Then it’s was dot com stuff in the 90s. Then it became just more data centers.
It has a special place for me because I was there but even if you’re not, it’s not like you need to have lived there to get something out of this. It is purely history book. This is a fascinating telling of how these things all developed and really how Silicon Valley became Silicon Valley pretty much by accident. If you’re interested in that kind of history and hearing how things developed, Valley of Genius. It’s a decent book.
Mike: On my end, I’ve got a book recommendation that was sent to me from Keith Gillette and he runs tasktrain.app. He suggested Slicing Pie based on a previous episode where we talked about finding co-founders and how to split equity. I looked into it and it’s a very interesting book.
The Slicing Pie book talks about how to divide equity between co-founders based on a variety of different factors in it. Seems like it’s generally applicable to just about any situation. The general concept is that you divide the equity based on people’s contributions and if you believe in your startup, you’ll probably going to work more on it and you’re going to put more time, effort, and resources into it. But at the end of the day, it’s a gamble. You’re essentially placing bets with your time and money and those are essentially translated into equity points for lack of a better way to put it. Those equity points are divided among the co-founders and that’s how you come out with a final equity split.
I think it’s a fascinating way of looking at it. I didn’t dig into all the details. I’m sure there’s some interesting edge cases but definitely want to say thanks to Keith for sending that over to us.
Rob: Yeah. Definitely, appreciate it. I read that book or at least skimmed it when I first came out because I believe the author sent it to me or maybe he sent it to us. This was a few years ago. I thought it was interesting, although it was probably not an approach I would take.
I’m trying to remember even what it was but I think it was all the founders were starting off and it was a developer and a marketer and you’re just dividing. It’s three developers or whatever and I’ve always felt when I started businesses, we’ve always had brought different things to the table but might not just be task-based.
It’s like, “Oh, so-and-so has $1000 to bring to the table.” That really set things different. Or, “So-and-so has an audience they’re bringing and we’re going to build that on it,” and that has a lot more value than, say, building a certain feature or whatever. I think it’s a good model and frankly, it’s the only book I know that’s been written on this topic. It’s something to be thinking about. What are we talking about today?
Mike: Today’s we’re going to be talking about customer development. The title of this episode is actually Customer Development For Dummies but this is based on an article that was written by Sujan Patel on his blog and we’ll link that up in the show notes.
Sujan was a speaker at MicroConf Growth Edition in 2017 but he talks about customer development in a way that I think that most people can at least get a few takeaways from it and obviously, we’ll add our own perspectives on different pieces of this particular blog post.
Rob: And we’ll, of course, link that up in the show notes. It’s an article at sujanpatel.com and it’s called Five Tips For Doing Customer Development The Right Way.
Mike: His first tip is to talk to your customers, which I think is one of those intuitively obvious things that most of us try to do but I wouldn’t say that we’re all necessarily successful at it. But he’s got a lot of advice in here about how he went about approaching the market for when they were developing Mailshake and they going out to talk to customers.
The one thing that I think he pointed out here which is extremely interesting was that if you’re just trying to validate a product, you don’t have customers yet. So, instead you have to talk to new customers, you can go out and talk to the customers of your competitors, which I think is a really fascinating idea. It’s not just because it’s brutally obvious if you don’t think about it, but I hear a lot of people say like, “Oh, if I don’t have customers, who do I go talk to?” I think that’s just a perfect piece of advice for those people.
Rob: Yup and as a strategy, he says to find your competitor’s customers, going to a site like Capterra or GetApp where people are rating your competitors, and you’ll notice that most of the sites let people connect their LinkedIn or Twitter profiles, then you can reach out. He said, reach out to 30 or 40 people and in his experience, you’ll get 20%-30% success rate, and then ask what they like or don’t like about your competitor’s product. I think it’s a pretty clever hack.
Obviously, you could use something like BuiltWith or Datanyze but those are really expensive sales prospecting tools where you can get list of folks who were using things and this should be more of a freeway. Takes a little bit more time on your end, but more of a freeway to reach out to competitor’s customers.
There’s a lot of value in talking to competitor’s customers and even former employees of competitors, frankly, is an interesting avenue. I guess you wouldn’t get as much customer development. Maybe you can find out more about internal processes or at least approaches if that’s something that you need. It’s probably not something you need this early on but it’s something to keep in mind as you grow.
Mike: The other thing I like about talking to customers or prospective customers and ask them what they don’t like about the products is that it gives you a punch list of challenges that they’re probably having with those products and you can cater your own development to trying to solve those. That’s not to say that, that is going to lead directly to success but if you hear enough people saying the same things over and over that are bad about a particular competitor, then you can use that as a marketing point as well as an engineering point to say, “We are going to make sure that we solve this so that when people are looking for an alternative to this because they are so angry about this particular thing that happens, then we’re the obvious choice for them.”
Rob: Here’s a pro-tip. If you start doing customer development like this and you get the feeling or you get the sense that you’re going to have to build your entire competitor feature set, then make changes, adjustments, or additions in order to get the customers, that’s a red flag. Building out features that’s going to take forever. The best kind of market that you can get into is where a competitor or competitors are bloated and have huge feature sets but a lot of different niches or a lot of different verticals are using say, 20% or 30% of it and that 20% or 30% is broken but it’s the best option.
An example of that is QuickBooks. QuickBooks is a huge tool. It can do inventory management. It can do invoicing, AR, and AP. It can do all this accounting stuff. There’s probably a slice of small businesses that just need a pretty simple, kind of based like freelancers, where they just need some basic invoicing and keeping track of expenses. That’s where startups like Xero and LessAccounting came up, and they just built that part of it. They didn’t have to build inventory management because they were just pulling off of that part that didn’t work.
Another example is Infusionsoft. As we were growing Drip, we realized Infusionsoft has landing pages, shopping carts, affiliate management program, payment processing I believe is built-in, then they had email marketing, they had marketing automation, they had CRM, they had a lot of stuff. We did not build all of that. We just needed to be really good at the email marketing and marketing automation, and we were able to pull a lot of customers from Infusionsoft.
So, two examples of how I view markets. If you had to build all of the Infusionsoft or all of QuickBooks, you just can’t do it. It’s going to take you years to do it.
Mike: That leads to the natural question to ask while you’re talking to those customers is, what things do you not use at all? Or do you use very little? That will help give you an idea of some sort of relative ranking of the features of the competitor that you probably have to implement versus the ones that are probably complicated and going to take a long period of time to develop but most customers don’t use. If it’s not used by 80% of the customers, you probably get away without it.
Rob: Yup and one question that I ask during Drip customer development was, what’s your biggest pain point with tool X? Whether that was Infusionsoft or whether it was MailChimp or HubSpot or Marketo or Ontraport, what do you like the least about it or what do you wish they would fix or what do you wish they would add or how could they do better? AWeber is on that list as well.
The cool part is I started seeing patterns of, “Well, I like MailChimp and AWeber and they’re solid tools, but they don’t do this. You can’t tag people, you can do automations.” Someone said, “I like Infusionsoft but it’s really buggy. The Campaign Builder is too complicated. It’s way too expensive for what it is. Didn’t like the $2000 upfront.” There’s some real specific things that everyone referenced back to. If you’ll notice, that’s what we attack really early on with our marketing. We’re like these guys but better, we’re like this but different. It wound up being something that in 10, 20, 30 conversations that I had, could translate into our entire marketing message.
Mike: Yeah and you’ll find that there’s definite hot spots in those areas as well. As you said, you talked to 30, 40, 50 people, you start to hear the same things over and over again, and you just know where to focus your time and effort.
The next tip that Sujan has is to track your competitor’s pros and cons. I think that goes a little bit back to the previous one where there’s a difference between feature set versus what people like and what they don’t like, and what things they wished that the competitors had. The feature set is what they advertise versus how well they mash the customers’ expectations in terms of the pros and cons. There’s obviously some overlap in the feature set in that but there’s a definite difference between how the customer feels about the features versus what their marketing message is saying.
Rob: Yeah and Sujan says to google things like competitor’s name review, like QuickBooks review or QuickBooks testimonials, and visit as many results as you can trying to come up with a list of the top 10 things people like about each of the competitors as well as what they don’t like.
This is a way to do it without having conversations and I would view this as day zero research. You’re trying to put together a list or get a sense of the pros and cons of your competitors and you’re going to do this for multiple competitors. It’s not just one in general. Typically, more than one competitor has a decent market share.
The next step for me would be then to start having those conversations with either people who have signed up for your early bird list. Even if you don’t have customers, you can ask them, “What do you expect? What do you want? Do you use one of these competitors? Do you use QuickBooks? Do you use Infusionsoft and what do you think about them?” Or, if you don’t have that yet, start building it today and then go and do what we talked about in the previous step which was to go to Capterra, GetApp, and start having conversations with your competitor’s customers.
Mike: The other thing he recommends is that you track the changes to this list over time. I think that’s also an important piece that I’ve not really thought about in the past but tend to agree with them because the technology is going to change over time. The entire market itself is going to change over time. As time plods on, there’s going to be a set of features that is standard across all of your competitors and you need to make sure that you have those features. If you don’t, you’re going to end up being left behind.
That’s not say you should always copy every single feature that your competitors have but if you’re the only one who doesn’t have a particular feature, you might want to seriously consider adding it.
Rob: Tip number three from Sujan is to test before you build. He talks about how Hiten Shah does a really good job of going through a lot of testing. If you want to see someone who is really at the top of the game of pre-validating products and doing customer development, go to hitenism.com––it’s called Product Habits now. Sign up for his email list and just watch what he does because Hiten is, like I said, one of the best at this.
Mike: The reason why you want to test these things before you start building them is that you don’t want to waste a lot of time on building stuff that nobody’s going to use or that isn’t actually solving a problem that your customers have. If you’re just blindly copying a competitor, for example, they may have implemented a feature that they didn’t necessarily know that their customers wanted. They may have just said, “Oh, we think that they need this or somebody mentioned this and we’re going to build it,” and then you spend several weeks or a couple of months building something that, because you didn’t test the market, you didn’t know that nobody needed it either. You’re just copying somebody else. You want to find places where you can save time, not waste it.
Rob: You know why I realize is that we didn’t even really define customer development when we started. Some folks may have heard that and they may have an idea of what it is but there is a pretty solid definition because Steve Blank, who’s a serial entrepreneur and he’s now a professor or was a professor, was it Stanford or Berkeley, somewhere in California. He developed this concept called customer development.
It’s a four-step process. It’s customer discovery to start with. There’s a lot of conversations proposing an MVP, trying to figure things out. Then there’s customer validation once you start building it. And then it’s customer creation which is where you’re scaling and then you’re bringing in customers. And then it’s company building, which is where you scale operations and stuff.
If you google what is customer development, there is a pretty nice diagram of all that and we don’t need to go into those pieces for you to understand it, but just in case you are listening, thinking, “What is this customer development term?” it really just means we are focusing really on the first and second steps here, which are the conversations with your customers and then trying to find product-market fit. I think maybe Sujan is really focused on even just the first step in this article, because second, third, and fourth is more company building, scaling, and organization.
Mike: We talked a little bit about the types of ways that you can test things before you start building them. One that I used during the validation process for Bluetick was, I created a set of Balsamiq mockups and then showed those to people. Instead of building codes and instead of creating CSS mockups or Photoshop mockups of exactly what the app was going to look like, I just sketch it all out using Balsamiq and was able to link the pages together. You can see how the application was going to work without writing any of the code for it. It took me probably 20-30 hours or so to put that together, but that’s a lot less time than it took to build the application and put something that was completely functional together.
During the process of showing it to people, I got a lot of questions about, “Oh, what does this piece do?” or, “How would I go about doing this other action over here,” and it gives you a sense of where your design essentially is going to either fall short of what their expectations are or other areas where you should probably spend a little bit more time on it.
Rob: Sujan suggests getting a wireframe and going to sets like in five-second test or user insights, usertesting.com is another one, and that will give you UX stuff but it won’t tend to give you customer insights like you’re talking about, Mike, where you are actually talking to a group who you knew was interested in the solution that you’re going to be providing. I think yours is harder to do but it’s more valuable in my opinion.
Tip number four is to go to conferences or events where your customers are. This is an obvious one but one that a lot of people overlook. I think you can get a ton of value in a two- or three-day conference. You could talk to 50 or 100 people if you scheduled well. Maybe not 100, that actually sounds like a lot but maybe let’s say 30 or 40 people really quickly in person if you really made a point of having your stuff together, you’ve been having mock-ups.
I was at a startup pitch, was a competition. It was more like a demo day for local accelerator here in town the other day. Someone was talking about something and then pulled out an iPad Pro and was like, “Here, let me just walk you through.” He had, it was either mock-ups or maybe it was an actual app running on it. It was kind of funny to see him just pull it out during a conversation as we were having drinks and it got a better picture of what he was up to. Frankly, I was able to give him feedback of like, “Oh, I was confused by that,” or, “I don’t see my people would use that,” or, “That screen’s really nice.”
Mike: I have something that you can actually show to people. It leaps and bounds above just explaining it to them. When you’re explaining it to them, they’re going to have their own vision in mind of what the thing’s going to look like, how it works, and what it does even. You might say something like, for Bluetick it’s an email automation follow-up software or something like that. They’re going to have in their own head this impression of what something like that does based on their previous experiences and it doesn’t necessarily reflect what you are building. So keep in mind that if you can show them anything at all as opposed to leaving it up to their imagination, you’re going to be much further along.
The other thing Sujan points out is that in an informal setting such as a conference or an event, is much more conducive to getting feedback from people because if you’re getting people on to webinar and you’re doing a sales demo or something like that, people have a tendency to hold back a little bit. In an informal situation, you get, I’d say a little bit more honest feedback because they’ve realized they’re not really being sold to and they’d like to help you out. They want to give you feedback that is going to help you. In just any informal setting, that alone is going to help do that.
Rob: And his fifth tip for customer development is to live a day in the life of your customer. He talks about dogfooding your own product. It helps you smooth out the rough edges. This is one of the benefits of scratching your own itch. Scratching your own itch has been thrown around since 37signals said, “Hey, this is all you got to do because that’s what we did, and look, it worked.” It is cool. It is easier if you can do that but it’s not required. It’s not required to scratch your own itch to build a great product. I’ve seen it done for people entering a market that they’re not part of. However, either way, whether you’re scratching your own itch or not, you should dog food that product. You should try to use it as if your customer was using it.
If I recall, dogfooding was coined by—was it Bill Gates or someone at Microsoft because he learned that the CEO of a dog food company would eat the dog food to test it. Bill Gates was like, “We need to basically eat our own dog food which means we need to use our own software to make it better.” So if you’re curious about where that term comes from, that’s at least my anecdotal memory of where it comes from.
Mike: I experienced this first hand with Bluetick. It was a lot harder when I was working on AuditShark just because there’s only so many servers that I have, for example, so scaling things up is a little challenging in terms of using the app for a large number of servers. With Bluetick, I’ve used it to go out and do email follow-ups. It’s interesting to see the places where I’m running into challenges and whether it’s UI- or UX-related issue, things were just not as quick.
For example, there’s a bunch of shortcuts that have been added and it’s explicitly because I found that it was too many clicks to click between different things. Not one customer ever really said that to me but I also knew just from using it, that it was painful to do that if I had to use the main navigation without those shortcuts.
Those are the types of things that you’re going to find and by finding those things that are painful for your customers to use, you’re also going to be able to fix them and prevent them from moving off to other products because they get so fed up with those and they say, “Oh, this has got UI or UX issues and I can’t get around or it takes me too long to do my job.” You don’t ever want your customers to feel using your tool is a chore because you’re trying to solve problems for them and save them time and money. If you’re causing them more headaches, it’s just not worth it for them and they’ll move on to something else.
Rob: Right and using your own product shouldn’t just be done in the early days because once you have customers, you need to use it on an ongoing basis in a perfect world. That’s where, if it is something you use, you have that leg up because you will get in there and you’ll notice things that bother you about it that don’t bother your customers, and it keeps your product at that really high level of refinement, high usability.
You’ll notice a tiny, like a little misspelling or a like a four-pixel difference between this and that and it’s just something that, if you can catch that, because no customer is going to screenshot that and send it into you. Maybe a typo they will, but there’s just these little things that I used to see in Drip all the time when I was using it. It was like, “Man, that bothers me that that is not perfect.” I would send it over to our design team and say, “Hey, we got to fix this little thing.” It came across as a refinement rather than a complaint. It was like, “Let’s make this tool better.” All that’s safe if you’re able to use a product on a daily or weekly basis you think that there’s a lot of value there.
Mike: Just over time, just by doing that it will naturally get better and smoother over time. That’s really what you’re looking to do is just smooth out the rough edges there and make it a nice, clean experience. When people get that experience from one product and have used others where they didn’t get that experience, they talk about it.
Rob: That about 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 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 409 | Defining Product/Market Fit, Using Inexpensive Developers, When to Quit, 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. The topics include defining product market fit, using cheap developers, when to quit, and more.
Items mentioned in this episode:
- The Quiet Light Podcast w/ Rob Walling
- FounderCafe
- Closer Sharing
- Sean Ellis: 40% “very disappointed”
Rob: In this episode of Startups For The Rest Of Us, Mike and I discuss the definition of product market fit using inexpensive developers, when to quit, and more listener questions. This is Startups For The Rest Of Us episode 409.
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. Where this week, sir?
Mike: Do you hear that?
Rob: The silence behind you?
Mike: Yes. The kids went back to school. Oh my god, it’s so awesome.
Rob: You’re right. It’s nice that they’re not in the house except for […] of the day or eight hours of the day with buzz time.
Mike: Yes, yes. It is. There are certain cartoons that they watch that could not end soon enough because they’ve watched the same episodes over and over. I’m just like, “Oh, please. Let it stop.”
Rob: Totally. Our kids go back next week. Although by the time that this airs, they’ll have gone back, but as of the time we’re recording, they’re not back in school yet. I’m definitely looking forward to that.
Mike: Yup. What’s up with you?
Rob: Well, I’ve been listening to a few books. As always, I kind of have my audio queue full at all times for when I get through all the podcasts episodes for the week. One I listen to is called Brotopia. It’s about kind of the Silicon Valley boys club and I enjoyed it. It’s by Emily Chang. It really brings a lot of stuff to light. I’m very glad she wrote it. I wasn’t surprised by a lot of it, I was surprised by parts of it in a bad way, just about stuff women have had to deal with in Silicon Valley.
There was a small portion that I felt like, I mean, literary 5-10% of it where I was like, “Okay, I feel like you’re taking this a little too far.” Or, “This is a little over the top.” Or, “This particular argument or example just feels like a little bit sensationalist,” but all that to say, solid 80-90% of it, it was like, “Oh my gosh, yeah.” Things are beginning to change but it’s not nearly enough. I appreciated that book. I think it’s something interesting to read or listen to if that kind of stuff interests you–and it should. Diversity inclusion is something that everyone is thinking about these days or should be.
Another book that I listened to that I didn’t think I would like actually. But I’m a huge fan of Paul Simons—Simon and Garfunkel in particular. There’s a new biography called, Paul Simons: The Life. I figured that anything before Simon and Garfunkel, like his growing up and anything after Simon and Garfunkel would not be that interesting to me. But it turns out it was well-written, it was fascinating, the story, and just the way he reinvents himself every album. […] is painful process of being a maker in what he does. I loved just hearing about creators and how much—it’s the struggle. It’s the struggle of creating things and how hard that is. Anyway, it’s highly recommended if you’re at all into Paul Simon or want to meet and like the artist’s journey, kind of biographies.
The last one is just a fun diversion. I buy a lot of books thinking like, “I’m going to go out on a limb here. It’s not typically what I love.” But it’s by David Spade and it’s called, A Polaroid Guy in a Snapchat World. I’m not a David Spade fan, in particular. The only movies that I ever saw him in were like Tommy Boy. I think he was in two Chris Farley movies. David Spade was on Saturday Night Live in early ‘90s, I believe. I have not followed him, I have no connection to him, but man, this book was funny. He just turned 50 years old and he just talks about kind of being in 5 television shows, and 24 movies. He’s a famous person. He just talks about life in LA, and Instagram, growing up, and other things. It’s funny. I enjoyed that. I feel like at first, it kind of set off in a beaten path. It was something that I could listen to that would take my mind off of work, which is something you’ve talked about a lot, how you read fiction to give your mind a rest from it.
Mike: Yeah, very cool. I haven’t read any of those few books. But I’ve run across Brotopia before, at least I’ve seen mentions of it in a couple of places. It’s interesting but as you said, I wouldn’t expect a lot of the things that are talked about in that to be necessarily surprising because there’s a lot of stuff that’s come out of the Silicon Valley culture that is just unacceptable, to be perfectly honest about it.
Rob: Yeah, it’s pretty over the top.
Mike: What are we talking about this week?
Rob: This week we are answering some listener questions. We have one question that we’ll kick it off with. It’s about using inexpensive developers. An anonymous listener wrote in, he said, “I discovered some of your videos on YouTube and the principles that you teach specifically the idea of an MVP have turned my thinking upside-down and got me really stoked. I’m a lead developer for a government contractor and I have been for 12 years. I believe that good software cannot be pounded out by cheap labor. I’ve seen too many programmers not willing or able to separate concerns like DRY Code–Do Not Repeat Yourself Code, and otherwise make unmaintainable convoluted messes. On the other hand, I need help for my on-the-side startup and cannot pay anywhere near the $100,000 a year for good developer in the States. I’m considering trying cheap overseas labor and I will attempt to review a code and set a standard to keep the code base at an acceptable level of quality. I have a couple of questions.”
This is good stuff because we often, Mike, we often get the questions of, “I’m non-technical. How do I find somebody else? How do I validate?” But this person is technical and so this is a boat you and I have both been in. It’s interesting, right? Because back in, between 2005-2010, I was very much in this boat. I knew you have had folks working on both Audit Shark and Bluetick.
He has three questions. The first one is, “Have you tried this and do you have lessons learned?” Second question is, “I’ve heard you say don’t worry about scaling it until you prove your market. Would you take that as far as hiring cheap developers to write unmaintainable code for your first iteration of the product, assuming the code actually works, of course. Building, kind of a crappy, and repeat, and then rewriting it later.” The third question is, “How have you approached hiring developers?”
We may not be able to in-depth answer all of these. We have talked about hiring developers in the past. I actually talked about it on the Quiet Light podcast, in specific where I went to 5 or 10 minutes of just that topic. Maybe let’s send people over there or they can search the back catalog because we have transcripts of every episode. If you go to startupsfortherestofus.com, type in hiring, you can grab some old episodes from iTunes and you can listen to that. Maybe we just tackle the first two in this episode.
The first one, have we tried what he’s suggesting, kind of hiring cheaper than $100,000 a year labor, and what are our lessons learned from that.
Mike: Yes, I have. Lessons learned is that your expectations for them should be lower than if you were paying more. You can find developers as cheap as $5 or $10 an hour, but you’re going to get what you pay for. I found that when I went above $20 an hour, I stared to get better developers. You’re able to get a wider variety of in-depth experience as well. If you go to the lower levels, you’ll just find somebody who says, “Oh, I can do front code and I could do backend code,” but they can neither one of them very good or they’re really good at one and they’re just terrible at the other. They can do it, they just are not good. You’ll find that the code is completely unmaintainable, and it’s very difficult to work with even if you lay out like, “Here’s the entire process of exactly how to do everything.” It still is just probably not going to work out very well.
That said, leading into number two, not scaling until you prove the market which you take that as far as hiring cheap developers to write unmaintainable code for the first iteration of your product. That’s a harder question to answer because it depends on how long it takes them to get there. The mistakes that they make are going to bite you and there’s two different ways. One is, whatever rewrite you have to go through, and the second is the goodwill that you’re earning with your customers. Because if you’re going through and you’re continually breaking things that used to work, they’re going to get angry with you. It’s just going to make your life more difficult in terms of trying to build the business and build revenue because they’re going to leave, they’re going to churn out because like, “Oh, this product, it breaks every other minute or every other day whenever something new goes in. It’s just a complete mess.” It’s going to be hard to go that route.
I would definitely, if you can afford it, hire slightly better developers, pay more than you probably think that you can potentially afford, or at least you thought that you can afford because it is going to be worth it. You’re not going to find that you’re going to get a $15 or $20 an hour developer. You can get two of them and they will be just as effective as a single developer that’s at $40 or $50 an hour. You’re better off going to better developer route even though you’re probably going to get less code because of the fact that they’re going to do a better job at it.
Now, obviously, there’s wide range of skills between people. Some people may charge $40, some people may charge $80 and they could potentially be similar in skillset not likely, because people tend to know what their value is but definitely, at the lower levels, everything’s like a total crap shoot. Once you get into the middle of $40, $60, $80 an hour, it changes quite a bit. There’s a, I’ll say, an order of magnitude. Difference in capabilities in somebody who’s below $20 versus above $30 or $40.
Rob: Yeah. His statement of, “I really believe that good software cannot be pounded by cheap labor.” It’s like, yeah, don’t be too dogmatic about that because cheap is relative, right? I was charging $125 an hour as a contractor. People would go to hire me and then say, “Well, I can hire someone for $50 and they’re cheap.” Is $50 an hour cheap or is $5 an hour cheap? Keep in mind that this is not absolute. I like your point about—and I’ve found the same thing—$5, $10 an hour, it’s going to be a mess. Know that going in if you’re going to build something like that with $5 or $10 amount.
I have found that decent developers in the $15-$25 an hour range much like you were saying. The interesting part is they maybe good developers but they tend to have something else that leads them to only charge that much. They might have kind of a chaotic personal life, or they might not be able to work as many hours as you need them to, or they might be just a little more sporadic on the hours than you want them too, or they might not be detailed on other things. You can find a good developer who’s cheap. There’s probably something else they’re not super reliable or something like that. That’s a thing to keep in mind is, it’s all trade-offs.
I can think of 20 reasons why any startup that I’m going to start is going to fail. Even back in 2005-2010, when I was much more in the same boat as the original question that asker here, yeah, I was taking risks. I hired a bunch of people that were in the $15 range. Some of them were really good, and some of them were terrible, and I just had to vet them. I found PHP developers, I found ColdFusion developers, I found Classic ASP developer because I had a bunch of different code bases, and I didn’t have the bandwidth to do this. Can this work? Yes, it can, but it’s not going to work the first time. The best developer for $20 an hour is not going to magically drop into your lap. You’re gonna have to look, and you’re going to have to vet, and you’re going to have to put in the work.
I’d say, don’t be too dogmatic about, “Oh, someone need to be making about $100k a year in order to be a good developer.” That’s not true especially not true if you go around the world. But even in the US, you can find good side labor with people who are paying less than $100k a year especially if you hire a junior or mid-level and are able to train them up. That’s a whole other story but we did that with Drip. We took two developers right out of code school so they literally had, I don’t know, six weeks to two months of coding experience. They have done a little on the side. Could they write great code from the start? No. But we had a bunch of safeguards in place. Derek did a lot of code reviews and he kept a close eye on the code base and the code base grew—it’s very large now, and it’s still a very solid code base with a lot of tests covered. Yes, this is possible.
Second question is, “Would you take it so far as hiring to develop unmaintainable code for your first iteration of a product?” My answer is probably not. Personally, I wouldn’t do that. I care too much about not having to rewrite the product because once you start getting momentum, and you start getting a few K in MRR, the last thing I want to do is go back and spend six months rewriting the thing. I’ve seen companies do it. It is agonizing. It kills the founders, not literally, but it is so painful to do.
If I’m going to do it from the start, I would just tackle a smaller problem and I would try to tackle part of the MVP without software at all. You’ve heard us talk about this. Use excel spreadsheets, use emails, there’s a bunch of other interfaces, use cheap virtual assistants to do the grunt work. There are ways to do this without building software. As developers, we think software is the answer to everything. In most cases, it is not. There are some when you need it to be.
If you’re building the next Google, yes, you need software. But I’d say in 80% of the cases where someone says, “I’m going to build my MVP,” and they assume that means software. They’re actually incorrect. You can do a lot of things. You could sell a lot of people on idea, or on mockups, or on the excel, email version of something without ever having to write a line of code. That’s the thinking I’d be doing at this point.
Mike: Yeah, I was going to mention that as an add-on for his second question was that, the first iteration of product doesn’t necessarily need to be software. How far are you down the road of the validation process? I think that once your past validating it and you decided to pull the trigger on it, do it the right way. Hire the developers that you need as opposed to the developers that you can just afford. You need to get good developers in there doing it.
Rob: I’ll even say, I’ve hacked things together myself. I think of the, what is now Founder Café, which is our online community for bootstrap software founders, go to foundercafe.com to learn more about that. But the original version of that, it had a different name altogether, called Micropreneur Academy, I was a software developer. I could’ve built online learning platform. There weren’t very many that were any good at that point. Moodle was in its early days, 2008, 2009. I hacked it together. I hacked it together with WordPress, and plugins, and theme, and that was really it, and I hacked some PHP. It wasn’t great. In the end, we had some technical dab but it was years later, it had already been built up and do a pretty nice business at that point. I’m not saying build a SaaS app that way, but there are workarounds you can look at to make that happen. Thanks for the question, Anonymous. I hope that’s helpful.
Our next question comes from dan@closersharing.com. He recorded an audio question so he jumped to the front of the line. It’s a long question but he gives a lot of background, and I appreciate it because oftentimes, people will send short questions, and then we have a lot of questions in our mind about, “Well, they didn’t give this detail or that.” It’s a couple of minutes here, but hang out, and then Mike and I will weigh in.
“Hey guys. My name is Dan Webb from Closer Sharing. Before I get to my question, I just want to say thank you to both of you. Thank you for all you do. I’ve learned a bunch from you guys. I’ve been listening for a few years now. When I first started listening, I tore back through the archives and learned a bunch and have been listening ever since. Thank you, guys, for sticking with it and teaching a lot of people a lot of stuff. Thanks.
Before I get to my question, let me give you a little bit of background. I have a startup. It’s called Closer Sharing. It’s a sermon podcasting platform. It’s a podcasting platform specifically designed for churches, allows the volunteers to quickly and easily use our recorder to record, and tag, and post the sermon each week, and list it on their website, and just takes the pain out of it, of hosting, and getting on their website and all that. We officially launched the product in January of 2017—a little bit over a year and a half ago. I have tried to grow it.
Right now, I currently have seven customers. We have an MRR of $200 a month. We really bootstrapped the thing building it. We only have an outflow of $175 a month who we are in the black. Out of those seven customers, all are original, I have had no churn whatsoever, so everybody that’s using it really likes it. Some have been on it the full year and a half. The latest sign-up was a couple of months ago.
There is no churn. I think it is a good product for the people who get on it. The trick is getting people on it. I have tried cold emailing. I’ve tried Facebook Ads, I have tried conferences. I tend to walk away from each one with one customer. I went to three of them. It really became obvious to me, one of the mistakes I was making a couple of podcast ago when you were talking about SaaS marketing, and I have not been trying to really connect with people and teach them anything. I’ve been just—as I’ve heard some people say—ask him to marry me on the first date sort of thing. I have a series of blog posts in my head that I feel like I should write and get out on my blog, and start sending people to them, and getting people to know me, but I haven’t done that yet. Probably my next project.
We’re well in the year and a half in, I was listening to your last podcast about funding, and some of that made me think as I’ve been thinking maybe I should just say, “Hey, it’s been a year and a half. I’ve only got seven customers. Maybe I should kill it and shift to something else. But then again, I have seven customers and I like them and I like to continue to provide the service for them. But I don’t want to be that guy that’s just clinging to my startup just because I’ve built it. I would like to know if it’s a viable product. I do have a whole list of futures that could make this platform really great, but I don’t want to keep building on it if it’s not a viable product.
My question is, should I keep spending my nights and weekends on this thing—I have a full-time job—and continue to grow really slowly? Should I possibly look for some sort of funding, so I could spend more time on it and possibly grow it quicker? Should I just kill and walk away and work on another product and try to develop it into a business? I’d loved to hear you guys’ thoughts on these things. I appreciate all you do. Thanks, guys.”
Rob: Tough question, huh, Mike? What do you think?
Mike: I think that’s a really tough question. I do hear a couple of things in there in terms of working on the weekends and wanting to build features. I think that that’s very natural for any developer to want to do because that’s comfortable, but at the same time, I think I would go back and I would start looking at metrics in terms of how many people you’re getting in front of, and how many trials sign-ups you’re getting, how many actual sign-ups you’re getting, I don’t know if there’s a free trial or anything like that, but those are the types of things that I would probably look at first, and see if there are obvious places where—like your sales funnel is just simply not working.
If you’re not getting 1000 or 2000 uniques a month, then that’s probably the place to start and try and figure out, “How do I get more traffic?” Because there’s this whole funnel that has to be in place in order for you to be able to build a business. That’s longer-term stuff. I want to make sure that I emphasize that there’s a difference between that type of stuff and then shorter-term stuff that you can do which you’d mentioned that you’ve done some Facebook ads and some cold emails and things like that. But I don’t know if you really have much on the website in terms of what you’re offering to people. I think the blog post sounds like a good idea in terms of education but I’m not seeing email newsletter sign-up list or anything like that on the website.
It’s more of a, “Come buy this product.” And there’s really not much in terms of education about how the churches that would invest in this type of products will deliver better sermons or would engage more with their church members. I think that’s what you need to key in on this because that’s what’s going to be important to them. The professional sound, they’re not going to care nearly as much about that as you are. You have to ask yourself, “What is it that’s actually important to them? How can they connect better with their members? How could thy reach more of them? How can they be more convenient to them in a digital age where people don’t necessarily need to show up at a certain time to see a movie, they can just stream it On Demand.”
That’s what you’re trying to cater to. That’s one of the problems that they’re probably having. Offer advice and solutions and different techniques and things like that in the form of educational material, and then try and build up that early part of the sales funnel. I would absolutely try and contact them directly as opposed to just sending emails because those are very easy to ignore. Pick up the phone, I mean, it’s probably not that difficult to reach them. I would imagine that most of their phone numbers are available.
If you’ve got people that you’re cold emailing, you’d probably have a way to find out who they are, and get a phone number for them, and call them and ask them. Talk to them and say, “What are your problems around this and around building a community?” because it really seems to me that’s what your product is trying to do. How do you engage with them and getting the information directly out of their mouths is going to be very helpful? I wouldn’t just call 5 or 10. I would call 50 or 100.
Put a line in the sand at some point in the future like you’d ask about whether or not you’d kill it. “What is your line in the sand? How much more effort do you put into this?” and really put the pedal down to see what is going to work. “How much effort can you justify putting into it?” and then once you’ve hit that, “Have you hit whatever your goals are or do you see a light at the end of the tunnel?” in either of those cases, you can keep going. But if you get there and there’s nothing else you can try, or you can’t think of anything else, I would kill it at that point.
Rob: I feel like this is such a tough market because some churches don’t tend to adopt. Some churches adopt technology but a lot of them do not. The older churches with aging congregations are just unlikely to need podcasting. You’re dealing with such a small subset of the entire market. If you think about, in the world, the number of people who, period who listen to podcasts is very small. My mom and dad don’t know how to do that. If you just break that down into a subset, and do a subset of like, “Now it’s churches, and now it’s churches who have people maybe under age 40, or age 50 who also know how to use podcasts.” Those are the only ones that have any type of need for this service. It’s a very small market and it’s a market where obviously, in conversations, I’m sure that he’s learned that they are just not that interested in adopting it. That’s the first problem.
The second issue, Dan, is you have a top of funnel problem, it sounds like. If you had 1000 or 10,000 unique visitors to your website each month, you think you would convert them? I don’t know. But generating visitors is going to be really hard to do. If you’ve been doing for two years and only have seven customers, that’s a bad sign. That’s a sign that something’s not resonating here. I think a big question I would ask myself is, “Are you tired of working on this? Are you done yet? Are you still excited to invest time?” not even, “Do you still believe it can work but are you excited to get up and think about this problem and try do to it?” I would stop building features altogether. You shouldn’t be coding anything which doesn’t sound like you are.
Your biggest problem is, it sounds like might be driving traffic, or maybe driving traffic hasn’t worked at all and it’s only been in-person conversations, in which case ask yourself, “Is a $29 a month product worth doing high-tech sales for?” because for me, it’s not. It’s going to grow very slowly. You need $100-$200 a month minimum, to make that kind of approach work. I really don’t think funding will fix this.
This is not a problem of, “I need money to scale or I need to put in more time to get to a point where this product is worthwhile.” It seems that you have a worthwhile product already. You’ve a lot of cool features. More time to market? What would you do? It sounds like you have tried a bunch of stuff. I mean, you haven’t tried everything, maybe you didn’t try enough of it, didn’t have the budget, but I’m cautiously skeptical that if you have $100,000 in your bank account tomorrow, and you could go full-time on this for, let’s just say, nine months and had some budget for stuff, I don’t see this taking off like a rocket ship based on how you’ve described.
I think my biggest piece of advice, given what you’ve said and looking at the website, it seems like a pretty cool tool in all honesty. You have features like automatic intros and outros, professional sound without the work, automatic feeds, is there another vertical that could use this? Should it be horizontal? Should it go across all verticals, basically? Should you not limit it to churches, is what I’m saying.
Right now, you’re marketing to churches, is that too limiting, and is there either another vertical that would have so much more uptake on this or just open it to everyone, and then poof, you become the ‘how to start a podcast superfast’ service. Maybe you make it a little cheaper but sign-up for six months or a year at a time and you pay upfront. I don’t know if that’s the direction but that’s where I’d be looking. Are there already services that do that? Because at that point, if you could get into that space, now you have affiliate potential because you have people who teach other people how to podcast. Would they potentially refer you for an affiliate commission? That’s a bigger space is people trying to start their own podcast. Could you go after businesses or startups or whatever?
Again, this is something I would either try to research, do some customer development, put some digging into that because I feel like that’s a space where there are more likely going to be folks who will actually adopt this, and consider jumping on this train because it seems that you’ve built a decent piece of software–at least from the marketing side. It looks pretty interesting and has some features I haven’t seen elsewhere, but I don’t the competitive landscape. That’s probably where I would look at or shut it down. That’s the other option that I see.
I always hate to make a recommendation like that because I feel like the founder knows better than anyone else. They often need to see […] that’s where having a mastermind would help, right, of people who’ve been along in the journey. But to hear a formative voice and then make a recommendation that, you should check your product down, it’s tough. It’s tough for me to say that but, I think that’s a more viable option than trying to scale this up in the church space or raising the funding.
Last question of the day came from Twitter. It came from @chelso and he said, “Regarding episode 406. What is your definition of product market fit?” and then I started tying and then thought, there’s always so much nuance to a question like this, and Twitter is not the place to do this. This is either a blog post or it’s a conversation like this. I think product market fit is not a binary thing. I definitely think it’s a continuum and I think you kind of ease into it.
There is a nice measure that Sean Ellis created. It’s this survey you can send out that says, “How would you feel if you could no longer use this product?” insert product name here. The four options are; very disappointed, somewhat disappointed, not disappointed–it isn’t really that useful, or NA–I don’t really use the product, or I no longer use the product. If you get more than 40% who say they would be very disappointed, that is how Sean Ellis has defined product market fit. I think that would be the most common definition. I have run this exact survey on some of my products.
I know Hiten Shah has run this exact survey on, not only his products, but on a bunch of other products. He’ll run it on Google Analytics. He’ll just ask a bunch of people, and I don’t know if he uses a mechanical trick or how he does that, but Google Analytics definitely has product market fit, at least according to his slide deck and some talking he’s done. We will link to SlideShare, this Hiten Shah presentation in the show notes so that you can take a look at the work that he did.
I’ll leave it there, Mike, so you can weigh in. I have additional thoughts and kind of my own personal thoughts of when I saw Drip–what it looked and felt like before product market fit as we were getting there, and then once we had it, from my perspective. I do want to weigh in, but I don’t want to sit here and monologue and not let you weigh in.
Mike: True. This is probably not going be much different from other people on what they would comment but you’ll know it when you see it. I know that’s kind of a hand-wavy type of thing but there are some people who will look at metrics–so Sean Ellis has that product market fit survey. If you’re more than, I think he said that 40% are, I forgot what the exact percentage was, but certain percentage say that they are either somewhat disappointed or very disappointed that they would go away.
Rob: 40% said they would be very disappointed if it went away. 40% or more then, by his definition, you have product market fit.
Mike: Right. Like you said, that’s a very, I’ll say, exact in definition. I won’t necessarily say that that’s the only definition. It’s kind of my view of it. I like the way Rob phrases like, “There’s a continuum of it.” That’s why I say you’ll know it when you see it because if you’re involved in the startup from beginning to end or wherever you’re trying to figure out like, have you gotten to product market fit, you’ll know it when you see it because things will start to tick up and it will be obvious that you’re on the right track. Because it’s a continuum, you’re never going to be like, “We have perfect product market fit.”
You think things can always improve, they can always get better, and the market’s always changing, your product’s always changing, your marketing messages are going to be always changing–these things that interact with one another that you’ll never have this perfect product market fit. Even if you did, it’s very likely something that something is going to change and throw it all out of whack in 18 seconds.
Really, what you have to do is, if you don’t have the data, if you haven’t run a survey like this, you kind of have to go off of a gut feeling. My general view on it is that if you take the product and you put it in front of people who are in what you believe to be the correct target market, and they actually are, do you win much more than you lose? Are those people going to sign-up and say, “Yes, I would like this,” Or, “No, we’re not just interested.” Because that will tell you one of two things, either one, you’re pointing at the wrong market or your product is not good enough and it’s just not doing what people need it to do.
The second piece, which I didn’t mention yet, is that those people will have to actually stick around. You can explain to them, “Hey, this product will do X, Y, and Z for you. It’ll make all these problems go away.” But if you don’t also deliver on it, they’re going to churn out. You have to figure out ways to make them stick around. Those are two different competing things and sometimes, your things should make them stick around or going to be more features–sometimes it’s educational, or onboarding, or something like that. That’s a slightly different problem than product market fit. Somebody may believe that they need a particular solution, and they’ll pay for it, but then they don’t use it.
Think of any weight loss program on the planet. People buy into that stuff and then they don’t use it. Why don’t they use it? Is it a product market fit problem or is it a customer retention problem? That’s a hard thing to figure out because if they churn out, if they stop paying for it, if they stop using it, then is it because other things got in the way or the product doesn’t actually do what they needed it to do? There’s an attribution problem of, “Why did they churn out?” If it’s because it wasn’t actually a good product market fit and they bought into the messaging, but it didn’t solve their problem, then you don’t have product market fit. If they churned out because they just don’t have the chops or time or anything like that to actually do it, then that’s a slightly different problem–that’s a retention problem not necessarily a product market fit problem.
Rob: This is why it’s a good conversation to have. I won’t talk about weight loss stuff because I don’t even know if product market fit applies to that in particular. I mean, it does, but I don’t think about it in terms on that one. I think of a SaaS app, a retention is a product market fit problem, in my opinion. That if someone’s not getting on-boarded, not using it, then the need isn’t deep enough, and you haven’t found that fit with the market. The question that I ask, the way I frame it in my head is, “Have you built something people or businesses need?” That’s the question that I’ve asked.
I think Paul Graham says, “Have you built something people want?” I think it’s a great way to phrase it but have you built something that people or businesses need? Let’s stick to businesses because we talk a lot about B2B SaaS here. If you built something people desperately need, and they start using it, can you still fail, or can you still grow slowly? Yes, I believe you can even with product market fit because if the market’s too small, and you tap out, that’s one way.
If your market’s only $10,000 a month then you can own the whole market and really just tap out very quickly. Or if your market is huge but you can’t reach them in a scalable fashion, that’s a totally different problem than product market fit. I think there’s different problem than product market fit. I think there’s being able to build something that people need, and businesses need, and then there’s the ability to reach them in a scalable way and get them onboarded in a way that doesn’t kind of break the bank.
The three questions I think about, in order. The first one you have to ask—this is before you’ve built anything— “Is a problem you’re choosing to solve worth solving? i.e., is it much of a pain point for people?” then you’re going to start building it or you’re going to start validating it. Customer development even before you build it. You need find out, “Are people willing to pay for a solution to this problem?” Then you propose a solution and that’s where you hit that very first milestone is problem solution fit. You’ve proposed a solution to a problem. Does anyone care? Is it worth building at all? Are people willing to pay for that? And then product market fit is almost this, it’s kind of a twisted question or it’s a weird way to think about it, but it’s like, “Have you solved that problem well? Have you solved better than the alternatives? Is the problem worth solving? Are people willing to pay for it?”
You can build a good product but if you can’t reach the people and get them to sign-up, you’re going to really have a problem. I almost feel like problem solution fit is one, product market fit is the next, and then there’s this one, market marketing fit. I just made that up today because I was thinking, “Can you reach your market?” is almost the question there.
I remember when Drip started to scale up, at first it was like, people were churning, churn was high, trial to conversion rates were low and then they just flipped. Trial to conversion went up, churn started plummeting, and we started growing very quickly even with fewer trials that we’ve had in previous months. That’s when I knew, we are a product market fit, or at least I thought, and sure enough I did that survey, the very disappointed thing. I remember thinking it was going be really high because everyone was like, “Well, Drip is so great. Everyone’s switching.” and blah blah blah. We got like 43%, 46%, somewhere in there. I remember being disappointed by that because I thought, “Oh, man. I thought more people would be very disappointed.” but as it turns out, it’s really hard to get above 40%. That’s why Sean Ellis sets the bar where it is.
Mike: I think one of the things that you explained probably better than I did because I didn’t actually put a label on it was that, when I said, if you put the product in front of people who are in your target market, basically, that’s bypassing the problem of the product market fit piece of it and trying to ascertain whether or not you have a problem solution fit. Because by doing that, you’re making an assumption that you already have product market fit and you’re able to get the right people there.
If you don’t have that, if you get what you think are the right people, and you put it front of them and they don’t buy, then you probably do not have that product market fit. It’s just kind of a little subtle thing that I, I guess I talked about there, but I didn’t really explain like that. Applied to the previous piece and you’re just trying to avoid the whole marketing side of things. You just say, “Are we actually solving the right problem for the people that you think need that?”
Anyway, I think that will about wrap us up. Chelso, I hope that was extremely helpful for you. If you have 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. Where this week, sir?
Mike: Do you hear that?
Rob: The silence behind you?
Mike: Yes. The kids went back to school. Oh my god, it’s so awesome.
Rob: You’re right. It’s nice that they’re not in the house except for […] of the day or eight hours of the day with buzz time.
Mike: Yes, yes. It is. There are certain cartoons that they watch that could not end soon enough because they’ve watched the same episodes over and over. I’m just like, “Oh, please. Let it stop.”
Rob: Totally. Our kids go back next week. Although by the time that this airs, they’ll have gone back, but as of the time we’re recording, they’re not back in school yet. I’m definitely looking forward to that.
Mike: Yup. What’s up with you?
Rob: Well, I’ve been listening to a few books. As always, I kind of have my audio queue full at all times for when I get through all the podcasts episodes for the week. One I listen to is called Brotopia. It’s about kind of the Silicon Valley boys club and I enjoyed it. It’s by Emily Chang. It really brings a lot of stuff to light. I’m very glad she wrote it. I wasn’t surprised by a lot of it, I was surprised by parts of it in a bad way, just about stuff women have had to deal with in Silicon Valley.
There was a small portion that I felt like, I mean, literary 5-10% of it where I was like, “Okay, I feel like you’re taking this a little too far.” Or, “This is a little over the top.” Or, “This particular argument or example just feels like a little bit sensationalist,” but all that to say, solid 80-90% of it, it was like, “Oh my gosh, yeah.” Things are beginning to change but it’s not nearly enough. I appreciated that book. I think it’s something interesting to read or listen to if that kind of stuff interests you–and it should. Diversity inclusion is something that everyone is thinking about these days or should be.
Another book that I listened to that I didn’t think I would like actually. But I’m a huge fan of Paul Simons—Simon and Garfunkel in particular. There’s a new biography called, Paul Simons: The Life. I figured that anything before Simon and Garfunkel, like his growing up and anything after Simon and Garfunkel would not be that interesting to me. But it turns out it was well-written, it was fascinating, the story, and just the way he reinvents himself every album. […] is painful process of being a maker in what he does. I loved just hearing about creators and how much—it’s the struggle. It’s the struggle of creating things and how hard that is. Anyway, it’s highly recommended if you’re at all into Paul Simon or want to meet and like the artist’s journey, kind of biographies.
The last one is just a fun diversion. I buy a lot of books thinking like, “I’m going to go out on a limb here. It’s not typically what I love.” But it’s by David Spade and it’s called, A Polaroid Guy in a Snapchat World. I’m not a David Spade fan, in particular. The only movies that I ever saw him in were like Tommy Boy. I think he was in two Chris Farley movies. David Spade was on Saturday Night Live in early ‘90s, I believe. I have not followed him, I have no connection to him, but man, this book was funny. He just turned 50 years old and he just talks about kind of being in 5 television shows, and 24 movies. He’s a famous person. He just talks about life in LA, and Instagram, growing up, and other things. It’s funny. I enjoyed that. I feel like at first, it kind of set off in a beaten path. It was something that I could listen to that would take my mind off of work, which is something you’ve talked about a lot, how you read fiction to give your mind a rest from it.
Mike: Yeah, very cool. I haven’t read any of those few books. But I’ve run across Brotopia before, at least I’ve seen mentions of it in a couple of places. It’s interesting but as you said, I wouldn’t expect a lot of the things that are talked about in that to be necessarily surprising because there’s a lot of stuff that’s come out of the Silicon Valley culture that is just unacceptable, to be perfectly honest about it.
Rob: Yeah, it’s pretty over the top.
Mike: What are we talking about this week?
Rob: This week we are answering some listener questions. We have one question that we’ll kick it off with. It’s about using inexpensive developers. An anonymous listener wrote in, he said, “I discovered some of your videos on YouTube and the principles that you teach specifically the idea of an MVP have turned my thinking upside-down and got me really stoked. I’m a lead developer for a government contractor and I have been for 12 years. I believe that good software cannot be pounded out by cheap labor. I’ve seen too many programmers not willing or able to separate concerns like DRY Code–Do Not Repeat Yourself Code, and otherwise make unmaintainable convoluted messes. On the other hand, I need help for my on-the-side startup and cannot pay anywhere near the $100,000 a year for good developer in the States. I’m considering trying cheap overseas labor and I will attempt to review a code and set a standard to keep the code base at an acceptable level of quality. I have a couple of questions.”
This is good stuff because we often, Mike, we often get the questions of, “I’m non-technical. How do I find somebody else? How do I validate?” But this person is technical and so this is a boat you and I have both been in. It’s interesting, right? Because back in, between 2005-2010, I was very much in this boat. I knew you have had folks working on both Audit Shark and Bluetick.
He has three questions. The first one is, “Have you tried this and do you have lessons learned?” Second question is, “I’ve heard you say don’t worry about scaling it until you prove your market. Would you take that as far as hiring cheap developers to write unmaintainable code for your first iteration of the product, assuming the code actually works, of course. Building, kind of a crappy, and repeat, and then rewriting it later.” The third question is, “How have you approached hiring developers?”
We may not be able to in-depth answer all of these. We have talked about hiring developers in the past. I actually talked about it on the Quiet Light podcast, in specific where I went to 5 or 10 minutes of just that topic. Maybe let’s send people over there or they can search the back catalog because we have transcripts of every episode. If you go to startupsfortherestofus.com, type in hiring, you can grab some old episodes from iTunes and you can listen to that. Maybe we just tackle the first two in this episode.
The first one, have we tried what he’s suggesting, kind of hiring cheaper than $100,000 a year labor, and what are our lessons learned from that.
Mike: Yes, I have. Lessons learned is that your expectations for them should be lower than if you were paying more. You can find developers as cheap as $5 or $10 an hour, but you’re going to get what you pay for. I found that when I went above $20 an hour, I stared to get better developers. You’re able to get a wider variety of in-depth experience as well. If you go to the lower levels, you’ll just find somebody who says, “Oh, I can do front code and I could do backend code,” but they can neither one of them very good or they’re really good at one and they’re just terrible at the other. They can do it, they just are not good. You’ll find that the code is completely unmaintainable, and it’s very difficult to work with even if you lay out like, “Here’s the entire process of exactly how to do everything.” It still is just probably not going to work out very well.
That said, leading into number two, not scaling until you prove the market which you take that as far as hiring cheap developers to write unmaintainable code for the first iteration of your product. That’s a harder question to answer because it depends on how long it takes them to get there. The mistakes that they make are going to bite you and there’s two different ways. One is, whatever rewrite you have to go through, and the second is the goodwill that you’re earning with your customers. Because if you’re going through and you’re continually breaking things that used to work, they’re going to get angry with you. It’s just going to make your life more difficult in terms of trying to build the business and build revenue because they’re going to leave, they’re going to churn out because like, “Oh, this product, it breaks every other minute or every other day whenever something new goes in. It’s just a complete mess.” It’s going to be hard to go that route.
I would definitely, if you can afford it, hire slightly better developers, pay more than you probably think that you can potentially afford, or at least you thought that you can afford because it is going to be worth it. You’re not going to find that you’re going to get a $15 or $20 an hour developer. You can get two of them and they will be just as effective as a single developer that’s at $40 or $50 an hour. You’re better off going to better developer route even though you’re probably going to get less code because of the fact that they’re going to do a better job at it.
Now, obviously, there’s wide range of skills between people. Some people may charge $40, some people may charge $80 and they could potentially be similar in skillset not likely, because people tend to know what their value is but definitely, at the lower levels, everything’s like a total crap shoot. Once you get into the middle of $40, $60, $80 an hour, it changes quite a bit. There’s a, I’ll say, an order of magnitude. Difference in capabilities in somebody who’s below $20 versus above $30 or $40.
Rob: Yeah. His statement of, “I really believe that good software cannot be pounded by cheap labor.” It’s like, yeah, don’t be too dogmatic about that because cheap is relative, right? I was charging $125 an hour as a contractor. People would go to hire me and then say, “Well, I can hire someone for $50 and they’re cheap.” Is $50 an hour cheap or is $5 an hour cheap? Keep in mind that this is not absolute. I like your point about—and I’ve found the same thing—$5, $10 an hour, it’s going to be a mess. Know that going in if you’re going to build something like that with $5 or $10 amount.
I have found that decent developers in the $15-$25 an hour range much like you were saying. The interesting part is they maybe good developers but they tend to have something else that leads them to only charge that much. They might have kind of a chaotic personal life, or they might not be able to work as many hours as you need them to, or they might be just a little more sporadic on the hours than you want them too, or they might not be detailed on other things. You can find a good developer who’s cheap. There’s probably something else they’re not super reliable or something like that. That’s a thing to keep in mind is, it’s all trade-offs.
I can think of 20 reasons why any startup that I’m going to start is going to fail. Even back in 2005-2010, when I was much more in the same boat as the original question that asker here, yeah, I was taking risks. I hired a bunch of people that were in the $15 range. Some of them were really good, and some of them were terrible, and I just had to vet them. I found PHP developers, I found ColdFusion developers, I found Classic ASP developer because I had a bunch of different code bases, and I didn’t have the bandwidth to do this. Can this work? Yes, it can, but it’s not going to work the first time. The best developer for $20 an hour is not going to magically drop into your lap. You’re gonna have to look, and you’re going to have to vet, and you’re going to have to put in the work.
I’d say, don’t be too dogmatic about, “Oh, someone need to be making about $100k a year in order to be a good developer.” That’s not true especially not true if you go around the world. But even in the US, you can find good side labor with people who are paying less than $100k a year especially if you hire a junior or mid-level and are able to train them up. That’s a whole other story but we did that with Drip. We took two developers right out of code school so they literally had, I don’t know, six weeks to two months of coding experience. They have done a little on the side. Could they write great code from the start? No. But we had a bunch of safeguards in place. Derek did a lot of code reviews and he kept a close eye on the code base and the code base grew—it’s very large now, and it’s still a very solid code base with a lot of tests covered. Yes, this is possible.
Second question is, “Would you take it so far as hiring to develop unmaintainable code for your first iteration of a product?” My answer is probably not. Personally, I wouldn’t do that. I care too much about not having to rewrite the product because once you start getting momentum, and you start getting a few K in MRR, the last thing I want to do is go back and spend six months rewriting the thing. I’ve seen companies do it. It is agonizing. It kills the founders, not literally, but it is so painful to do.
If I’m going to do it from the start, I would just tackle a smaller problem and I would try to tackle part of the MVP without software at all. You’ve heard us talk about this. Use excel spreadsheets, use emails, there’s a bunch of other interfaces, use cheap virtual assistants to do the grunt work. There are ways to do this without building software. As developers, we think software is the answer to everything. In most cases, it is not. There are some when you need it to be.
If you’re building the next Google, yes, you need software. But I’d say in 80% of the cases where someone says, “I’m going to build my MVP,” and they assume that means software. They’re actually incorrect. You can do a lot of things. You could sell a lot of people on idea, or on mockups, or on the excel, email version of something without ever having to write a line of code. That’s the thinking I’d be doing at this point.
Mike: Yeah, I was going to mention that as an add-on for his second question was that, the first iteration of product doesn’t necessarily need to be software. How far are you down the road of the validation process? I think that once your past validating it and you decided to pull the trigger on it, do it the right way. Hire the developers that you need as opposed to the developers that you can just afford. You need to get good developers in there doing it.
Rob: I’ll even say, I’ve hacked things together myself. I think of the, what is now Founder Café, which is our online community for bootstrap software founders, go to foundercafe.com to learn more about that. But the original version of that, it had a different name altogether, called Micropreneur Academy, I was a software developer. I could’ve built online learning platform. There weren’t very many that were any good at that point. Moodle was in its early days, 2008, 2009. I hacked it together. I hacked it together with WordPress, and plugins, and theme, and that was really it, and I hacked some PHP. It wasn’t great. In the end, we had some technical dab but it was years later, it had already been built up and do a pretty nice business at that point. I’m not saying build a SaaS app that way, but there are workarounds you can look at to make that happen. Thanks for the question, Anonymous. I hope that’s helpful.
Our next question comes from dan@closersharing.com. He recorded an audio question so he jumped to the front of the line. It’s a long question but he gives a lot of background, and I appreciate it because oftentimes, people will send short questions, and then we have a lot of questions in our mind about, “Well, they didn’t give this detail or that.” It’s a couple of minutes here, but hang out, and then Mike and I will weigh in.
“Hey guys. My name is Dan Webb from Closer Sharing. Before I get to my question, I just want to say thank you to both of you. Thank you for all you do. I’ve learned a bunch from you guys. I’ve been listening for a few years now. When I first started listening, I tore back through the archives and learned a bunch and have been listening ever since. Thank you, guys, for sticking with it and teaching a lot of people a lot of stuff. Thanks.
Before I get to my question, let me give you a little bit of background. I have a startup. It’s called Closer Sharing. It’s a sermon podcasting platform. It’s a podcasting platform specifically designed for churches, allows the volunteers to quickly and easily use our recorder to record, and tag, and post the sermon each week, and list it on their website, and just takes the pain out of it, of hosting, and getting on their website and all that. We officially launched the product in January of 2017—a little bit over a year and a half ago. I have tried to grow it.
Right now, I currently have seven customers. We have an MRR of $200 a month. We really bootstrapped the thing building it. We only have an outflow of $175 a month who we are in the black. Out of those seven customers, all are original, I have had no churn whatsoever, so everybody that’s using it really likes it. Some have been on it the full year and a half. The latest sign-up was a couple of months ago.
There is no churn. I think it is a good product for the people who get on it. The trick is getting people on it. I have tried cold emailing. I’ve tried Facebook Ads, I have tried conferences. I tend to walk away from each one with one customer. I went to three of them. It really became obvious to me, one of the mistakes I was making a couple of podcast ago when you were talking about SaaS marketing, and I have not been trying to really connect with people and teach them anything. I’ve been just—as I’ve heard some people say—ask him to marry me on the first date sort of thing. I have a series of blog posts in my head that I feel like I should write and get out on my blog, and start sending people to them, and getting people to know me, but I haven’t done that yet. Probably my next project.
We’re well in the year and a half in, I was listening to your last podcast about funding, and some of that made me think as I’ve been thinking maybe I should just say, “Hey, it’s been a year and a half. I’ve only got seven customers. Maybe I should kill it and shift to something else. But then again, I have seven customers and I like them and I like to continue to provide the service for them. But I don’t want to be that guy that’s just clinging to my startup just because I’ve built it. I would like to know if it’s a viable product. I do have a whole list of futures that could make this platform really great, but I don’t want to keep building on it if it’s not a viable product.
My question is, should I keep spending my nights and weekends on this thing—I have a full-time job—and continue to grow really slowly? Should I possibly look for some sort of funding, so I could spend more time on it and possibly grow it quicker? Should I just kill and walk away and work on another product and try to develop it into a business? I’d loved to hear you guys’ thoughts on these things. I appreciate all you do. Thanks, guys.”
Rob: Tough question, huh, Mike? What do you think?
Mike: I think that’s a really tough question. I do hear a couple of things in there in terms of working on the weekends and wanting to build features. I think that that’s very natural for any developer to want to do because that’s comfortable, but at the same time, I think I would go back and I would start looking at metrics in terms of how many people you’re getting in front of, and how many trials sign-ups you’re getting, how many actual sign-ups you’re getting, I don’t know if there’s a free trial or anything like that, but those are the types of things that I would probably look at first, and see if there are obvious places where—like your sales funnel is just simply not working.
If you’re not getting 1000 or 2000 uniques a month, then that’s probably the place to start and try and figure out, “How do I get more traffic?” Because there’s this whole funnel that has to be in place in order for you to be able to build a business. That’s longer-term stuff. I want to make sure that I emphasize that there’s a difference between that type of stuff and then shorter-term stuff that you can do which you’d mentioned that you’ve done some Facebook ads and some cold emails and things like that. But I don’t know if you really have much on the website in terms of what you’re offering to people. I think the blog post sounds like a good idea in terms of education but I’m not seeing email newsletter sign-up list or anything like that on the website.
It’s more of a, “Come buy this product.” And there’s really not much in terms of education about how the churches that would invest in this type of products will deliver better sermons or would engage more with their church members. I think that’s what you need to key in on this because that’s what’s going to be important to them. The professional sound, they’re not going to care nearly as much about that as you are. You have to ask yourself, “What is it that’s actually important to them? How can they connect better with their members? How could thy reach more of them? How can they be more convenient to them in a digital age where people don’t necessarily need to show up at a certain time to see a movie, they can just stream it On Demand.”
That’s what you’re trying to cater to. That’s one of the problems that they’re probably having. Offer advice and solutions and different techniques and things like that in the form of educational material, and then try and build up that early part of the sales funnel. I would absolutely try and contact them directly as opposed to just sending emails because those are very easy to ignore. Pick up the phone, I mean, it’s probably not that difficult to reach them. I would imagine that most of their phone numbers are available.
If you’ve got people that you’re cold emailing, you’d probably have a way to find out who they are, and get a phone number for them, and call them and ask them. Talk to them and say, “What are your problems around this and around building a community?” because it really seems to me that’s what your product is trying to do. How do you engage with them and getting the information directly out of their mouths is going to be very helpful? I wouldn’t just call 5 or 10. I would call 50 or 100.
Put a line in the sand at some point in the future like you’d ask about whether or not you’d kill it. “What is your line in the sand? How much more effort do you put into this?” and really put the pedal down to see what is going to work. “How much effort can you justify putting into it?” and then once you’ve hit that, “Have you hit whatever your goals are or do you see a light at the end of the tunnel?” in either of those cases, you can keep going. But if you get there and there’s nothing else you can try, or you can’t think of anything else, I would kill it at that point.
Rob: I feel like this is such a tough market because some churches don’t tend to adopt. Some churches adopt technology but a lot of them do not. The older churches with aging congregations are just unlikely to need podcasting. You’re dealing with such a small subset of the entire market. If you think about, in the world, the number of people who, period who listen to podcasts is very small. My mom and dad don’t know how to do that. If you just break that down into a subset, and do a subset of like, “Now it’s churches, and now it’s churches who have people maybe under age 40, or age 50 who also know how to use podcasts.” Those are the only ones that have any type of need for this service. It’s a very small market and it’s a market where obviously, in conversations, I’m sure that he’s learned that they are just not that interested in adopting it. That’s the first problem.
The second issue, Dan, is you have a top of funnel problem, it sounds like. If you had 1000 or 10,000 unique visitors to your website each month, you think you would convert them? I don’t know. But generating visitors is going to be really hard to do. If you’ve been doing for two years and only have seven customers, that’s a bad sign. That’s a sign that something’s not resonating here. I think a big question I would ask myself is, “Are you tired of working on this? Are you done yet? Are you still excited to invest time?” not even, “Do you still believe it can work but are you excited to get up and think about this problem and try do to it?” I would stop building features altogether. You shouldn’t be coding anything which doesn’t sound like you are.
Your biggest problem is, it sounds like might be driving traffic, or maybe driving traffic hasn’t worked at all and it’s only been in-person conversations, in which case ask yourself, “Is a $29 a month product worth doing high-tech sales for?” because for me, it’s not. It’s going to grow very slowly. You need $100-$200 a month minimum, to make that kind of approach work. I really don’t think funding will fix this.
This is not a problem of, “I need money to scale or I need to put in more time to get to a point where this product is worthwhile.” It seems that you have a worthwhile product already. You’ve a lot of cool features. More time to market? What would you do? It sounds like you have tried a bunch of stuff. I mean, you haven’t tried everything, maybe you didn’t try enough of it, didn’t have the budget, but I’m cautiously skeptical that if you have $100,000 in your bank account tomorrow, and you could go full-time on this for, let’s just say, nine months and had some budget for stuff, I don’t see this taking off like a rocket ship based on how you’ve described.
I think my biggest piece of advice, given what you’ve said and looking at the website, it seems like a pretty cool tool in all honesty. You have features like automatic intros and outros, professional sound without the work, automatic feeds, is there another vertical that could use this? Should it be horizontal? Should it go across all verticals, basically? Should you not limit it to churches, is what I’m saying.
Right now, you’re marketing to churches, is that too limiting, and is there either another vertical that would have so much more uptake on this or just open it to everyone, and then poof, you become the ‘how to start a podcast superfast’ service. Maybe you make it a little cheaper but sign-up for six months or a year at a time and you pay upfront. I don’t know if that’s the direction but that’s where I’d be looking. Are there already services that do that? Because at that point, if you could get into that space, now you have affiliate potential because you have people who teach other people how to podcast. Would they potentially refer you for an affiliate commission? That’s a bigger space is people trying to start their own podcast. Could you go after businesses or startups or whatever?
Again, this is something I would either try to research, do some customer development, put some digging into that because I feel like that’s a space where there are more likely going to be folks who will actually adopt this, and consider jumping on this train because it seems that you’ve built a decent piece of software–at least from the marketing side. It looks pretty interesting and has some features I haven’t seen elsewhere, but I don’t the competitive landscape. That’s probably where I would look at or shut it down. That’s the other option that I see.
I always hate to make a recommendation like that because I feel like the founder knows better than anyone else. They often need to see […] that’s where having a mastermind would help, right, of people who’ve been along in the journey. But to hear a formative voice and then make a recommendation that, you should check your product down, it’s tough. It’s tough for me to say that but, I think that’s a more viable option than trying to scale this up in the church space or raising the funding.
Last question of the day came from Twitter. It came from @chelso and he said, “Regarding episode 406. What is your definition of product market fit?” and then I started tying and then thought, there’s always so much nuance to a question like this, and Twitter is not the place to do this. This is either a blog post or it’s a conversation like this. I think product market fit is not a binary thing. I definitely think it’s a continuum and I think you kind of ease into it.
There is a nice measure that Sean Ellis created. It’s this survey you can send out that says, “How would you feel if you could no longer use this product?” insert product name here. The four options are; very disappointed, somewhat disappointed, not disappointed–it isn’t really that useful, or NA–I don’t really use the product, or I no longer use the product. If you get more than 40% who say they would be very disappointed, that is how Sean Ellis has defined product market fit. I think that would be the most common definition. I have run this exact survey on some of my products.
I know Hiten Shah has run this exact survey on, not only his products, but on a bunch of other products. He’ll run it on Google Analytics. He’ll just ask a bunch of people, and I don’t know if he uses a mechanical trick or how he does that, but Google Analytics definitely has product market fit, at least according to his slide deck and some talking he’s done. We will link to SlideShare, this Hiten Shah presentation in the show notes so that you can take a look at the work that he did.
I’ll leave it there, Mike, so you can weigh in. I have additional thoughts and kind of my own personal thoughts of when I saw Drip–what it looked and felt like before product market fit as we were getting there, and then once we had it, from my perspective. I do want to weigh in, but I don’t want to sit here and monologue and not let you weigh in.
Mike: True. This is probably not going be much different from other people on what they would comment but you’ll know it when you see it. I know that’s kind of a hand-wavy type of thing but there are some people who will look at metrics–so Sean Ellis has that product market fit survey. If you’re more than, I think he said that 40% are, I forgot what the exact percentage was, but certain percentage say that they are either somewhat disappointed or very disappointed that they would go away.
Rob: 40% said they would be very disappointed if it went away. 40% or more then, by his definition, you have product market fit.
Mike: Right. Like you said, that’s a very, I’ll say, exact in definition. I won’t necessarily say that that’s the only definition. It’s kind of my view of it. I like the way Rob phrases like, “There’s a continuum of it.” That’s why I say you’ll know it when you see it because if you’re involved in the startup from beginning to end or wherever you’re trying to figure out like, have you gotten to product market fit, you’ll know it when you see it because things will start to tick up and it will be obvious that you’re on the right track. Because it’s a continuum, you’re never going to be like, “We have perfect product market fit.”
You think things can always improve, they can always get better, and the market’s always changing, your product’s always changing, your marketing messages are going to be always changing–these things that interact with one another that you’ll never have this perfect product market fit. Even if you did, it’s very likely something that something is going to change and throw it all out of whack in 18 seconds.
Really, what you have to do is, if you don’t have the data, if you haven’t run a survey like this, you kind of have to go off of a gut feeling. My general view on it is that if you take the product and you put it in front of people who are in what you believe to be the correct target market, and they actually are, do you win much more than you lose? Are those people going to sign-up and say, “Yes, I would like this,” Or, “No, we’re not just interested.” Because that will tell you one of two things, either one, you’re pointing at the wrong market or your product is not good enough and it’s just not doing what people need it to do.
The second piece, which I didn’t mention yet, is that those people will have to actually stick around. You can explain to them, “Hey, this product will do X, Y, and Z for you. It’ll make all these problems go away.” But if you don’t also deliver on it, they’re going to churn out. You have to figure out ways to make them stick around. Those are two different competing things and sometimes, your things should make them stick around or going to be more features–sometimes it’s educational, or onboarding, or something like that. That’s a slightly different problem than product market fit. Somebody may believe that they need a particular solution, and they’ll pay for it, but then they don’t use it.
Think of any weight loss program on the planet. People buy into that stuff and then they don’t use it. Why don’t they use it? Is it a product market fit problem or is it a customer retention problem? That’s a hard thing to figure out because if they churn out, if they stop paying for it, if they stop using it, then is it because other things got in the way or the product doesn’t actually do what they needed it to do? There’s an attribution problem of, “Why did they churn out?” If it’s because it wasn’t actually a good product market fit and they bought into the messaging, but it didn’t solve their problem, then you don’t have product market fit. If they churned out because they just don’t have the chops or time or anything like that to actually do it, then that’s a slightly different problem–that’s a retention problem not necessarily a product market fit problem.
Rob: This is why it’s a good conversation to have. I won’t talk about weight loss stuff because I don’t even know if product market fit applies to that in particular. I mean, it does, but I don’t think about it in terms on that one. I think of a SaaS app, a retention is a product market fit problem, in my opinion. That if someone’s not getting on-boarded, not using it, then the need isn’t deep enough, and you haven’t found that fit with the market. The question that I ask, the way I frame it in my head is, “Have you built something people or businesses need?” That’s the question that I’ve asked.
I think Paul Graham says, “Have you built something people want?” I think it’s a great way to phrase it but have you built something that people or businesses need? Let’s stick to businesses because we talk a lot about B2B SaaS here. If you built something people desperately need, and they start using it, can you still fail, or can you still grow slowly? Yes, I believe you can even with product market fit because if the market’s too small, and you tap out, that’s one way.
If your market’s only $10,000 a month then you can own the whole market and really just tap out very quickly. Or if your market is huge but you can’t reach them in a scalable fashion, that’s a totally different problem than product market fit. I think there’s different problem than product market fit. I think there’s being able to build something that people need, and businesses need, and then there’s the ability to reach them in a scalable way and get them onboarded in a way that doesn’t kind of break the bank.
The three questions I think about, in order. The first one you have to ask—this is before you’ve built anything— “Is a problem you’re choosing to solve worth solving? i.e., is it much of a pain point for people?” then you’re going to start building it or you’re going to start validating it. Customer development even before you build it. You need find out, “Are people willing to pay for a solution to this problem?” Then you propose a solution and that’s where you hit that very first milestone is problem solution fit. You’ve proposed a solution to a problem. Does anyone care? Is it worth building at all? Are people willing to pay for that? And then product market fit is almost this, it’s kind of a twisted question or it’s a weird way to think about it, but it’s like, “Have you solved that problem well? Have you solved better than the alternatives? Is the problem worth solving? Are people willing to pay for it?”
You can build a good product but if you can’t reach the people and get them to sign-up, you’re going to really have a problem. I almost feel like problem solution fit is one, product market fit is the next, and then there’s this one, market marketing fit. I just made that up today because I was thinking, “Can you reach your market?” is almost the question there.
I remember when Drip started to scale up, at first it was like, people were churning, churn was high, trial to conversion rates were low and then they just flipped. Trial to conversion went up, churn started plummeting, and we started growing very quickly even with fewer trials that we’ve had in previous months. That’s when I knew, we are a product market fit, or at least I thought, and sure enough I did that survey, the very disappointed thing. I remember thinking it was going be really high because everyone was like, “Well, Drip is so great. Everyone’s switching.” and blah blah blah. We got like 43%, 46%, somewhere in there. I remember being disappointed by that because I thought, “Oh, man. I thought more people would be very disappointed.” but as it turns out, it’s really hard to get above 40%. That’s why Sean Ellis sets the bar where it is.
Mike: I think one of the things that you explained probably better than I did because I didn’t actually put a label on it was that, when I said, if you put the product in front of people who are in your target market, basically, that’s bypassing the problem of the product market fit piece of it and trying to ascertain whether or not you have a problem solution fit. Because by doing that, you’re making an assumption that you already have product market fit and you’re able to get the right people there.
If you don’t have that, if you get what you think are the right people, and you put it front of them and they don’t buy, then you probably do not have that product market fit. It’s just kind of a little subtle thing that I, I guess I talked about there, but I didn’t really explain like that. Applied to the previous piece and you’re just trying to avoid the whole marketing side of things. You just say, “Are we actually solving the right problem for the people that you think need that?”
Anyway, I think that will about wrap us up. Chelso, I hope that was extremely helpful for you. If you have 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 408 | Should You Take on a Co-founder?
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer the questions, should you take on a co-founder? The guys discuss the difference between hiring and being a partner, how to begin a partnership, and how to do if you’re a good fit.
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 whether you should take on a co-founder or not. This is Startups For The Rest Of Us episode 408.
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 avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: MicroConf Europe tickets are not available to the public. Head to microconfeurope.com and click on the ‘Gimme a ticket now’ link or we’ll link directly to our event right page in the show notes. I’m pretty stoked. It’s Croatia, man. It’s just a couple of months away.
Mike: Yeah, I know. The date is coming up quickly. It’s definitely something to look forward to though. The place where they are having it is right on the ocean. It should be a gorgeous view, if nothing else. I don’t know if I’ve mentioned this before, but parts of Game of Thrones were filmed there and over at Old Town in Dubrovnik.
I saw this article that showed a mashup of what the place actually looks like versus what the Game of Thrones scenes that’s associated with it was. Some of it is just breathtaking. It’s just fantastic architecture, the scenery, and everything else that goes with it. It will be pretty cool.
Rob: That’s super cool. I had heard that. I didn’t realize that they did it in Dubrovnik. Assuming we’re pronouncing that correctly, although we may not be. I’m excited both to get there for MicroConf Europe because I always enjoy the conference, seeing old friends, and hearing the speakers, but also excited to take a couple of weeks and see Croatia because we’ve never been. I’m going to be bringing the family, or I should say we’re––Sherry and I are going to be bringing the family.
Sherry and I are both speaking at MicroConf this year and we’ll probably take a couple of weeks before MicroConf Europe and head all the way down the coast. There’s some cool itineraries if you buy a guide book where they have a two-week driving itinerary. There’s also some online. You fly in to the capital and then you drive down different cities. The thing is, when we first talked about it, we’re like, “Yeah, we can probably take out the kids for two weeks because there’s school and all that kind of stuff,” but Sherry’s like, “I’m not sure there’s going to be enough to do in Croatia. Maybe we should head over to Greece,” and then as soon as we started researching it it was like, “No, there’s a lot to do and a lot to see.”
Reminds me a little bit of California. It’s not identical, obviously, but there’s, at least in that order of magnitude, that much rich kind of cultural things, natural beauty, beaches, mountains, all that stuff. So, pretty stoked to do it there this year.
Mike: Very cool. On my end, I have a Bluetick revenue milestone today. Just recently, Rachelle recently crossed the $30,000 in total revenue for it.
Rob: Good for you, man.
Mike: I’m pretty happy about that, but obviously I definitely have ways to go in terms of MRR but things are trending upwards in the correct direction. I’m pretty stoked about that and it’s just a matter of getting the things done.
Rob: Yeah, it always is. That long slow SaaS ramp of death is always just that. Long and slow. Hopefully, it’s not actually death, though.
Mike: Yes, hopefully not.
Rob: I was actually listening to CurrentGeek, which is a Tom Merritt podcast. He was talking about eBay and that he hadn’t sold something on eBay in 15 years and that he was moving and he’s getting rid of some old stuff. He started talking through the process of selling and how different it was. I realized that I just always done a lot of buy and selling online. Even before eBay and Amazon, I was in the Usenet groups in the 90s.
Mike: Oh, you’re old.
Rob: Yeah.
Mike: You’re old.
Rob: No, I am one of those guys and I used to buy and sell all kinds of stuff like comic books. I used to do guitar pedals, play electric guitar a lot back then. It was mostly for profit. I was trying to cover at least my living expenses, not my rent or my tuition, but just other miscellaneous expenses.
Anyways, with that said, eBay was such a bear to sell on in the late 90s and early 2000s. It was like you had to take your photographs, then you had to get them scanned, then you make them digital. It’s such a mess. But with the eBay app now, you just take the pictures right in the app and then if you’re selling anything that’s moderately standardized, like if you’re selling a model of printer or a model of a laptop, or a set of headphones, they have all that data now. I don’t know why it took them so long to do it, but it’s not exactly the same, but it’s more similar to selling on Amazon.
I switched over to Amazon for almost all of my selling. I don’t do that much these days, but I will play some games and then we’ll get tired of them or will have some books that are worth something, and I’ll post them up because it takes 30 seconds to post. Then you can print the shipping labels both right directly from eBay and Amazon now.
I have my kids tape them on and they take typically some of their stuff that we’re selling, to be honest. I don’t have much physical stuff left like physical books and stuff, but my kids will take a portion of the profit and portion of the things. I’m trying to show them how to do it and motivate them as well. It’s just one of the comments that I typically have veered towards Amazon because it’s such an easy process to post.
eBay does still take longer but there are items sometimes that Amazon won’t let you resell. Like the manufacturer had said, there are certain types of games that don’t have replayability, there’s the escape room games, and Amazon just won’t let you sell them, so I’ve sold those on eBay. Then there’s some other like mighty wallets and stuff that I have that are in good shape that I was trying to sell. Really just public service announcement that if you’re going to sell something and Amazon won’t let you do it, head over to eBay. It’s not as catastrophic as it once was.
Mike: That’s some definitely good advice. I’ve tried to avoid eBay to some extent just because I don’t tend to just sell a bunch of my stuff. I guess, I just collect it, to be honest or just throw it away. I remember checking my eBay account. It was a couple of years ago and most of my radiance and stuff have completely gone away because I hadn’t used my account in so long. I’m just like, “Oh, all right.”
Rob: I don’t know if they do. They show lifetime ratings but them they’re like that. If you haven’t got ratings in eight, six months or a year, then they degrade, which I think is a good policy. Basically, people will buy an account with some ratings to swindle people, so they really have to be concerned about that.
Mike: Oh, I haven’t thought about that. Darn those people.
Rob: What else is going on with you?
Mike: The only other thing I have is that I spent far longer than I wanted to trying to rebuild my deployment process for Bluetick. I talked to about how I was in the process of deploying a public API, put that out there, and unfortunately as part of that, it creates another URL that I need to have software deployed to. Things just got more complicated and I’ve got multiple machines involved.
It’s no longer as easy as it’s just like, “Oh, just click this button here and then copy a folder from this machine to this machine and then run an executable or whatever.” Now that it’s much more complicated because I have four different websites that basically need to be deployed as part of the build process, I ended up re-engineering this whole thing.
It took me probably a week-and-a-half to two weeks to just rebuild that using different software, but it’s all working now. It’s really nice I can just click the button and then it just goes out and deploys everything on multiple machines and it deploys new copies of it. It’s no longer deploying over itself which is just fantastic because now if anything goes wrong, I can revert, whereas before, I didn’t really have that capability. I had to do a bunch of manual stuff in order to make sure that in certain cases, I have the ability to revert.
Obviously, there’s some changes that you’ll make that are like, “Oh, I’m changing some HTML here, an API call there, and it’s not a big deal,” but then there’s other ones where you know that it’s much more of a risky change and you want to have backups of stuff before you go deploy it because the build process can take a while for you to revert in any way.
Rob: That’s brutal to spend that much time on something like this at this juncture but I get it that these are the things that, at some point, you have to deal with and you can’t just keep kicking them down the line. You can, but then you get this crazy legacy stuff that really can hold you back down the line.
Mike: I kicked this down the line for a year at this point. I went back and looked at when I started trying to do what I just finished and it was a year ago. I was like, “Oh, I need to upgrade the software, put the latest version on, and all of these other stuff. I remember seeing the dates and it was about a year ago. It was complicated enough that I’m like, “Nope, I’m not going to do this now,” and I pushed it off for long enough that it’s like, “I have to do it now.”
Rob: It stinks to lose that much time when you’re trying to move fast on a startup and this is why, at a certain point, it’s either having money whether from revenue or from a small amount of funding like we talked a couple of episodes ago, to just hire someone who can come and help with that, or to hire someone who can come in and help with that, or to hire someone to build features while you’re doing that. It allows so much more parallelism, you can move a lot faster.
Mike: That’s a nice lead in to today’s topic which is should you take a co-founder? Obviously, if you have a co-founder, you don’t necessarily need funding. You can certainly go down that road as well if you’d like, but I think the problem most people are trying to solve by bringing on a co-founder is avoiding going down that road altogether or by adding somebody in in a way that feels much more cost-effective and helps to have somebody else who’s got some skin in the game and they’re going to help the business with a completely different skill set than you have and help drive the whole thing forward.
Rob: Yup, for sure and this is a topic I know we’ve discussed a little bit in the past, but I don’t think we’ve dedicated a whole episode to it and it’s something that a lot of people are faced with. It’s like, “Should you do this or should you go it alone?” I think it will be a big conversation today.
Mike: The opening question is should you actually go down the road and having a partnership or should you hire somebody? I think for most self-funded businesses, the big issue with hiring somebody is you simply don’t have the money. You either don’t have the revenue or you would have to cut significantly into your own amount of money that you basically put into your own pocket in order to hire somebody, and you may just not have enough coming in to be able to do that. Also, if your very early on, or you’re just working from the point of having an idea, there’s nothing there.
In many ways, it makes sense to go the partnership route versus hiring somebody because if you’re going to try and hire, let’s say, a developer or something like that, you’re probably going to blow at least $30,000 or $60,000 trying to get something to the point where you can just show it to customers and get it out the door.
Whether you validated that in idea in advance—obviously you should’ve—especially if you’re going to dump that kind of money into it because you want to be absolutely sure that this large quantity of money that your dumping in there for that work to be done is going to eventually pay off.
Rob: Jason Calacanis on This Week in Startups has a saying. He says, “Hire your co-founders,” or at least that’s what he does. He has the luxury that he has the funding to do that. He can basically keep the line sure of equity because long-term he thinks that’s going to be worth a lot of money. He can hire someone at a totally reasonable salary because he can either do it out of pocket or he can raise a round of funding and pay them probably market rate or something close to that and maybe they get 5% of the company.
They have skin in the game and they all get the upside, too, but he doesn’t have to give up 50% of the company or whatever it is as maybe if you were starting from scratch that you would have to deal with.
The hiring is a luxury that you will have if you have either raise some kind of funding on your own or have the power to do that because of whatever, because of your background or your network, or you have the money that you were able to sell fund from other ventures. But if you don’t, then yeah, it becomes not possible. If you don’t even have enough money to quit your own job, how are you going to have enough money to pay someone else’s salary?
Mike: The other thing to take into consideration is the skill sets, like do you have the skill set that ranges both the marketing sales side of things or can you only do development? If you’re a non-technical founder, then you need somebody to step in and perform those duties as a developer from the eyes of the business owner.
I’ve talked to a few different people or non-technical founders and they were like, “Oh, okay I want to bring somebody in to help out with the development side,” but I find it a lot of contractors are very hesitant to take the reins and say, “Okay, I’ll be the architect for this,” or the people just don’t have the money to hire somebody who’s a skilled-enough person to be able to have that high-level view who’s done it before. It’s more of the chicken and the egg problem, I think, but even with the skill set, you have to figure out what is going to be complementary to you and what is the best type of person to bring in.
Rob: What’s interesting to me, you’re talking about having a technical co-founder. I don’t believe it have backed a single company in terms of my personal angel investments that did not have a technical co-founder. I have passed on several that did not and that was my biggest concern is how are you going to get the tech right? This is a software company.
Obviously, the marketing’s important, but the software has to work and someone has to own that. If you don’t have someone who is either has some skin in the game, whether it’s co-founder or whether if someone say, “Hey, I’m employee number one and I’m able to pay my full-time salary and I give them 5%,” I’d be like, “Okay, I can live with that.” But just saying, “Hey, I’m going to go hire an agency. I’m going to hire a contractor or something.” That wouldn’t work for me. That’s a personal bias or a personal belief of mine. It is obviously possible to do, build a software company without a technical co-founder. I’m sure we probably know people who’ve done it, but very, very difficult especially SaaS, which is, as we know, even more complicated than the traditional downloadable software model.
That’s not too much of a tangent but it is something that I think folks should think about. This is part of why that stair step approach works for even non-technical founders. You start super simple and you start with the one-time download like an info product or it could be a WordPress plugin because I can see you paying a contractor to build a plugin to solve a problem, making a few grand a month from that, then you build, build, build to the point where you either have the network, or the relationships, or you have the funding to then where you can self-fund and actually bring someone on who really is more of a technical co-founder.
Mike: The next question I think the answer is how do you know if you are a good fit for each other? I feel this is a hard question to answer just because it depends a lot on what your relationship already is with the person. If you’ve known them for 15 or 20 years, it’s a lot easier to make the determination is to whether or not you would want to work with them.
But if you just met them at some local meetup or something like that, or you met someone at a conference, or you followed them online, and you’re just starting a new relationship with them and you haven’t known them personally for very long, then it becomes a lot more difficult to make, I’ll say, an objective consideration about it.
I think that there’s a couple of things I would keep in mind and try out when I’m doing this. First one is, before you make a full-blown agreement, have a trial period of some kind on a project. It could either be that project or it could be something else. You might hire them to build something for you. That’s more of a contracting basis. I wouldn’t say that I would hide it from them that you’re interested in potentially pursuing something later, but probably wouldn’t bring that up as like the first thing as, “Hey, I want to think about having you brought on as a partner and I want to hire you for this project in order to figure out whether or not we’re going to be a good fit.” Because then, if it doesn’t work out, then you already set those expectations that, “Hey, this might turn into something.”
Rob: Yeah and on this topic there’s an episode of the Zen founder that is probably 100-150 episodes ago where Sherry interviewed Jordan Gal and Ben Fisher, who were the co-founders of CartHook and just about the “dating process” that Jordan and Ben went through. They had spent months trying to figure out how, “Are we a fit to each other? Are we going to work well together?”
I believe Jordan flew out and worked for a week or two from Ben’s co-working space. Ben went out to New York and did that with Jordan and they just went back and forth and it was definitely a long trial process, but they were really feeling each other out and figuring out, “Can we work well together? Are we a good fit? Because if we’re not, let’s not do this. Let’s not waste either person’s time and let’s not have the agony,” because the agony of a co-founder breakup is pretty bad. It’s pretty rough.
I think that pre-arranging a trial period—you had mentioned not mentioning it—to someone that you think of bring them on, I think that is definitely one way to do it. For some reason, I don’t remember the context of the story, but Jordan and Ben had already––there was more context to it to where they’re both equally willing to walk away. It wasn’t like one guy bringing the other guy on. It was really they were trying to find a fit. I think you can do it both ways.
Mike: I think that whether you bring it up upfront or later on is dependent a lot on how well you know them to begin with and whether or not you even broach the topic. If it’s someone you know online or you seen them and you are considering potentially asking them, then I probably wouldn’t bing that up first thing. But if you already have some relationship with them and you see them on occasion, or you’ve talked to them before and they know you personally already and you have the sense it might be something you want to pursue, then yeah, I would probably bring it up upfront at that point.
There are some red flags, I think, I would look for. One is if you’re trying to communicate with them and they are not very willing to communicate back with you especially if you hire them for a project, that’s obviously a red flag. If there’s any social power disparity between you in terms of what you guys would be bringing to the business relationship, not like Twitter followers, more along the lines of, “Oh this person has all the contacts in this particular industry and he’s going to try bring them in as customers and the other one basically has none.” It can be an issue. I’m not saying that that’s a disqualifier or anything, but it’s something to examine with a magnifying glass, say, “Is this going to be a problem?”
I think the obvious question is, “Could you see yourself hanging out with this person as a friend?” Because if there’s a business partner with you, you’re going to have to talk probably quite a bit and it’s going to be a relationship that you’re going to have to maintain for years.
If you can’t see yourself working with this person or hanging out with them, maybe you just don’t like the way that they treat other people or they’re racist or something like that, there’s certain things that you’re going to have to say, “No, this is a deal breaker and we’re just not be able to do it.”
Rob: Another thing to think about, obviously, is this is a little bit like hiring someone that you want to have references, you want to do references checks. So, talk to friends or colleagues that run in the same circles who can potentially know this person. Hiring someone who’s completely unknown is certainly a possibility that could work out, but it is less likely if you don’t have any overlapping circles and no one you know knows this person. Don’t know if you’re just starting out or have been going longer, you have to get contacts to it, but certainly if you know anyone who knows this person, it will be a lot better off if you can talk to them about it, how this person works and all that kind of stuff.
Mike: Of who has done business with them before, how do they treat their clients and other people that they interact with at business level because if they are in the habit of screwing over their customers, then is that the type of person you want to be in business with?
Rob: Yup.
Mike: The next question is, how to begin a partnership? There’s lots of different ways to go about that like you put together a vesting schedule, think that most startups tend to do that if they’re granting options, for example, but I do think that even in a partnership, a vesting schedule of some kind is probably a good idea.
In the early days, you can track hours. Just say, “Okay, well I put in 20 hours this week. How many did you put in?” I wouldn’t necessarily use that as a weapon, for example, in a relationship but use it as a barometer of how much effort are people putting into the business. What you don’t want to do is you don’t want to end up in a situation where you’re putting in 95% of the effort and the other person is putting in 5% or 100% and 0%. At that point, the whole thing is just going to fall apart at some point down the road. You can’t have a long-term business relationship if that’s going on.
Another tip is having regularly scheduled meetings to just discuss what’s going on, put together an outline of what those things are going to entail, and then make sure you have a set of common goals and expectations for one another. Know what your expectations of that other person are and make sure you communicate them because if you don’t tell them what you expect of them, then they’re going to be hard pressed to just come up with it on their own.
Rob: I think the thing is you’re trying to find common goals. It’s a ‘do you have’ common goals. That could be a big thing from the start is like, “Hey, I want to start a SaaS company and one person wants to go raise funding and go through YC and the other person just wants to build a lifestyle business and work as long as possible and pay the bills. That is overly simplistic way of looking at it, but these are the hard conversations that will save you so much pain and anguish down the line.
I think this is probably a good point to talk about. We’re talking about how to vet a co-founder right now but the title of the episode is Should You Take On A Co-Founder and I think I went off a tangent about if I were non-technical, I would look for a technical co-founder and that’s a very common thing. But what if you are a single technical founder? The question I’m posing here is, do you that that you should go look for a co-cofounder? And what are the pros and cons about it?
I know that when folks apply to Y Combinator, that they tend to fund a lot few single founders because from their perspective, the code is like the journey is hard and you tend to need someone else to lean on.” I don’t know if that’s programmed pattern-matching. I don’t know if this program had, I believe, two or three other co-founders when he launched and grew his startup. What are your thoughts on that question, specifically? If you’re going to build a SaaS and you are a technical person, what are the ideas? Obviously, if I say should you, you could say no because you’re a single founder. But what is the thought process there? What should someone think about as they’re thinking that thing through?
Mike: I think the interesting point to bring up here is actually the Startups For The Rest Of Us podcast actually came from a blog post that I’ve written a long time ago about when Y Combinator was first and announcing that they going to be funding a bunch of companies and they were going to be offering $6000 to move for three months to some certain location. I’m like, “That’s just not enough especially for somebody like me and what about the rest of us? Startups for the rest of us?” That’s where the original idea came from and plus, obviously, I had the domain singlefounder.com. It hit really well, but I do think it’s a really interesting question because one, there’s no right or wrong answer. It’s really what is right for you? What is it that you are comfortable doing?
I have met people who are perfectly comfortable taking all the responsibilities for a business on their own shoulders, and I’ve also met entrepreneurs who are not. They want a co-founder to share the responsibility and they’re okay sharing everything because they don’t want everything on their shoulders. It really depends on the type of person that you are. I also believe that depending on the type of business that you’re trying to build, you may or may not need help. That’s a big question as well. How complicated is the thing that your building. Are you going to be able to do both the marketing side of things and are you also going to be able to do all the technical side of things?
If you’re building something that’s extremely complicated like the level of Drip or something like that, there’s a ton of stuff that goes in there. I think it would be extremely difficult to build that as a one-man band. There’s just so much technical stuff going on and so many things that need to go into it and a short amount of time, that you are not going to have the bandwidth to build the stuff and also do the marketing for it.
I think that’s probably one of the contributing factors to why you and Derrick worked out together so well because you have technical architecture level stuff and you can help with the design, but then you went off and did the marketing stuff while he did a lot of the implementation. You served as a barrier so he can get work done. I’m speculating to some extent here but you can confirm or deny that.
Rob: Yeah, Drip started off as a smaller idea. It was going to be a lifestyle business. Derrick was a contractor at that time, then became W2 at some point. When we made the decision to become more ambitious about it, I was bouncing ideas off Derrick. At this point, I was still the full owner of the company. It was truly my decision whether or not to go into this market. But he was like a confidante and he and I just had a lot of co-founder-like discussions, is what I realized. Between the two of us, he and I made better decisions than I would make alone. That’s what wound up happening. It was just a natural thing.
Honestly from the very start, I did not think there could be a co-founder. It was not a plan for me. He was literally a contractor working half of his time on HitTail and I said, “Hey I want to build another product. What do you want the other 20 hours of your week? Do you want to get paid for that?” And he was like, “Sure.” It was fun to build a product from scratch and his UX chops are good. It was just a funny little thing and we unintentionally traveled down this road that you’ve outlined here of how to vet but we didn’t have any of the presuppositions of, “Oh man, are we going to make the decision someday to be a co-founder …”
Eventually, Derrick started a couple of apps before that, before Drip that hadn’t panned out and he knew that he wanted to kind of own something. He didn’t just want to work for somebody forever and knew that about him. It came to the point where it’s like, “Look, I’m going to do my own thing,” and it was like, “Well, let’s talk about what I can do at Drip for you to not do that, to make it worth your while to stick around in that.” That’s where it went. It’s very natural and by that time, I trusted him, he trusted me, we both knew how we work.
It was a Cinderella story so to speak of just making it work. But you’re right. I don’t want to say it wouldn’t have been what it was without both of us. It just would have been different. You know what I mean? Drip, especially in the early days just built a lot on my network and my very early vision for the product that quickly became our vision, and it was built a lot on my public speaking and my audience and all that stuff, and that’s what got early traction. Even my network later on got us affiliates and got us people recommending it and people willing to try it and all that stuff.
I think Drip could have worked without Derrick but it wouldn’t have be able to grow as fast. It would have been way more stressful for me. Derrick took so much of the load of the technical side as well as just building good software. I wasn’t dealing with a revolving door of contractors, I wasn’t dealing with that headaches which would have severely hampered the growth of the business, I believe. I think either of us having not been involved, it still could have been successful but it could potentially have been calamity as well.
I think it comes back to that question, should you take on a co-founder? As you said, Drip is very complicated. It’s very large in terms of the app. I can’t imagine doing that alone. I can’t imagine doing that as a single founder. If we’re doing a simpler app, I had HitTail before that. I didn’t take on a business partner with it, nor I didn’t build it, but it wasn’t that many lines of code. I did grow it essentially from $1000 a month to $30,000 a month over a course of a couple of years really on my own. Then I had a couple of contractors helping me out. For that one, I didn’t need a co-founder. That was definitely a nice little lifestyle business.
Mike: But I think there’s an order of magnitude and complexity difference between those two different products and that’s my whole point is that, if there is an order of magnitude difference between what you currently have going on and what you intend for that product to be or what it is going to become, then having that co-founder is probably really a good way to go, regardless which of the two is writing the code or if only one of them has technical experience, that’s fine. But there needs to be help because you are not going to be able to switch back and forth between both of them very well.
I’m saying this as somebody who’s in the middle of that right now. It’s really, really hard to switch back and forth between them because Bluetick is complicated under the covers. It’s way more complicated than I thought it would be and that’s just the nature of it.
Rob: Yup. That’s the struggle. Do you regret or do you wish you had a co-founder? Have you thought about looking for one?
Mike: Oh yeah. It was probably a year-and-a-half ago I actually approached somebody about coming on as a co-founder. It’s not something I haven’t thought of but at the time, I was like, “Okay, yeah, I know and trust this person and I’ll asked him.” He thought about it and we discussed it a little bit, and he decided to go on a different direction, which is totally cool. We’re still great friends and everything and he’s off doing something else and that’s great. But at the same time, I also have it at the back of my mind like, “Hey, it would be nice to have a co-founder or it would be nice to have funding to be able to either attract a co-founder or help in areas where I just can’t dedicate nearly as much time as I would like to then.”
I could either go in either direction and I honestly weighed them both pretty heavily over the past 6-8 months. I know that down the road I probably can’t do both side of the business. The question is what do I do? Do I go for funding and try to hire people that just do marketing and report to me or do I go the co-founder route? I think that it’s a hard comparison to make because on one hand, you’re saying, “Okay, well, if I get funding, maybe I give away some percentage of the company,” and I don’t really want to do that. But at the same time if you bring in on a co-founder, what are the logistics of that look like?
I’ve already spent months, actually years at this point helping build the product and get it to where it is. I’ve done a lot about, I’ll say, the hard, heavy lifting to get the products to be functional and do what it needs to do, but how does a new business partner work into that? How do you value the business, how do you value all the work and effort that I put in, the money that I paid to the contractors that help me in different ways, the infrastructure that I put in place, how do you put a price on that? How do you work out, what the terms of that would be?
Rob: You’re right. That’s hard to do but that shouldn’t be a reason that you don’t do it. You need to figure that out if you really need a co-founder. There’ll be some awkward or hard conversations and you’ll both have ideas of, “You know I have an idea that you should get this much equity,” and then the other person have different and you figure out, “Hey, are we willing to meet in the middle or are we willing to compromise? Or is this just not a fit?”
You’re right. There’s a lot of complexity to that stuff, but it doesn’t mean that it’s not worth doing. As developers, you and I see all the problems with everything, frankly, like Sherry can say, “Hey, we’re going to Croatia in two months,” and I’m thinking, “Oh my gosh, the logistics of that is going to be a nightmare. Everything is going to go wrong.” It’s like we’re used to looking at code and trying to figure out how it’s going to break. In life I try to figure out how are things going to break so I can think, be ahead of them, or whatever and I think that’s what you’re doing here. If it’s the right decision, you just have to figure it out.
But if it’s not the right decision, if you can raise funding and essentially hire someone to handle that, or if you can grow revenue fast enough that you can hire someone, and I’m not saying you in particular but just in general, I mean these are other options instead of having a co-founder, but it sound like you’re right. There’s going to be complexity but I still think that it’s something if you think it’s right for the business, that you should consider.
The good news is raising funding at a later stage or bringing someone at a later stage means that it shouldn’t be a 50/50 proposition or your evaluation should be higher because you do have more traction. If you’ve proven in the business that you have all of these and you have traction, then it becomes a different conversation.
Mike: Yeah, that’s true. Like I said, the situation for me personally is like I’ve got three different, I guess, pass so to speak, and it’s not to say that any of them is necessarily exclusive of the others but there’s the finding the co-founder, there’s also the funding, and then there’s the potential that is like grow the business revenue higher than it is currently to the point where I can hire somebody to bring on which I’m almost positive that like that would be somebody to help out on the marketing side of things, and then figure out things from there.
If I did that, it doesn’t necessarily mean that bringing on a co-founder is out of the realm of possibility because if I hire somebody to do marketing, I may decide that, “Hey, this person is working out in this capacity but I would not want to have them as a co-founder.” And the question is like, “Well, who would I bring on as a co-founder?” I don’t have an answer for that, to be perfectly honest. I don’t want to say a hard situation, it’s just I don’t have easy answers.
Rob: It’s startups, man. There are never easy answers. That’s the thing. I do think that though our discussion today about whether to look for a co-founder, I feel that should be helpful to people. This is one of those issues where there’s a lot of ‘it depends.’ It depends on who you are, your goals, your goals personally and for the business, and like we said, the complexity of the business and all that kind of stuff.
Mike: Yeah, and I think at the end of the day, I really feel it comes down to the complexity, and as you said, you probably would not fund a company that doesn’t have a technical co-founder if they’re trying to be a software business. I would agree with you but at the same time, I also say the decision to take on a co-founder, I feel, is heavily influenced by how complex the software is that you’re going to be building or that you’re working on.
The more complicated it is, I feel the more you are likely to probably need a co-founder because you need somebody who has a large stake in the business, who owns that and knows that they’re responsible for it, and is going to do whatever the right decision is, regardless of the cost, but also keeping in mind all of the other business things that are going on.
If you hire somebody to do the technical stuff, they are probably not going to be aware of this marketing effort that’s going on. That thing is going over on sales. They maybe even involved in some of the support stuff because they’re going to have to fix those issues. But their concern is not marketing. Their concern is not sales side of things. Their concern is building the tech stack and because of the lack of, I’ll say, visibility that they would have or their perceived lack of importance of that stuff to their job, I just don’t think that they’re going to do as well if they’re not an equity/co-founder type of person.
Rob: Yeah, I would agree. Is someone a co-founder? Co-founder is just a title. You can give someone a co-founder title retroactively. If someone has 5% of the company, are they a co-founder? I don’t know. Some people might have that title. Other folks might say, “I don’t know. They’re the CTO, they’re technical employee number one or whatever. Software developer number one.” We are throwing around this term and haven’t really defined it. But I don’t know. We don’t necessarily need to dive into that.
I think the thing to think about is, you know the reason that I haven’t funded any companies without a technical co-founder, you talk about the complexities versus non-complexity of an app. I think these days, I want to fund companies that are going to be seven figure or eight figure businesses. They’re going to be in the millions or above $10 million in annual revenue. I think today to build a SaaS that does that, you are going to have complexity.
I don’t know of a space where you can go back to the Basecamp days and build a project management system that isn’t that complicated. Let’s say Basecamp’s not complicated today, but realistically, when they built it, it was just a lot of CRUD, Create, Read, Update, Delete. That’s what Rails is really good at and that’s what Rails is really good at and that’s why DHH built Rails right out of––pulled it out of Basecamp. Those days are mostly over. I don’t want to say entirely over but the complexity of getting something to seven or eight figures these days, I believe, almost without exception, will require software that’s more complicated than we want it to be. How about that?
It’s like Drip was more work and more complicated than I wanted it to be and same with Derrick. Bluetick is more complicated than you thought it would be and want to be. That’s just what becomes because people want features, you look at the features and like, “Oh my gosh, it’s going to be hard to build,” but that is going to be my differentiator or that is going to get this client to sign up.
Mike: I think a close second behind that is the type of person that you are and whether or not you do well under pressure and how comfortable you are making decisions without additional input. I do agree with you in almost every case like two heads are better than one. It almost doesn’t matter what the situation is, but at the same time, somebody is going to have to ultimately make the decision and it’s more comfortable to have somebody to make a decision when you have somebody else there who’s on even footing with you, and they agree with the decision. Versus, “I think this is the right decision but I’m not sure, but I don’t have anyone to talk to about it or anyone who can say ‘Yes, we should go on in this direction,’ so I’m going to make it. But I’m going to be more stressed out because of that.”
Just by virtue of having somebody else to be able to act as that sounding board who is involved in the business, yes, mastermind group can help and other founders of other companies that you know they can certainly help out and give advice, but ultimately, if you’re the only person in the business making those decisions, everything falls on your shoulders enough a lot more stressful. Just having that co-founder to share the stress and the responsibility of those decisions, good or bad, is going to be helpful.
Rob: I feel that was a pretty good discussion. I hope you as a listener enjoyed our conversation. If you have 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 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 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 avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: MicroConf Europe tickets are not available to the public. Head to microconfeurope.com and click on the ‘Gimme a ticket now’ link or we’ll link directly to our event right page in the show notes. I’m pretty stoked. It’s Croatia, man. It’s just a couple of months away.
Mike: Yeah, I know. The date is coming up quickly. It’s definitely something to look forward to though. The place where they are having it is right on the ocean. It should be a gorgeous view, if nothing else. I don’t know if I’ve mentioned this before, but parts of Game of Thrones were filmed there and over at Old Town in Dubrovnik.
I saw this article that showed a mashup of what the place actually looks like versus what the Game of Thrones scenes that’s associated with it was. Some of it is just breathtaking. It’s just fantastic architecture, the scenery, and everything else that goes with it. It will be pretty cool.
Rob: That’s super cool. I had heard that. I didn’t realize that they did it in Dubrovnik. Assuming we’re pronouncing that correctly, although we may not be. I’m excited both to get there for MicroConf Europe because I always enjoy the conference, seeing old friends, and hearing the speakers, but also excited to take a couple of weeks and see Croatia because we’ve never been. I’m going to be bringing the family, or I should say we’re––Sherry and I are going to be bringing the family.
Sherry and I are both speaking at MicroConf this year and we’ll probably take a couple of weeks before MicroConf Europe and head all the way down the coast. There’s some cool itineraries if you buy a guide book where they have a two-week driving itinerary. There’s also some online. You fly in to the capital and then you drive down different cities. The thing is, when we first talked about it, we’re like, “Yeah, we can probably take out the kids for two weeks because there’s school and all that kind of stuff,” but Sherry’s like, “I’m not sure there’s going to be enough to do in Croatia. Maybe we should head over to Greece,” and then as soon as we started researching it it was like, “No, there’s a lot to do and a lot to see.”
Reminds me a little bit of California. It’s not identical, obviously, but there’s, at least in that order of magnitude, that much rich kind of cultural things, natural beauty, beaches, mountains, all that stuff. So, pretty stoked to do it there this year.
Mike: Very cool. On my end, I have a Bluetick revenue milestone today. Just recently, Rachelle recently crossed the $30,000 in total revenue for it.
Rob: Good for you, man.
Mike: I’m pretty happy about that, but obviously I definitely have ways to go in terms of MRR but things are trending upwards in the correct direction. I’m pretty stoked about that and it’s just a matter of getting the things done.
Rob: Yeah, it always is. That long slow SaaS ramp of death is always just that. Long and slow. Hopefully, it’s not actually death, though.
Mike: Yes, hopefully not.
Rob: I was actually listening to CurrentGeek, which is a Tom Merritt podcast. He was talking about eBay and that he hadn’t sold something on eBay in 15 years and that he was moving and he’s getting rid of some old stuff. He started talking through the process of selling and how different it was. I realized that I just always done a lot of buy and selling online. Even before eBay and Amazon, I was in the Usenet groups in the 90s.
Mike: Oh, you’re old.
Rob: Yeah.
Mike: You’re old.
Rob: No, I am one of those guys and I used to buy and sell all kinds of stuff like comic books. I used to do guitar pedals, play electric guitar a lot back then. It was mostly for profit. I was trying to cover at least my living expenses, not my rent or my tuition, but just other miscellaneous expenses.
Anyways, with that said, eBay was such a bear to sell on in the late 90s and early 2000s. It was like you had to take your photographs, then you had to get them scanned, then you make them digital. It’s such a mess. But with the eBay app now, you just take the pictures right in the app and then if you’re selling anything that’s moderately standardized, like if you’re selling a model of printer or a model of a laptop, or a set of headphones, they have all that data now. I don’t know why it took them so long to do it, but it’s not exactly the same, but it’s more similar to selling on Amazon.
I switched over to Amazon for almost all of my selling. I don’t do that much these days, but I will play some games and then we’ll get tired of them or will have some books that are worth something, and I’ll post them up because it takes 30 seconds to post. Then you can print the shipping labels both right directly from eBay and Amazon now.
I have my kids tape them on and they take typically some of their stuff that we’re selling, to be honest. I don’t have much physical stuff left like physical books and stuff, but my kids will take a portion of the profit and portion of the things. I’m trying to show them how to do it and motivate them as well. It’s just one of the comments that I typically have veered towards Amazon because it’s such an easy process to post.
eBay does still take longer but there are items sometimes that Amazon won’t let you resell. Like the manufacturer had said, there are certain types of games that don’t have replayability, there’s the escape room games, and Amazon just won’t let you sell them, so I’ve sold those on eBay. Then there’s some other like mighty wallets and stuff that I have that are in good shape that I was trying to sell. Really just public service announcement that if you’re going to sell something and Amazon won’t let you do it, head over to eBay. It’s not as catastrophic as it once was.
Mike: That’s some definitely good advice. I’ve tried to avoid eBay to some extent just because I don’t tend to just sell a bunch of my stuff. I guess, I just collect it, to be honest or just throw it away. I remember checking my eBay account. It was a couple of years ago and most of my radiance and stuff have completely gone away because I hadn’t used my account in so long. I’m just like, “Oh, all right.”
Rob: I don’t know if they do. They show lifetime ratings but them they’re like that. If you haven’t got ratings in eight, six months or a year, then they degrade, which I think is a good policy. Basically, people will buy an account with some ratings to swindle people, so they really have to be concerned about that.
Mike: Oh, I haven’t thought about that. Darn those people.
Rob: What else is going on with you?
Mike: The only other thing I have is that I spent far longer than I wanted to trying to rebuild my deployment process for Bluetick. I talked to about how I was in the process of deploying a public API, put that out there, and unfortunately as part of that, it creates another URL that I need to have software deployed to. Things just got more complicated and I’ve got multiple machines involved.
It’s no longer as easy as it’s just like, “Oh, just click this button here and then copy a folder from this machine to this machine and then run an executable or whatever.” Now that it’s much more complicated because I have four different websites that basically need to be deployed as part of the build process, I ended up re-engineering this whole thing.
It took me probably a week-and-a-half to two weeks to just rebuild that using different software, but it’s all working now. It’s really nice I can just click the button and then it just goes out and deploys everything on multiple machines and it deploys new copies of it. It’s no longer deploying over itself which is just fantastic because now if anything goes wrong, I can revert, whereas before, I didn’t really have that capability. I had to do a bunch of manual stuff in order to make sure that in certain cases, I have the ability to revert.
Obviously, there’s some changes that you’ll make that are like, “Oh, I’m changing some HTML here, an API call there, and it’s not a big deal,” but then there’s other ones where you know that it’s much more of a risky change and you want to have backups of stuff before you go deploy it because the build process can take a while for you to revert in any way.
Rob: That’s brutal to spend that much time on something like this at this juncture but I get it that these are the things that, at some point, you have to deal with and you can’t just keep kicking them down the line. You can, but then you get this crazy legacy stuff that really can hold you back down the line.
Mike: I kicked this down the line for a year at this point. I went back and looked at when I started trying to do what I just finished and it was a year ago. I was like, “Oh, I need to upgrade the software, put the latest version on, and all of these other stuff. I remember seeing the dates and it was about a year ago. It was complicated enough that I’m like, “Nope, I’m not going to do this now,” and I pushed it off for long enough that it’s like, “I have to do it now.”
Rob: It stinks to lose that much time when you’re trying to move fast on a startup and this is why, at a certain point, it’s either having money whether from revenue or from a small amount of funding like we talked a couple of episodes ago, to just hire someone who can come and help with that, or to hire someone who can come in and help with that, or to hire someone to build features while you’re doing that. It allows so much more parallelism, you can move a lot faster.
Mike: That’s a nice lead in to today’s topic which is should you take a co-founder? Obviously, if you have a co-founder, you don’t necessarily need funding. You can certainly go down that road as well if you’d like, but I think the problem most people are trying to solve by bringing on a co-founder is avoiding going down that road altogether or by adding somebody in in a way that feels much more cost-effective and helps to have somebody else who’s got some skin in the game and they’re going to help the business with a completely different skill set than you have and help drive the whole thing forward.
Rob: Yup, for sure and this is a topic I know we’ve discussed a little bit in the past, but I don’t think we’ve dedicated a whole episode to it and it’s something that a lot of people are faced with. It’s like, “Should you do this or should you go it alone?” I think it will be a big conversation today.
Mike: The opening question is should you actually go down the road and having a partnership or should you hire somebody? I think for most self-funded businesses, the big issue with hiring somebody is you simply don’t have the money. You either don’t have the revenue or you would have to cut significantly into your own amount of money that you basically put into your own pocket in order to hire somebody, and you may just not have enough coming in to be able to do that. Also, if your very early on, or you’re just working from the point of having an idea, there’s nothing there.
In many ways, it makes sense to go the partnership route versus hiring somebody because if you’re going to try and hire, let’s say, a developer or something like that, you’re probably going to blow at least $30,000 or $60,000 trying to get something to the point where you can just show it to customers and get it out the door.
Whether you validated that in idea in advance—obviously you should’ve—especially if you’re going to dump that kind of money into it because you want to be absolutely sure that this large quantity of money that your dumping in there for that work to be done is going to eventually pay off.
Rob: Jason Calacanis on This Week in Startups has a saying. He says, “Hire your co-founders,” or at least that’s what he does. He has the luxury that he has the funding to do that. He can basically keep the line sure of equity because long-term he thinks that’s going to be worth a lot of money. He can hire someone at a totally reasonable salary because he can either do it out of pocket or he can raise a round of funding and pay them probably market rate or something close to that and maybe they get 5% of the company.
They have skin in the game and they all get the upside, too, but he doesn’t have to give up 50% of the company or whatever it is as maybe if you were starting from scratch that you would have to deal with.
The hiring is a luxury that you will have if you have either raise some kind of funding on your own or have the power to do that because of whatever, because of your background or your network, or you have the money that you were able to sell fund from other ventures. But if you don’t, then yeah, it becomes not possible. If you don’t even have enough money to quit your own job, how are you going to have enough money to pay someone else’s salary?
Mike: The other thing to take into consideration is the skill sets, like do you have the skill set that ranges both the marketing sales side of things or can you only do development? If you’re a non-technical founder, then you need somebody to step in and perform those duties as a developer from the eyes of the business owner.
I’ve talked to a few different people or non-technical founders and they were like, “Oh, okay I want to bring somebody in to help out with the development side,” but I find it a lot of contractors are very hesitant to take the reins and say, “Okay, I’ll be the architect for this,” or the people just don’t have the money to hire somebody who’s a skilled-enough person to be able to have that high-level view who’s done it before. It’s more of the chicken and the egg problem, I think, but even with the skill set, you have to figure out what is going to be complementary to you and what is the best type of person to bring in.
Rob: What’s interesting to me, you’re talking about having a technical co-founder. I don’t believe it have backed a single company in terms of my personal angel investments that did not have a technical co-founder. I have passed on several that did not and that was my biggest concern is how are you going to get the tech right? This is a software company.
Obviously, the marketing’s important, but the software has to work and someone has to own that. If you don’t have someone who is either has some skin in the game, whether it’s co-founder or whether if someone say, “Hey, I’m employee number one and I’m able to pay my full-time salary and I give them 5%,” I’d be like, “Okay, I can live with that.” But just saying, “Hey, I’m going to go hire an agency. I’m going to hire a contractor or something.” That wouldn’t work for me. That’s a personal bias or a personal belief of mine. It is obviously possible to do, build a software company without a technical co-founder. I’m sure we probably know people who’ve done it, but very, very difficult especially SaaS, which is, as we know, even more complicated than the traditional downloadable software model.
That’s not too much of a tangent but it is something that I think folks should think about. This is part of why that stair step approach works for even non-technical founders. You start super simple and you start with the one-time download like an info product or it could be a WordPress plugin because I can see you paying a contractor to build a plugin to solve a problem, making a few grand a month from that, then you build, build, build to the point where you either have the network, or the relationships, or you have the funding to then where you can self-fund and actually bring someone on who really is more of a technical co-founder.
Mike: The next question I think the answer is how do you know if you are a good fit for each other? I feel this is a hard question to answer just because it depends a lot on what your relationship already is with the person. If you’ve known them for 15 or 20 years, it’s a lot easier to make the determination is to whether or not you would want to work with them.
But if you just met them at some local meetup or something like that, or you met someone at a conference, or you followed them online, and you’re just starting a new relationship with them and you haven’t known them personally for very long, then it becomes a lot more difficult to make, I’ll say, an objective consideration about it.
I think that there’s a couple of things I would keep in mind and try out when I’m doing this. First one is, before you make a full-blown agreement, have a trial period of some kind on a project. It could either be that project or it could be something else. You might hire them to build something for you. That’s more of a contracting basis. I wouldn’t say that I would hide it from them that you’re interested in potentially pursuing something later, but probably wouldn’t bring that up as like the first thing as, “Hey, I want to think about having you brought on as a partner and I want to hire you for this project in order to figure out whether or not we’re going to be a good fit.” Because then, if it doesn’t work out, then you already set those expectations that, “Hey, this might turn into something.”
Rob: Yeah and on this topic there’s an episode of the Zen founder that is probably 100-150 episodes ago where Sherry interviewed Jordan Gal and Ben Fisher, who were the co-founders of CartHook and just about the “dating process” that Jordan and Ben went through. They had spent months trying to figure out how, “Are we a fit to each other? Are we going to work well together?”
I believe Jordan flew out and worked for a week or two from Ben’s co-working space. Ben went out to New York and did that with Jordan and they just went back and forth and it was definitely a long trial process, but they were really feeling each other out and figuring out, “Can we work well together? Are we a good fit? Because if we’re not, let’s not do this. Let’s not waste either person’s time and let’s not have the agony,” because the agony of a co-founder breakup is pretty bad. It’s pretty rough.
I think that pre-arranging a trial period—you had mentioned not mentioning it—to someone that you think of bring them on, I think that is definitely one way to do it. For some reason, I don’t remember the context of the story, but Jordan and Ben had already––there was more context to it to where they’re both equally willing to walk away. It wasn’t like one guy bringing the other guy on. It was really they were trying to find a fit. I think you can do it both ways.
Mike: I think that whether you bring it up upfront or later on is dependent a lot on how well you know them to begin with and whether or not you even broach the topic. If it’s someone you know online or you seen them and you are considering potentially asking them, then I probably wouldn’t bing that up first thing. But if you already have some relationship with them and you see them on occasion, or you’ve talked to them before and they know you personally already and you have the sense it might be something you want to pursue, then yeah, I would probably bring it up upfront at that point.
There are some red flags, I think, I would look for. One is if you’re trying to communicate with them and they are not very willing to communicate back with you especially if you hire them for a project, that’s obviously a red flag. If there’s any social power disparity between you in terms of what you guys would be bringing to the business relationship, not like Twitter followers, more along the lines of, “Oh this person has all the contacts in this particular industry and he’s going to try bring them in as customers and the other one basically has none.” It can be an issue. I’m not saying that that’s a disqualifier or anything, but it’s something to examine with a magnifying glass, say, “Is this going to be a problem?”
I think the obvious question is, “Could you see yourself hanging out with this person as a friend?” Because if there’s a business partner with you, you’re going to have to talk probably quite a bit and it’s going to be a relationship that you’re going to have to maintain for years.
If you can’t see yourself working with this person or hanging out with them, maybe you just don’t like the way that they treat other people or they’re racist or something like that, there’s certain things that you’re going to have to say, “No, this is a deal breaker and we’re just not be able to do it.”
Rob: Another thing to think about, obviously, is this is a little bit like hiring someone that you want to have references, you want to do references checks. So, talk to friends or colleagues that run in the same circles who can potentially know this person. Hiring someone who’s completely unknown is certainly a possibility that could work out, but it is less likely if you don’t have any overlapping circles and no one you know knows this person. Don’t know if you’re just starting out or have been going longer, you have to get contacts to it, but certainly if you know anyone who knows this person, it will be a lot better off if you can talk to them about it, how this person works and all that kind of stuff.
Mike: Of who has done business with them before, how do they treat their clients and other people that they interact with at business level because if they are in the habit of screwing over their customers, then is that the type of person you want to be in business with?
Rob: Yup.
Mike: The next question is, how to begin a partnership? There’s lots of different ways to go about that like you put together a vesting schedule, think that most startups tend to do that if they’re granting options, for example, but I do think that even in a partnership, a vesting schedule of some kind is probably a good idea.
In the early days, you can track hours. Just say, “Okay, well I put in 20 hours this week. How many did you put in?” I wouldn’t necessarily use that as a weapon, for example, in a relationship but use it as a barometer of how much effort are people putting into the business. What you don’t want to do is you don’t want to end up in a situation where you’re putting in 95% of the effort and the other person is putting in 5% or 100% and 0%. At that point, the whole thing is just going to fall apart at some point down the road. You can’t have a long-term business relationship if that’s going on.
Another tip is having regularly scheduled meetings to just discuss what’s going on, put together an outline of what those things are going to entail, and then make sure you have a set of common goals and expectations for one another. Know what your expectations of that other person are and make sure you communicate them because if you don’t tell them what you expect of them, then they’re going to be hard pressed to just come up with it on their own.
Rob: I think the thing is you’re trying to find common goals. It’s a ‘do you have’ common goals. That could be a big thing from the start is like, “Hey, I want to start a SaaS company and one person wants to go raise funding and go through YC and the other person just wants to build a lifestyle business and work as long as possible and pay the bills. That is overly simplistic way of looking at it, but these are the hard conversations that will save you so much pain and anguish down the line.
I think this is probably a good point to talk about. We’re talking about how to vet a co-founder right now but the title of the episode is Should You Take On A Co-Founder and I think I went off a tangent about if I were non-technical, I would look for a technical co-founder and that’s a very common thing. But what if you are a single technical founder? The question I’m posing here is, do you that that you should go look for a co-cofounder? And what are the pros and cons about it?
I know that when folks apply to Y Combinator, that they tend to fund a lot few single founders because from their perspective, the code is like the journey is hard and you tend to need someone else to lean on.” I don’t know if that’s programmed pattern-matching. I don’t know if this program had, I believe, two or three other co-founders when he launched and grew his startup. What are your thoughts on that question, specifically? If you’re going to build a SaaS and you are a technical person, what are the ideas? Obviously, if I say should you, you could say no because you’re a single founder. But what is the thought process there? What should someone think about as they’re thinking that thing through?
Mike: I think the interesting point to bring up here is actually the Startups For The Rest Of Us podcast actually came from a blog post that I’ve written a long time ago about when Y Combinator was first and announcing that they going to be funding a bunch of companies and they were going to be offering $6000 to move for three months to some certain location. I’m like, “That’s just not enough especially for somebody like me and what about the rest of us? Startups for the rest of us?” That’s where the original idea came from and plus, obviously, I had the domain singlefounder.com. It hit really well, but I do think it’s a really interesting question because one, there’s no right or wrong answer. It’s really what is right for you? What is it that you are comfortable doing?
I have met people who are perfectly comfortable taking all the responsibilities for a business on their own shoulders, and I’ve also met entrepreneurs who are not. They want a co-founder to share the responsibility and they’re okay sharing everything because they don’t want everything on their shoulders. It really depends on the type of person that you are. I also believe that depending on the type of business that you’re trying to build, you may or may not need help. That’s a big question as well. How complicated is the thing that your building. Are you going to be able to do both the marketing side of things and are you also going to be able to do all the technical side of things?
If you’re building something that’s extremely complicated like the level of Drip or something like that, there’s a ton of stuff that goes in there. I think it would be extremely difficult to build that as a one-man band. There’s just so much technical stuff going on and so many things that need to go into it and a short amount of time, that you are not going to have the bandwidth to build the stuff and also do the marketing for it.
I think that’s probably one of the contributing factors to why you and Derrick worked out together so well because you have technical architecture level stuff and you can help with the design, but then you went off and did the marketing stuff while he did a lot of the implementation. You served as a barrier so he can get work done. I’m speculating to some extent here but you can confirm or deny that.
Rob: Yeah, Drip started off as a smaller idea. It was going to be a lifestyle business. Derrick was a contractor at that time, then became W2 at some point. When we made the decision to become more ambitious about it, I was bouncing ideas off Derrick. At this point, I was still the full owner of the company. It was truly my decision whether or not to go into this market. But he was like a confidante and he and I just had a lot of co-founder-like discussions, is what I realized. Between the two of us, he and I made better decisions than I would make alone. That’s what wound up happening. It was just a natural thing.
Honestly from the very start, I did not think there could be a co-founder. It was not a plan for me. He was literally a contractor working half of his time on HitTail and I said, “Hey I want to build another product. What do you want the other 20 hours of your week? Do you want to get paid for that?” And he was like, “Sure.” It was fun to build a product from scratch and his UX chops are good. It was just a funny little thing and we unintentionally traveled down this road that you’ve outlined here of how to vet but we didn’t have any of the presuppositions of, “Oh man, are we going to make the decision someday to be a co-founder …”
Eventually, Derrick started a couple of apps before that, before Drip that hadn’t panned out and he knew that he wanted to kind of own something. He didn’t just want to work for somebody forever and knew that about him. It came to the point where it’s like, “Look, I’m going to do my own thing,” and it was like, “Well, let’s talk about what I can do at Drip for you to not do that, to make it worth your while to stick around in that.” That’s where it went. It’s very natural and by that time, I trusted him, he trusted me, we both knew how we work.
It was a Cinderella story so to speak of just making it work. But you’re right. I don’t want to say it wouldn’t have been what it was without both of us. It just would have been different. You know what I mean? Drip, especially in the early days just built a lot on my network and my very early vision for the product that quickly became our vision, and it was built a lot on my public speaking and my audience and all that stuff, and that’s what got early traction. Even my network later on got us affiliates and got us people recommending it and people willing to try it and all that stuff.
I think Drip could have worked without Derrick but it wouldn’t have be able to grow as fast. It would have been way more stressful for me. Derrick took so much of the load of the technical side as well as just building good software. I wasn’t dealing with a revolving door of contractors, I wasn’t dealing with that headaches which would have severely hampered the growth of the business, I believe. I think either of us having not been involved, it still could have been successful but it could potentially have been calamity as well.
I think it comes back to that question, should you take on a co-founder? As you said, Drip is very complicated. It’s very large in terms of the app. I can’t imagine doing that alone. I can’t imagine doing that as a single founder. If we’re doing a simpler app, I had HitTail before that. I didn’t take on a business partner with it, nor I didn’t build it, but it wasn’t that many lines of code. I did grow it essentially from $1000 a month to $30,000 a month over a course of a couple of years really on my own. Then I had a couple of contractors helping me out. For that one, I didn’t need a co-founder. That was definitely a nice little lifestyle business.
Mike: But I think there’s an order of magnitude and complexity difference between those two different products and that’s my whole point is that, if there is an order of magnitude difference between what you currently have going on and what you intend for that product to be or what it is going to become, then having that co-founder is probably really a good way to go, regardless which of the two is writing the code or if only one of them has technical experience, that’s fine. But there needs to be help because you are not going to be able to switch back and forth between both of them very well.
I’m saying this as somebody who’s in the middle of that right now. It’s really, really hard to switch back and forth between them because Bluetick is complicated under the covers. It’s way more complicated than I thought it would be and that’s just the nature of it.
Rob: Yup. That’s the struggle. Do you regret or do you wish you had a co-founder? Have you thought about looking for one?
Mike: Oh yeah. It was probably a year-and-a-half ago I actually approached somebody about coming on as a co-founder. It’s not something I haven’t thought of but at the time, I was like, “Okay, yeah, I know and trust this person and I’ll asked him.” He thought about it and we discussed it a little bit, and he decided to go on a different direction, which is totally cool. We’re still great friends and everything and he’s off doing something else and that’s great. But at the same time, I also have it at the back of my mind like, “Hey, it would be nice to have a co-founder or it would be nice to have funding to be able to either attract a co-founder or help in areas where I just can’t dedicate nearly as much time as I would like to then.”
I could either go in either direction and I honestly weighed them both pretty heavily over the past 6-8 months. I know that down the road I probably can’t do both side of the business. The question is what do I do? Do I go for funding and try to hire people that just do marketing and report to me or do I go the co-founder route? I think that it’s a hard comparison to make because on one hand, you’re saying, “Okay, well, if I get funding, maybe I give away some percentage of the company,” and I don’t really want to do that. But at the same time if you bring in on a co-founder, what are the logistics of that look like?
I’ve already spent months, actually years at this point helping build the product and get it to where it is. I’ve done a lot about, I’ll say, the hard, heavy lifting to get the products to be functional and do what it needs to do, but how does a new business partner work into that? How do you value the business, how do you value all the work and effort that I put in, the money that I paid to the contractors that help me in different ways, the infrastructure that I put in place, how do you put a price on that? How do you work out, what the terms of that would be?
Rob: You’re right. That’s hard to do but that shouldn’t be a reason that you don’t do it. You need to figure that out if you really need a co-founder. There’ll be some awkward or hard conversations and you’ll both have ideas of, “You know I have an idea that you should get this much equity,” and then the other person have different and you figure out, “Hey, are we willing to meet in the middle or are we willing to compromise? Or is this just not a fit?”
You’re right. There’s a lot of complexity to that stuff, but it doesn’t mean that it’s not worth doing. As developers, you and I see all the problems with everything, frankly, like Sherry can say, “Hey, we’re going to Croatia in two months,” and I’m thinking, “Oh my gosh, the logistics of that is going to be a nightmare. Everything is going to go wrong.” It’s like we’re used to looking at code and trying to figure out how it’s going to break. In life I try to figure out how are things going to break so I can think, be ahead of them, or whatever and I think that’s what you’re doing here. If it’s the right decision, you just have to figure it out.
But if it’s not the right decision, if you can raise funding and essentially hire someone to handle that, or if you can grow revenue fast enough that you can hire someone, and I’m not saying you in particular but just in general, I mean these are other options instead of having a co-founder, but it sound like you’re right. There’s going to be complexity but I still think that it’s something if you think it’s right for the business, that you should consider.
The good news is raising funding at a later stage or bringing someone at a later stage means that it shouldn’t be a 50/50 proposition or your evaluation should be higher because you do have more traction. If you’ve proven in the business that you have all of these and you have traction, then it becomes a different conversation.
Mike: Yeah, that’s true. Like I said, the situation for me personally is like I’ve got three different, I guess, pass so to speak, and it’s not to say that any of them is necessarily exclusive of the others but there’s the finding the co-founder, there’s also the funding, and then there’s the potential that is like grow the business revenue higher than it is currently to the point where I can hire somebody to bring on which I’m almost positive that like that would be somebody to help out on the marketing side of things, and then figure out things from there.
If I did that, it doesn’t necessarily mean that bringing on a co-founder is out of the realm of possibility because if I hire somebody to do marketing, I may decide that, “Hey, this person is working out in this capacity but I would not want to have them as a co-founder.” And the question is like, “Well, who would I bring on as a co-founder?” I don’t have an answer for that, to be perfectly honest. I don’t want to say a hard situation, it’s just I don’t have easy answers.
Rob: It’s startups, man. There are never easy answers. That’s the thing. I do think that though our discussion today about whether to look for a co-founder, I feel that should be helpful to people. This is one of those issues where there’s a lot of ‘it depends.’ It depends on who you are, your goals, your goals personally and for the business, and like we said, the complexity of the business and all that kind of stuff.
Mike: Yeah, and I think at the end of the day, I really feel it comes down to the complexity, and as you said, you probably would not fund a company that doesn’t have a technical co-founder if they’re trying to be a software business. I would agree with you but at the same time, I also say the decision to take on a co-founder, I feel, is heavily influenced by how complex the software is that you’re going to be building or that you’re working on.
The more complicated it is, I feel the more you are likely to probably need a co-founder because you need somebody who has a large stake in the business, who owns that and knows that they’re responsible for it, and is going to do whatever the right decision is, regardless of the cost, but also keeping in mind all of the other business things that are going on.
If you hire somebody to do the technical stuff, they are probably not going to be aware of this marketing effort that’s going on. That thing is going over on sales. They maybe even involved in some of the support stuff because they’re going to have to fix those issues. But their concern is not marketing. Their concern is not sales side of things. Their concern is building the tech stack and because of the lack of, I’ll say, visibility that they would have or their perceived lack of importance of that stuff to their job, I just don’t think that they’re going to do as well if they’re not an equity/co-founder type of person.
Rob: Yeah, I would agree. Is someone a co-founder? Co-founder is just a title. You can give someone a co-founder title retroactively. If someone has 5% of the company, are they a co-founder? I don’t know. Some people might have that title. Other folks might say, “I don’t know. They’re the CTO, they’re technical employee number one or whatever. Software developer number one.” We are throwing around this term and haven’t really defined it. But I don’t know. We don’t necessarily need to dive into that.
I think the thing to think about is, you know the reason that I haven’t funded any companies without a technical co-founder, you talk about the complexities versus non-complexity of an app. I think these days, I want to fund companies that are going to be seven figure or eight figure businesses. They’re going to be in the millions or above $10 million in annual revenue. I think today to build a SaaS that does that, you are going to have complexity.
I don’t know of a space where you can go back to the Basecamp days and build a project management system that isn’t that complicated. Let’s say Basecamp’s not complicated today, but realistically, when they built it, it was just a lot of CRUD, Create, Read, Update, Delete. That’s what Rails is really good at and that’s what Rails is really good at and that’s why DHH built Rails right out of––pulled it out of Basecamp. Those days are mostly over. I don’t want to say entirely over but the complexity of getting something to seven or eight figures these days, I believe, almost without exception, will require software that’s more complicated than we want it to be. How about that?
It’s like Drip was more work and more complicated than I wanted it to be and same with Derrick. Bluetick is more complicated than you thought it would be and want to be. That’s just what becomes because people want features, you look at the features and like, “Oh my gosh, it’s going to be hard to build,” but that is going to be my differentiator or that is going to get this client to sign up.
Mike: I think a close second behind that is the type of person that you are and whether or not you do well under pressure and how comfortable you are making decisions without additional input. I do agree with you in almost every case like two heads are better than one. It almost doesn’t matter what the situation is, but at the same time, somebody is going to have to ultimately make the decision and it’s more comfortable to have somebody to make a decision when you have somebody else there who’s on even footing with you, and they agree with the decision. Versus, “I think this is the right decision but I’m not sure, but I don’t have anyone to talk to about it or anyone who can say ‘Yes, we should go on in this direction,’ so I’m going to make it. But I’m going to be more stressed out because of that.”
Just by virtue of having somebody else to be able to act as that sounding board who is involved in the business, yes, mastermind group can help and other founders of other companies that you know they can certainly help out and give advice, but ultimately, if you’re the only person in the business making those decisions, everything falls on your shoulders enough a lot more stressful. Just having that co-founder to share the stress and the responsibility of those decisions, good or bad, is going to be helpful.
Rob: I feel that was a pretty good discussion. I hope you as a listener enjoyed our conversation. If you have 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 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 407 | A SaaS Pricing Conundrum, Subdomains, Building an Affordable MVP, 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 SaaS pricing, subdomains, and building affordable MVP’s.
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Rob: In this episode of Startups For The Rest Of Us, Mike and I discuss SaaS pricing conundrum, subdomains, building an affordable MVP and more listener questions. This is Startups For The Rest Of Us episode 407.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs to 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 out experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: You remember a few weeks ago when I said I had gone unto meetup.com, and had started a Dungeons & Dragons group, and gotten a couple of people together, and started playing a campaign?
Rob: Indeed.
Mike: Because I’m signed up for and have a paid account now, they started emailing me about various groups, like, “Hey, you might be interested in this,” and I was told that I should join the Massachusetts cannabis marketing and sales group.
Rob: You totally should. That’s a growth market, man.
Mike: Yeah.
Rob: Is it legal in Massachusetts?
Mike: It is. Although I don’t think anybody’s licensed to actually sell it yet, that happened two years ago, they said, “Yes, this is now legal in Massachusetts for recreational use.” but they still had to go through all these regulatory hurdles, and people had to get certified, and all these other stuff. They’re like, “Yes, you can use it recreationally, but nobody can sell it to you.” that was the situation for a couple of years, I think that they’re supposedly sometime this summer, starting to do that but I don’t know. Maybe the deadline has already passed. I don’t know.
Rob: Because I was back in California, I think it was when I was at SaaStr, so it was probably, February or March of this year, and it’s legal there. It’s been medically legal for years, so they already have the dispensaries, and they legalized it. I think it was maybe, less than a year later, they were allowed to sell it for recreational use.
I was walking around at night with some friends from the conference, co-workers, there was a lot of pot smoke that you could smell, and it was like, “Oh, yeah.” Of course, I was looking around like, “Oh man, they can’t be doing that, right?” it’s just this sense you get when you smell that. But it’s like, “No, no. It’s just legal, and you can do it on the corner.” It’s such a trip, such a trip. It’s going to be weird to get used to. The way it’s going, it’s going to be legal in all 50 States, eventually. It’ll be an interesting thing to adjust to.
Mike: Yeah. Definitely can be interesting. I just found it funny that they’re like, “Oh, you should join this group.”
Rob: Totally. They know who you are, Mike, deep down.
Mike: I guess, maybe. I don’t know. How about you?
Rob: I’ve been doing some smart home stuff which is something I’ve been interested in for years. But since we had a rental for the past couple of years, obviously, I wasn’t going to put a bunch of stuff in a rental. I now have several Alexas—oops, I just activated.
Mike: We should leave this in. This is good radio.
Rob: Yeah, I have several Echos in the house. I need to, not say A-L-E-X-A. I’m enjoying them. I’m enjoying that you can use them as intercoms because our house has a lot of stairs. There’s three or four stories—depending on how you count.
Mike: I found out about that the other day that you could use it as an intercom. I didn’t know that you could do that. You can just drop into some other room in the house. Although I was told there’s a—not a security loophole or something like that—but something associated with it where you have to disable it by default. Otherwise, if somebody in your contact list, they know you have one, they can drop into your living room and just talk to you through the intercom, I think over the internet, and I didn’t know that.
Rob: Oh, interesting.
Mike: Yeah. It doesn’t sound good.
Rob: Yeah. I enjoyed doing it most from the Echo app on my phone. You can just click a couple of times, and then boom, you’re just speaking out of one of the Amazon Echos. Our kids’ playroom is way downstairs, and it’s easier than running down and telling them dinner is ready. It’s pretty nice.
I’ve definitely bought into the Echo ecosystem, and I like their direction that’s going. I got a Nest for the first time. I tried installing Nest at our old house, but it wasn’t compatible. I have a Nest here, and I can now control that of course with the app, and it’s smart thermostat, and that’s fun. You can even tell the Echo to adjust the temperature, I believe. I haven’t activated that yet.
We moved into this house, it’s in the Midwest, it was built right around 2000, and they wired the whole thing for in-home speakers. There’s speakers in almost every room. There’s this big central places where he had a receiver, a tuner, CD player, and all this stuff. I’m thinking, in the 90s, that’s what I would have done. When in college, I would love big speakers from dorm room to dorm room, as I moved around or apartment to apartment, and you had your receiver, you had your amp and all that stuff.
Now I went online, and I was like, “There’s got to be an easier way here. I want to be able to stream everything.” I researched it, and of course, Sonos is the leader in that space. While I don’t love how proprietary Sonos is, even down to the fact that I can’t just stream from Spotify through my Sonos but I believe that you have to use the Sonos app, and you […] it into your Spotify account like, “I don’t want to use the Sonos app.”
Mike: Oh, geez.
Rob: I know. I know. I need to double-check that because they may have opened it up, but last time I looked, you weren’t able to kind of just airplay it–the equivalent of that through the Sonos thing. But anyway, they have this thing called, Sonos Connect: Amp. The Amp part means it has an amp in it that you can connect to speakers. I just got one, just as an experiment. I put in on the first floor, and sure enough, it takes the place of all of this equipment he had, the speaker wires go in the back, and there’s volume knobs on every wall in the house.
I was going to bail on it altogether and just not do it. But Sherri’s like, “No, no, no. If we have people over, there’d be multiple…” because you can do multiple floors, and there’s all this stuff. All that to say, I reluctantly implemented Sonos in this smart home thing, but man, it’s cool. You can tell your Echo to start this on Spotify on the Sonos, and it will do it, and you go to the wall and turn it up. It’s magical, man. It’s pretty interesting. It feels like we’re living in the future.
Mike: That’s pretty cool. I bought a new amplifier maybe two or three years ago because my old one was 12, 15 years old. Actually, it was more than that. It’s probably close to 20. It still works great. It’s just that it didn’t have any of the connections. It didn’t have an HDMI connection. It still had all the component outputs or inputs and everything else. I couldn’t hook it up to any new equipment that I had, like a Blu-ray player and stuff like that. I was like, “Alright, fine.” I brought it down, and I bought a new amp.
I was looking at all the different options, and it seemed to me like a lot of that type of equipment, is very much like car technology where they’ll build something into it like Spotify or something like that, and it’s obsolete almost the second you buy it. They’re terribly useful. It sucks that it feels like that type of technology is still on that trend, where everything is proprietary, and it’s so hard to connect stuff, and it’s expensive too, but at the same time, it doesn’t really wear out. I still got speakers that were almost 20 years old, and they’re still in great working condition. I don’t really have any need to buy new ones, except for the fact that if something breaks. That’s it.
Rob: Yeah, that makes sense. I agree. I was concerned when I bought this Sonos. I had to research it because I was, “Do they even support speaker outputs anymore? There’s exterior speakers in the patios, is it going to drive those? Is it going to connect to all the stuff?” Sure enough on the back, it looked like it had the right ports and it wound up doing it. They’re called banana clips.
I agree. Trying to interface this newfangled technology with stuff that has existed for 30, 40 years, maybe even longer. I remember twisting speaker wires together. I had four speakers in my dorm room. Certainly, it was quadraphonic, it was a stereo, but I would twist them together, ran them into the amp, and do all the stuff, and that technology is now having to interface with, like you said, this Spotify stuff.
I did evaluate not doing Sonos. There are, obviously, other brands that have streaming music devices that have amps built-in, but they just all seem, like you said, bolted on, and antiquated. I don’t know. It’s interesting to see how this is going to shake out. I’m interested to see how it’s going to shake out over the next few years.
Obviously, I’m investing in ecosystems now. I’ve been on the Alexa ecosystem now. I’m in obviously now, on the Sonos a little bit. I think I’m probably going to have to get at least one more […] perhaps too because there’s different zones and stuff. But I’m trying to pick market leaders because I don’t want to buy the Betamax, and suddenly have to bail on it because they just killed the line or whatever.
Mike: Well, that just means you’ll have to find the one that is selling porn with it, that will be the winner.
Rob: I do think, I might need to stand corrected because I opened Spotify while we were talking, and it does look like I can just connect to the Sonos downstairs, and just stream it through there instead of using their app. I’ll test that later to prove it out. I know for a while they didn’t do that. But if it does it now, they must have added it in the past whatever, six months or something.
Mike: It seems to me, for that type of technology, anything that comes to streaming, you just want something where you can connect to it with Bluetooth or something like that, or with even just a cable, and then from there, it just acts as a dummy piece of equipment that just does its thing, and that’s its sole purpose is, and then you plug other stuff into it. It seems most people would really just want to do that.
My wife used to work at an electronic house, and they had all these high-end stereo systems going up to $100,000-$150,000. Don’t get wrong, they were beautiful, but the reality is you’re going to spend that much money on a stereo system for some downstairs place. Their target market was people who had nothing better to do with their money. Sure, that makes sense, but I think for the average user, it doesn’t matter that much.
Rob: Yeah, that’s the thing. Like you sad, I wouldn’t want to use a cable because the Sonos is in a cabinet set away but Bluetooth or I believe it’s just via wifi because it connects to wifi obviously, and it had its own identity. Once I […] it connects over that. I’m not Bluetooth-connected to Sonos at all. The phone just know where it is.
Mike: Yeah.
Rob: With that, should we do a whole episode?
Mike: We could talk about all the different problems of those too. There was some kid’s device that was out there that connected into the WiFi, but it also would record pretty much anything, and it would send it back to the servers to the company that made it, it wasn’t encrypted, and it was using it to do voice recognition. They were basically collecting voice data from kids. It was like, “Oh boy. That’s not good,” and it’s all not encrypted either. That’s a big problem.
Rob: Yeah. That’s the thing too. The IoT is the term for this—Internet of Things. Everything is going to be on the internet at some point, is what they’re saying. The IoT devices are much like the Nest and the Sonos and even smart toasters, smart microwaves, smart fridges, and all the stuff that’s supposed to be coming.
That stuff is said to be a hacker’s dream. Most of it, it’s super insecure. Some of it, if it doesn’t get patched, then it’s easy to hack. Even a lot of it that is patched is easy to hack into. They’re saying that’s the coming wave of hacks. That’s going to be the zombie nets of the future. Because that’s how folks do DDoSes—they go out, and they take control of a bunch of old PCs that are unpatched, and then they do attacks, distributed denial-of-service, from all those things. They’re saying that the Internet of Things is going to be tenfold or a hundredfold the number of devices. It’s going to have that much power.
Mike: Yeah. I shudder for people who have to deal with those types of problems.
Rob: Seriously, yup. Cool. Let’s dive in. We have some listener questions. We have some comments on some prior episodes. Our first comment is on episode 403 which was titled, Should You Love What You’re Working On? and it’s from Martin. He just came to startupsfortherestofus.com and entered a comment at the bottom of episode 403’s blog post.
He said, “Hi, Rob and Mike. Thanks for another great episode. When you guys talked about love versus opportunity, I was reminded of the idea that it can take hard work to cultivate a passion. If I remember correctly, Cal Newport talks about this idea in one of his books. I don’t know about you guys, but I’ve noticed that there are a lot of things where you need to put in the work first before you start to enjoy them. I’m currently working as a software consultant, and I remembered that the reason I picked up programming in the first place was because as a kid, I was into video games. Now many years later, I really enjoyed developing software, often more than playing games. I think that’s true of many things. For example, when you’re just starting with any kind of sport, and you suck at it, it’s often not that great, but once you put some effort into it and you start to improve, you suddenly get why people enjoyed doing it.”
I think Martin has a good point. Thanks for posting, Martin. This is how I felt about playing music–playing the guitar. When I first started it, it was really hard, and then definitely the better I got, the more I wanted to play my guitar. What do you think about this?
Mike: I remember reading about this. I think that Josh Kaufman wrote a book about learning different things. I’m pretty sure he had a graph in there that showed that. There’s a skill level versus enjoyment. When you first start doing something new, you suck at it which is to be expected, but you don’t enjoy it at all. Then once you get a little skilled at it, then you really start to enjoy it because you feel you know what you’re doing, so you’re on the cusp of always learning this new stuff, but you’re also enjoying the journey. Once you get much more advanced, then it’s about putting the time and effort to practice, and get the muscle memory or the mental connections made so you don’t have to really think about it when you’re doing it. Pretty sure it was Josh’s book that—I can’t remember the name of the book off the top of my head—but I think that that was in there.
Rob: It’s called The First 20 Hours: How to Learn Anything Fast.
Mike: Yes, that was it. Yup. It’s a fascinating read, too. If you are interested in learning new things and the process of learning new things, I’d definitely recommend picking up that book and checking it out. He goes through several different things that he learned, like the ukulele, sailboarding, and a couple of other things. It’s just fascinating how he learned about how to learn stuff.
I always had a problem with that when I was in college. When I got to college, I just authorized, “Go ahead,” relied on my natural ability to just remember things, pay attention in class, and then do well on tests. When I get to college, you have to do the homework. That was always a problem for me in college, but it worked itself out eventually, but it took years for that to happen.
Rob: Yup. For sure, I felt the same thing. The First 20 Hours by Josh Kaufman. It’s also on audible which is I believe how I read that book. Thanks for the comment, Martin. Our first question of the day is from Michael Needle. He’s from alltheguides.com. He says, “Mike and Rob, first, thanks for all you do. I previously called in about building a marketplace, alltheguides.com, to connect adventure travelers and guides. I’m close to finishing the platform, and I took your advice on building one segment first. I went with guides to have providers ready when clients come,” which is the way I believe we should have recommended that you do. It’s a two-sided marketplace, and we said when you start with two-side marketplace you have to get that one side done first.
Now back to his email. “Now ahead of the platform launch, I want to make sure I can bring the clients to the site, the customers, the consumers. I thought I’d follow your advice by starting an informative blog in order to get emails.” Adventure Travel Ideas, I think is the idea of the blog. Here’s the question. “I already have a landing page up from my platform. I assume it would be better to have the lead gen on a different domain as opposed to a subdomain. I just assume that subdomains will be less likely to draw initial visitors. Am I wrong on this? Or if I’m right, and I should go with a different domain, what is the best way to nudge my list towards the platform once it’s launched? Thanks again, guys. You provide invaluable advice and inspiration.” What do you think, Mike?
Mike: I think there’s a natural inclination to believe that you should put your landing page and stuff like that on some sort of a subdomain and that’s how you’re driving traffic to them. But the reality is, I think is that if you’re doing tour guides in a marketplace like this, I don’t think people necessarily really care about the subdomain. I think what really comes into it with the subdomain is that you’re trying to establish new website according to Google, and do all the SEO, and the site ranking, and get that up based on how Google looks at it.
You could instead focus that energy on a subdirectory in your main domain and use that to essentially focus your efforts and increase the authority of that domain versus trying to do it with one subdomain and then another— that’s probably the approach that I would go with. I guess there’s a few different examples I would point to like Craigslist, Angie’s List, and Reddit. Reddit’s got all those different subReddits and stuff in it, but they’re all under, most of them in different subdirectories.
Rob: The reddits? Yup. It’s reddit.com/r/whatever, /startups or whatever.
Mike: Right and that’s not necessarily a two-sided market, but Craiglist is. Based on the location, they will have subdirectories, which are a geographic location, but I wouldn’t worry too much about the subdirectories, at the moment. I guess I’m curious to know whether or not you’re trying to use those subdomains as like the location, like city name, or something like that. Maybe it would make more sense in that case, but at the same time, you could also just use it like it as a different subdirectory as well, and you’ll benefit, for the site authority, through that.
Rob: That’s the thing, and now Google has come out and said, “Oh, subdomain, subdirectory, there’s no difference.” I still think there’s some difference. I still believe, deep down, that subdirectory is better for SEO. I do like your point there. I think if you are going to start a blog, I would try to do it in subdomain, if possible. It’s not always possible to do that. You might need to do reverse-proxy and do some things if you’re running WordPress because you don’t tend to want to run WordPress on a production app server. When I say don’t tend to want to, I mean don’t do it. There’s just too many security holes.
If you want to host it somewhere, I’d go with somebody like the VPNGINE or Pagely or whatever. I think I may have misspoken earlier and said subdomain, but what I mean was subdirectory, if you can do a subdirectory, that’s what I would do.
I don’t think this matters actually, that much. When using a different domain for the lead gen, I would probably lean towards subdirectory, and if you need to use a subdomain, I don’t know—its just apples and oranges, this is small stuff. If you’re going to drive ads to it, it doesn’t matter, nobody cares, they’ll just click on the ad, and they’d go see it. If you’re going to try for SEO then like Mike and I were saying, I would lean towards subdirectory, if possible, I think it’s pretty clean, but in all cases, I don’t know that it matters that much.
Mike: Yeah. The one really nice thing about having everything underneath the same domains—and you’re not dealing with subdomains—is redirecting people back and forth, and then also dealing with the fact that, like any tracking analytics where you’re trying to track like, “Did somebody hit this subdomain and then this other subdomain?” and then you got cookies back and forth between them. With marketing tools, it becomes an absolute nightmare.
You’re much better off just having it all on one domain and then you don’t have to worry about that because the cookies are going to be able to work all on that domain between different directories, versus, like a Google Analytics tracking code. Something as simple as that is going to be an absolute nightmare to work across multiple domains.
Rob: Yeah, and it’s possible, you just got to know how to do it. It’s not out-of-the-box trivial. Sharing cookies is a pain, and then you’ll get the, “Hey, this person came from one of your domains to the other, and they show up as a new visitor.” It’s not ideal. Anyway, I hope that helps.
Our next question is from long-time listeners and friends of ours. Folks that we’ve known that have come to MicroConfs–Dan Taylor and Simon Payne. Dan Taylor runs appsevents.com, which is an events company that runs more than 300 annuals events. Simon Payne was the co-founder of Lead Pages. They both live in Prague, actually, in Czech Republic. Simon was working on an app with Dan Taylor, and Simon has also launched a WordPress button called Convert Player. That’s pretty cool.
Anyway, they wrote in. They said, “Hi, Rob and Mike. Two long-time listeners here, Dan and Simon. We’ve developed and released a SaaS app called EventsFrame. It’s eventsframe.com. It’s ticketing and attendee management system, with fixed low monthly pricing for unlimited events and unlimited attendees. We’ve moved all of my company, AppsEvents more than 300 annual events to this, and done a full public launch last month. We already have paid sign-ups from our listings on sites like Capterra, some content marketing, and some basic Facebook ads, which have converted this in paying customers, which is a good sign. We’re doing an AppSumo launch in a couple of weeks to get a bunch of users on this system, which is taking a lot of our focus, but we’re planning for how we grow this long-term, as Simon and I are focusing all our time on this project.”
“Our question is on pricing. As you know, systems like Eventbrite take a percentage of ticket price, and most systems follow a similar model. With AppsEvents, I was spending thousands of dollars a year on Eventbrite fees. We want to go for a fixed price for unlimited events and attendees. Our initial idea is $97 a month. Now the issue with this is that people running one several small events might prefer a percentage of ticket price, as there is no upfront cost. And on the other end, large event producers would pay a lot more than $97 a month,” or I think he’s saying they should pay a lot more than that cost they’re getting more value. “We guess some pricing tiers could be good. But any ideas to help with our process would be greatly appreciated. All the best, Dan and Simon.” What do you think?
Mike: This is something that I actually looked into pretty heavily and struggled with several years ago. Back when I was running AuditShark, one of the ideas that I had come up with was, ironically, Bluetick, because I was doing a lot of outreach to people and I just needed to follow-up with them and keep on them. But also, as a side note, I was also helping out on the sponsorships side for MicroConf. For that particular problem, I found that I had to do the same thing.
I said, “Oh if I had this product or tool in place that would allow me to do that outreach as an event organizer that would help me out a lot.” I looked around. A bunch of different things didn’t really work very well for what my use case was. I said, “Well, could I build this? Is this something that I could basically move away from AuditShark?” because at the time, it wasn’t really on the best path, and I recognized that at the time.
Anyway, I looked into specifics of whether or not I could target event organizers with that. What I realized was that there’s a wide range of types of event organizers. Some of them, that’s all they do, they organize events like the AppsEvents company. They will organize hundreds of events every single year, and then there’s ones like MicroConf where we do it a couple of times a year, and that’s it.
For ones like that, a monthly pricing model really doesn’t work well because of the fact that you’re only running a couple of events. If you’re doing it on a regular basis, sure, it makes a lot more sense. But as you pointed out, it makes a lot more sense to just do with a percentage of the ticket price for those types of customers.
The other thing I would look at is, Eventbrite, yes, they do charge a percentage of the ticket, but they also give the event organizers the ability to pass that cost onto the attendees. That’s actually what we do with MicroConf. It’s only a couple of percent, but at the same time, it raises the ticket price by that amount. The question you have to ask is, “Well, as the event organizer, is that something that’s going to turn away people? Are they going to, not buy a ticket because they have to pay that extra fee?” That’s again, for the event coordinator to decide. But your problem is, how are you charging?
For us, Eventbrite is I’ll say, “free” and that we’re passing those cost on, and then on the other side, we’re paying the cost of the payment processing, which we would have to pay, regardless. Whether Eventbrite handles it or we do it through PayPal or Stripe or whoever, that fee has to be paid. But our payment to Eventbrite is basically, covered by the attendees buying those tickets, which make it free for us, which makes it a lot more attractive than a $97 a month plan or even a $50 a month plan. Coupled with the fact that, we also don’t run more than a couple of events a year. Why should we be paying for that over the course of the entire year if we’re only running events in a certain time window, I’ll say?
That’s exactly the problem that I ran into when I was trying to identify, “Well, how can I build this email follow-up product aimed at event organizers?” Event organizers, if they run a lot of events, awesome. They’re a good target. But if they don’t, then having them pay a monthly fee is not going to work.
Rob: Yeah. Basically, what Dan and Simon are talking about doing is doing pricing innovation in the events space. While I think it certainly saved Dan money from a customer perspective—he was paying Eventbrite thousands a year—I’m not sure it makes sense to do this from a business perspective.
There’s a reason that most of these events software companies charge the way they do. The reason, as you’ve laid it out, if your event is free, you don’t pay EventBrite anything. If you only sell 20 tickets, and they’re $5 each, then I believe you pay Eventbrite 2.5% of that. If they do the processing, they charge you 3% fee, payment processing fee or we use PayPal, and obviously, it’s whatever it is, 2.9% or 3% there.
Or, if you sell $100,000 worth of tickets in a year, then yeah, you do pay $2500, so I get the […] Eventbrite. It makes sense from a customer perspective of being like, “Man, I’m paying EventBrite so much money,” but now that you’re on the other side of it, and you’re running a business, my thought is like, “Yes, that’s how you want it. You want it so that the people who are getting a little bit of value out of this system aren’t paying that much for it and it scales up perfectly linearly with how they do it.”
If you sell $100,000 for the tickets, you’re probably making a chunk of money. We can argue about whether $2500 is too much money, but you definitely are getting quite a bit of value out of the system if you’re selling $100,000 worth.
Trying to do pricing innovation is a challenge. Is it business model canvas? That something that if you read that book, do you remember the book?
Mike: Yeah, I remember it. There was a whole worksheet that went with it.
Rob: Yup and that talks a lot about trying to do pricing innovation. I don’t know if it has practical enough tips to help you sort this out. But I will say that I tried to innovate on pricing in the early days of Drip, and instead of doing per subscriber just like MailChimp and everybody else is doing, I tried to do new subscribers per month, and it was a bad idea. Not only did they confuse people, but as we started to scale up, we were not growing nearly as fast as we should have.
That’s the thing that you’re going to run into is you’re going to have people who come and are selling half a million dollars’ worth of tickets on your system and they’re going to be paying $97 or even if you do tiers, it’s not going to be that much. They’re not going to be paying you 2.5% of $500,000.
I think since people are used to this, and it is a lucrative model. If anything, you could try to be the low-cost provider which I don’t think is a terrible idea in this space. I don’t know enough about the whole space. I know that EventBrite, yes, it does feel expensive to a lot of people, and it’s clunky, so you have those two things. They have a ton of features, but they’re a little more expensive than everybody wants them to be, and they’re arguably quite a bit harder to use, although they have a lot of features.
This is like going after a QuickBooks or InfusionSoft or Marketo—kind of going after that. If you make your software infinitely usable and slightly less expensive, but you still keep the same model, maybe only try 2.5%, I don’t know. I know you have other bootstrap competitors around you, look at what they’re doing. That’s probably where I would start is doing just a big survey of all the pricing structures of all the events SaaS apps, and mapping that out on a big sheet of paper or mind map or something, and trying to think that through.
I think in the end, you are going to want to be a percentage of revenue is my guess, because otherwise, you’re going to constantly have this problem. Try to think if there’s any way around it with tiers, try to think creatively. It’s like you could have a free tier or you can’t charge for events, and then you could have your $50 a month tier where you go to a certain amount of ticket sales. In essence, you’re taking a percentage, but you’re not, you’re just having tiers of it. That would maybe be the only other thing that I would consider. But man, just taking 1.5%, 2.5%, it’s so clean. It makes your pricing look so clean. It’s simple, and everybody understands that.
Mike: I think the problem that you just alluded to is that, depending on the size of the event that you’re dealing with, if it’s 5 or 10 people, you might have one price tier, and then if it’s 50, you could have another. Whether or not you deal with those, like what’s the price point of those? If it’s $25,000, but they only allow five people in it, is it a free account? Depending on the value that you’re providing to them, that’s really what you’re pricing should be based on.
I think you almost get into this territory of, you have an unlimited number of pricing tiers because how high could those ticket prices go or what is it that you actually basing it on? Is it the number of attendees or is it ticket price? Or is it a combination of the two? Once you get into that territory, it gets overly complicated, and people don’t want to deal with it because they’re like, “This pricing model is too confusing for me. I feel like I’m going to get screwed, so I’m going with the competitor because I understand it.”
Rob: Thanks for the question, Dan and Simon. I hope that was helpful and I definitely wish you guys the best of luck with EventsFrame.
Our next question is from Alex, and he says, “Hi again. Thanks for all the great content. I feel like I’m in a bit of a dilemma. I have an idea that I would like to turn into a business. It’s for a job site. I have the requirements, more or less hammered out to the point I can have a developer build it. I’ve recently been in the process of getting quotes from various companies, and freelancers to build it but I’m hesitant to make this jump. Aside from the inherent risk of it just failing, I’m concerned I will spend all my money on the MVP then quickly run out of money to fund any iterations on the site. I don’t know anyone willing to help me build this for free, and I also don’t know the first thing about raising money or how to prepare for that. I guess my question is, how would you approach building an MVP in the most affordable way?”
One thing I’ll throw out before you dive in Mike is, you’ll not be able to raise money, maybe from family and friends, but you’re not going to be able to raise money without a working app these days. It’s just kind of table stakes. Although he asked us, “How would you approach building an MVP is the most affordable way?” I don’t know that’s a question we should answer. I think the question we should answer is, how do you validate this more before building an MVP. Would you agree?
Mike: Yeah, I would agree. That’s the next step is like, what is the MVP? What question are you trying to answer? The question I think you’re trying to answer is, “How do I know if I should dump this money into this type of product?” I think the answer to that is the same thing that I did with Bluetick. Go to balsamiq.com, and buy a copy of Balsamiq for $80, and mock everything up. Then go try, and sell that to people, and see if people are actually interested in buying what it is that you have.
That will do a couple of different things for you. One is, it will help you find the types of people that you need to talk to, and the second thing it will do is, it’ll give you enough information to say like, “Is this something that people would actually pay for?” and that’s the answer to your question is, if you can get enough people and find the market for it and tap into a channel of people to talk to, to get them excited about it, and find out if they’re going to pay for it, then sure, go for it.
But if you can’t get past that part, if you can’t find the people to talk to, it’s never going to work. You’re just not going to be able to turn it into a working product, regardless whether you have code written or not. That’s not the problem. The problem is trying to find those customers and make sure they are willing to pay for it. There’s obvious concerns here about, Alex’s voice about, “I’m concerned about making the jump because of the risk of it failing,” and that’s how you make sure that it’s not going to fail.
Rob: Yup, I would agree with that. I think the question you need to ask yourself is, “How can you validate this before dumping a bunch of money into it and doing as much of that as possible?” Sometimes, an MVP is not even software. We’ve talked about this in the past. An MVP might be you with an Excel spreadsheet or a Google spreadsheet. It might be you manually writing things, taking in a list of keyword someone gives you, manually running an algorithm on them in Excel, and then giving back the keywords they’re most likely to rank for. That is basically what I would have done if I had built an MVP for HitTail, as an example, or any keyword tool.
There are ways to do it without needing to hire anyone to write a line of code. My second book, which is a collection of essays, is called Start Marketing The Day You Start Coding, but now, I think it’s Start Marketing Or At Least Validating Well Before You Start Coding. With Drip, I had 11 people who said that they would pay $99 a month for what we were going to build before we broke ground on code. I wanted 10, happened to get 11, then Derrick started writing code.
I know for Bluetick you got pre-orders. There is a lot of hustle that can happen up front. It’s hard work. This is the stuff that, “Well, is anyone going to trust me? Who am I? Is anyone going to trust me if I don’t have the software after the software ?” No, that’s an excuse. Yes, it would be better if you had all the software, and could just start marketing it. But that’s not the case.
I think your concern is valid, that going out and building an MVP, it’s very, very unlikely that’s going to have product fit, so you’re going to have to iterate. If you don’t have the money or the time or the skills to iterate on that, then you need to figure out how to get to the point where you feel more confident.
Here’s the thing. If you try to recruit a developer to build it for free—we’ve talked about this in the past—nope, no developer is going to want to do that. If you go to a developer and you say, “Hey, I built all these mockups, I have 25 phone calls, and I got 10 pre-orders, they paid for a quarter, three months of service, and they’ve all committed to—assuming it works and does what I say—it’s going to be $50 or $100 a month after that, boom, we’re going to be at $1000 MRR,” yes, that’s a lot of hustle, and it’s a lot of work, but that’s how you recruit a co-founder or at least a developer who is willing to build it maybe for an equity share or something like that.
I like the way you’re thinking about it. I’m glad you’re hesitant to just dive into the MVP, but I don’t think you should look at building an MVP as software in the most affordable way. I think you should look at, not automating them, doing stuff manually, and think of, “How can I possibly validate this?” The first step is going to be customer conversations, then it’s going to be trying to get pre-orders, then it’s going to be doing it manually until the software’s built, then it’s building a crappy software MVP, and then it’s doing a better job. I bet there’s a lot of steps between where you are today and basically, paying someone to build a complete SaaS app.
Mike: I think part of it just stems from the classic misunderstanding of what an MVP is because MVP has the word Product in it, and that’s not really what it means. I talked about this in my book, Single Founder Handbook, and I quote Wikipedia from […]. It says, “An MVP is not a minimal product. It is a strategy and process directed toward making and selling a product to customers.” What you have to understand there is that it explicitly calls out an MVP as a process, not as a product. Building a product is not your MVP; answering a question is what your MVP is. The first thing that you have to start with is, “What is my question?” and here it’s, “How do I know that I need to pay people to develop software?” It’s all the stuff before that that Rob just talked about, like talk to customers, find out what they really want, and whether they’re going to pay for it, that’s all the stuff that you need to do..
Thanks for the question, Alex. I hope that was really helpful. I think that about wraps us up for the day. If you have a question for us, you can email it to questions@startupsfortherestofus.com, or you can send us a voicemail by calling 1-888-801-9690. 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 and we’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs to 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 out experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: You remember a few weeks ago when I said I had gone unto meetup.com, and had started a Dungeons & Dragons group, and gotten a couple of people together, and started playing a campaign?
Rob: Indeed.
Mike: Because I’m signed up for and have a paid account now, they started emailing me about various groups, like, “Hey, you might be interested in this,” and I was told that I should join the Massachusetts cannabis marketing and sales group.
Rob: You totally should. That’s a growth market, man.
Mike: Yeah.
Rob: Is it legal in Massachusetts?
Mike: It is. Although I don’t think anybody’s licensed to actually sell it yet, that happened two years ago, they said, “Yes, this is now legal in Massachusetts for recreational use.” but they still had to go through all these regulatory hurdles, and people had to get certified, and all these other stuff. They’re like, “Yes, you can use it recreationally, but nobody can sell it to you.” that was the situation for a couple of years, I think that they’re supposedly sometime this summer, starting to do that but I don’t know. Maybe the deadline has already passed. I don’t know.
Rob: Because I was back in California, I think it was when I was at SaaStr, so it was probably, February or March of this year, and it’s legal there. It’s been medically legal for years, so they already have the dispensaries, and they legalized it. I think it was maybe, less than a year later, they were allowed to sell it for recreational use.
I was walking around at night with some friends from the conference, co-workers, there was a lot of pot smoke that you could smell, and it was like, “Oh, yeah.” Of course, I was looking around like, “Oh man, they can’t be doing that, right?” it’s just this sense you get when you smell that. But it’s like, “No, no. It’s just legal, and you can do it on the corner.” It’s such a trip, such a trip. It’s going to be weird to get used to. The way it’s going, it’s going to be legal in all 50 States, eventually. It’ll be an interesting thing to adjust to.
Mike: Yeah. Definitely can be interesting. I just found it funny that they’re like, “Oh, you should join this group.”
Rob: Totally. They know who you are, Mike, deep down.
Mike: I guess, maybe. I don’t know. How about you?
Rob: I’ve been doing some smart home stuff which is something I’ve been interested in for years. But since we had a rental for the past couple of years, obviously, I wasn’t going to put a bunch of stuff in a rental. I now have several Alexas—oops, I just activated.
Mike: We should leave this in. This is good radio.
Rob: Yeah, I have several Echos in the house. I need to, not say A-L-E-X-A. I’m enjoying them. I’m enjoying that you can use them as intercoms because our house has a lot of stairs. There’s three or four stories—depending on how you count.
Mike: I found out about that the other day that you could use it as an intercom. I didn’t know that you could do that. You can just drop into some other room in the house. Although I was told there’s a—not a security loophole or something like that—but something associated with it where you have to disable it by default. Otherwise, if somebody in your contact list, they know you have one, they can drop into your living room and just talk to you through the intercom, I think over the internet, and I didn’t know that.
Rob: Oh, interesting.
Mike: Yeah. It doesn’t sound good.
Rob: Yeah. I enjoyed doing it most from the Echo app on my phone. You can just click a couple of times, and then boom, you’re just speaking out of one of the Amazon Echos. Our kids’ playroom is way downstairs, and it’s easier than running down and telling them dinner is ready. It’s pretty nice.
I’ve definitely bought into the Echo ecosystem, and I like their direction that’s going. I got a Nest for the first time. I tried installing Nest at our old house, but it wasn’t compatible. I have a Nest here, and I can now control that of course with the app, and it’s smart thermostat, and that’s fun. You can even tell the Echo to adjust the temperature, I believe. I haven’t activated that yet.
We moved into this house, it’s in the Midwest, it was built right around 2000, and they wired the whole thing for in-home speakers. There’s speakers in almost every room. There’s this big central places where he had a receiver, a tuner, CD player, and all this stuff. I’m thinking, in the 90s, that’s what I would have done. When in college, I would love big speakers from dorm room to dorm room, as I moved around or apartment to apartment, and you had your receiver, you had your amp and all that stuff.
Now I went online, and I was like, “There’s got to be an easier way here. I want to be able to stream everything.” I researched it, and of course, Sonos is the leader in that space. While I don’t love how proprietary Sonos is, even down to the fact that I can’t just stream from Spotify through my Sonos but I believe that you have to use the Sonos app, and you […] it into your Spotify account like, “I don’t want to use the Sonos app.”
Mike: Oh, geez.
Rob: I know. I know. I need to double-check that because they may have opened it up, but last time I looked, you weren’t able to kind of just airplay it–the equivalent of that through the Sonos thing. But anyway, they have this thing called, Sonos Connect: Amp. The Amp part means it has an amp in it that you can connect to speakers. I just got one, just as an experiment. I put in on the first floor, and sure enough, it takes the place of all of this equipment he had, the speaker wires go in the back, and there’s volume knobs on every wall in the house.
I was going to bail on it altogether and just not do it. But Sherri’s like, “No, no, no. If we have people over, there’d be multiple…” because you can do multiple floors, and there’s all this stuff. All that to say, I reluctantly implemented Sonos in this smart home thing, but man, it’s cool. You can tell your Echo to start this on Spotify on the Sonos, and it will do it, and you go to the wall and turn it up. It’s magical, man. It’s pretty interesting. It feels like we’re living in the future.
Mike: That’s pretty cool. I bought a new amplifier maybe two or three years ago because my old one was 12, 15 years old. Actually, it was more than that. It’s probably close to 20. It still works great. It’s just that it didn’t have any of the connections. It didn’t have an HDMI connection. It still had all the component outputs or inputs and everything else. I couldn’t hook it up to any new equipment that I had, like a Blu-ray player and stuff like that. I was like, “Alright, fine.” I brought it down, and I bought a new amp.
I was looking at all the different options, and it seemed to me like a lot of that type of equipment, is very much like car technology where they’ll build something into it like Spotify or something like that, and it’s obsolete almost the second you buy it. They’re terribly useful. It sucks that it feels like that type of technology is still on that trend, where everything is proprietary, and it’s so hard to connect stuff, and it’s expensive too, but at the same time, it doesn’t really wear out. I still got speakers that were almost 20 years old, and they’re still in great working condition. I don’t really have any need to buy new ones, except for the fact that if something breaks. That’s it.
Rob: Yeah, that makes sense. I agree. I was concerned when I bought this Sonos. I had to research it because I was, “Do they even support speaker outputs anymore? There’s exterior speakers in the patios, is it going to drive those? Is it going to connect to all the stuff?” Sure enough on the back, it looked like it had the right ports and it wound up doing it. They’re called banana clips.
I agree. Trying to interface this newfangled technology with stuff that has existed for 30, 40 years, maybe even longer. I remember twisting speaker wires together. I had four speakers in my dorm room. Certainly, it was quadraphonic, it was a stereo, but I would twist them together, ran them into the amp, and do all the stuff, and that technology is now having to interface with, like you said, this Spotify stuff.
I did evaluate not doing Sonos. There are, obviously, other brands that have streaming music devices that have amps built-in, but they just all seem, like you said, bolted on, and antiquated. I don’t know. It’s interesting to see how this is going to shake out. I’m interested to see how it’s going to shake out over the next few years.
Obviously, I’m investing in ecosystems now. I’ve been on the Alexa ecosystem now. I’m in obviously now, on the Sonos a little bit. I think I’m probably going to have to get at least one more […] perhaps too because there’s different zones and stuff. But I’m trying to pick market leaders because I don’t want to buy the Betamax, and suddenly have to bail on it because they just killed the line or whatever.
Mike: Well, that just means you’ll have to find the one that is selling porn with it, that will be the winner.
Rob: I do think, I might need to stand corrected because I opened Spotify while we were talking, and it does look like I can just connect to the Sonos downstairs, and just stream it through there instead of using their app. I’ll test that later to prove it out. I know for a while they didn’t do that. But if it does it now, they must have added it in the past whatever, six months or something.
Mike: It seems to me, for that type of technology, anything that comes to streaming, you just want something where you can connect to it with Bluetooth or something like that, or with even just a cable, and then from there, it just acts as a dummy piece of equipment that just does its thing, and that’s its sole purpose is, and then you plug other stuff into it. It seems most people would really just want to do that.
My wife used to work at an electronic house, and they had all these high-end stereo systems going up to $100,000-$150,000. Don’t get wrong, they were beautiful, but the reality is you’re going to spend that much money on a stereo system for some downstairs place. Their target market was people who had nothing better to do with their money. Sure, that makes sense, but I think for the average user, it doesn’t matter that much.
Rob: Yeah, that’s the thing. Like you sad, I wouldn’t want to use a cable because the Sonos is in a cabinet set away but Bluetooth or I believe it’s just via wifi because it connects to wifi obviously, and it had its own identity. Once I […] it connects over that. I’m not Bluetooth-connected to Sonos at all. The phone just know where it is.
Mike: Yeah.
Rob: With that, should we do a whole episode?
Mike: We could talk about all the different problems of those too. There was some kid’s device that was out there that connected into the WiFi, but it also would record pretty much anything, and it would send it back to the servers to the company that made it, it wasn’t encrypted, and it was using it to do voice recognition. They were basically collecting voice data from kids. It was like, “Oh boy. That’s not good,” and it’s all not encrypted either. That’s a big problem.
Rob: Yeah. That’s the thing too. The IoT is the term for this—Internet of Things. Everything is going to be on the internet at some point, is what they’re saying. The IoT devices are much like the Nest and the Sonos and even smart toasters, smart microwaves, smart fridges, and all the stuff that’s supposed to be coming.
That stuff is said to be a hacker’s dream. Most of it, it’s super insecure. Some of it, if it doesn’t get patched, then it’s easy to hack. Even a lot of it that is patched is easy to hack into. They’re saying that’s the coming wave of hacks. That’s going to be the zombie nets of the future. Because that’s how folks do DDoSes—they go out, and they take control of a bunch of old PCs that are unpatched, and then they do attacks, distributed denial-of-service, from all those things. They’re saying that the Internet of Things is going to be tenfold or a hundredfold the number of devices. It’s going to have that much power.
Mike: Yeah. I shudder for people who have to deal with those types of problems.
Rob: Seriously, yup. Cool. Let’s dive in. We have some listener questions. We have some comments on some prior episodes. Our first comment is on episode 403 which was titled, Should You Love What You’re Working On? and it’s from Martin. He just came to startupsfortherestofus.com and entered a comment at the bottom of episode 403’s blog post.
He said, “Hi, Rob and Mike. Thanks for another great episode. When you guys talked about love versus opportunity, I was reminded of the idea that it can take hard work to cultivate a passion. If I remember correctly, Cal Newport talks about this idea in one of his books. I don’t know about you guys, but I’ve noticed that there are a lot of things where you need to put in the work first before you start to enjoy them. I’m currently working as a software consultant, and I remembered that the reason I picked up programming in the first place was because as a kid, I was into video games. Now many years later, I really enjoyed developing software, often more than playing games. I think that’s true of many things. For example, when you’re just starting with any kind of sport, and you suck at it, it’s often not that great, but once you put some effort into it and you start to improve, you suddenly get why people enjoyed doing it.”
I think Martin has a good point. Thanks for posting, Martin. This is how I felt about playing music–playing the guitar. When I first started it, it was really hard, and then definitely the better I got, the more I wanted to play my guitar. What do you think about this?
Mike: I remember reading about this. I think that Josh Kaufman wrote a book about learning different things. I’m pretty sure he had a graph in there that showed that. There’s a skill level versus enjoyment. When you first start doing something new, you suck at it which is to be expected, but you don’t enjoy it at all. Then once you get a little skilled at it, then you really start to enjoy it because you feel you know what you’re doing, so you’re on the cusp of always learning this new stuff, but you’re also enjoying the journey. Once you get much more advanced, then it’s about putting the time and effort to practice, and get the muscle memory or the mental connections made so you don’t have to really think about it when you’re doing it. Pretty sure it was Josh’s book that—I can’t remember the name of the book off the top of my head—but I think that that was in there.
Rob: It’s called The First 20 Hours: How to Learn Anything Fast.
Mike: Yes, that was it. Yup. It’s a fascinating read, too. If you are interested in learning new things and the process of learning new things, I’d definitely recommend picking up that book and checking it out. He goes through several different things that he learned, like the ukulele, sailboarding, and a couple of other things. It’s just fascinating how he learned about how to learn stuff.
I always had a problem with that when I was in college. When I got to college, I just authorized, “Go ahead,” relied on my natural ability to just remember things, pay attention in class, and then do well on tests. When I get to college, you have to do the homework. That was always a problem for me in college, but it worked itself out eventually, but it took years for that to happen.
Rob: Yup. For sure, I felt the same thing. The First 20 Hours by Josh Kaufman. It’s also on audible which is I believe how I read that book. Thanks for the comment, Martin. Our first question of the day is from Michael Needle. He’s from alltheguides.com. He says, “Mike and Rob, first, thanks for all you do. I previously called in about building a marketplace, alltheguides.com, to connect adventure travelers and guides. I’m close to finishing the platform, and I took your advice on building one segment first. I went with guides to have providers ready when clients come,” which is the way I believe we should have recommended that you do. It’s a two-sided marketplace, and we said when you start with two-side marketplace you have to get that one side done first.
Now back to his email. “Now ahead of the platform launch, I want to make sure I can bring the clients to the site, the customers, the consumers. I thought I’d follow your advice by starting an informative blog in order to get emails.” Adventure Travel Ideas, I think is the idea of the blog. Here’s the question. “I already have a landing page up from my platform. I assume it would be better to have the lead gen on a different domain as opposed to a subdomain. I just assume that subdomains will be less likely to draw initial visitors. Am I wrong on this? Or if I’m right, and I should go with a different domain, what is the best way to nudge my list towards the platform once it’s launched? Thanks again, guys. You provide invaluable advice and inspiration.” What do you think, Mike?
Mike: I think there’s a natural inclination to believe that you should put your landing page and stuff like that on some sort of a subdomain and that’s how you’re driving traffic to them. But the reality is, I think is that if you’re doing tour guides in a marketplace like this, I don’t think people necessarily really care about the subdomain. I think what really comes into it with the subdomain is that you’re trying to establish new website according to Google, and do all the SEO, and the site ranking, and get that up based on how Google looks at it.
You could instead focus that energy on a subdirectory in your main domain and use that to essentially focus your efforts and increase the authority of that domain versus trying to do it with one subdomain and then another— that’s probably the approach that I would go with. I guess there’s a few different examples I would point to like Craigslist, Angie’s List, and Reddit. Reddit’s got all those different subReddits and stuff in it, but they’re all under, most of them in different subdirectories.
Rob: The reddits? Yup. It’s reddit.com/r/whatever, /startups or whatever.
Mike: Right and that’s not necessarily a two-sided market, but Craiglist is. Based on the location, they will have subdirectories, which are a geographic location, but I wouldn’t worry too much about the subdirectories, at the moment. I guess I’m curious to know whether or not you’re trying to use those subdomains as like the location, like city name, or something like that. Maybe it would make more sense in that case, but at the same time, you could also just use it like it as a different subdirectory as well, and you’ll benefit, for the site authority, through that.
Rob: That’s the thing, and now Google has come out and said, “Oh, subdomain, subdirectory, there’s no difference.” I still think there’s some difference. I still believe, deep down, that subdirectory is better for SEO. I do like your point there. I think if you are going to start a blog, I would try to do it in subdomain, if possible. It’s not always possible to do that. You might need to do reverse-proxy and do some things if you’re running WordPress because you don’t tend to want to run WordPress on a production app server. When I say don’t tend to want to, I mean don’t do it. There’s just too many security holes.
If you want to host it somewhere, I’d go with somebody like the VPNGINE or Pagely or whatever. I think I may have misspoken earlier and said subdomain, but what I mean was subdirectory, if you can do a subdirectory, that’s what I would do.
I don’t think this matters actually, that much. When using a different domain for the lead gen, I would probably lean towards subdirectory, and if you need to use a subdomain, I don’t know—its just apples and oranges, this is small stuff. If you’re going to drive ads to it, it doesn’t matter, nobody cares, they’ll just click on the ad, and they’d go see it. If you’re going to try for SEO then like Mike and I were saying, I would lean towards subdirectory, if possible, I think it’s pretty clean, but in all cases, I don’t know that it matters that much.
Mike: Yeah. The one really nice thing about having everything underneath the same domains—and you’re not dealing with subdomains—is redirecting people back and forth, and then also dealing with the fact that, like any tracking analytics where you’re trying to track like, “Did somebody hit this subdomain and then this other subdomain?” and then you got cookies back and forth between them. With marketing tools, it becomes an absolute nightmare.
You’re much better off just having it all on one domain and then you don’t have to worry about that because the cookies are going to be able to work all on that domain between different directories, versus, like a Google Analytics tracking code. Something as simple as that is going to be an absolute nightmare to work across multiple domains.
Rob: Yeah, and it’s possible, you just got to know how to do it. It’s not out-of-the-box trivial. Sharing cookies is a pain, and then you’ll get the, “Hey, this person came from one of your domains to the other, and they show up as a new visitor.” It’s not ideal. Anyway, I hope that helps.
Our next question is from long-time listeners and friends of ours. Folks that we’ve known that have come to MicroConfs–Dan Taylor and Simon Payne. Dan Taylor runs appsevents.com, which is an events company that runs more than 300 annuals events. Simon Payne was the co-founder of Lead Pages. They both live in Prague, actually, in Czech Republic. Simon was working on an app with Dan Taylor, and Simon has also launched a WordPress button called Convert Player. That’s pretty cool.
Anyway, they wrote in. They said, “Hi, Rob and Mike. Two long-time listeners here, Dan and Simon. We’ve developed and released a SaaS app called EventsFrame. It’s eventsframe.com. It’s ticketing and attendee management system, with fixed low monthly pricing for unlimited events and unlimited attendees. We’ve moved all of my company, AppsEvents more than 300 annual events to this, and done a full public launch last month. We already have paid sign-ups from our listings on sites like Capterra, some content marketing, and some basic Facebook ads, which have converted this in paying customers, which is a good sign. We’re doing an AppSumo launch in a couple of weeks to get a bunch of users on this system, which is taking a lot of our focus, but we’re planning for how we grow this long-term, as Simon and I are focusing all our time on this project.”
“Our question is on pricing. As you know, systems like Eventbrite take a percentage of ticket price, and most systems follow a similar model. With AppsEvents, I was spending thousands of dollars a year on Eventbrite fees. We want to go for a fixed price for unlimited events and attendees. Our initial idea is $97 a month. Now the issue with this is that people running one several small events might prefer a percentage of ticket price, as there is no upfront cost. And on the other end, large event producers would pay a lot more than $97 a month,” or I think he’s saying they should pay a lot more than that cost they’re getting more value. “We guess some pricing tiers could be good. But any ideas to help with our process would be greatly appreciated. All the best, Dan and Simon.” What do you think?
Mike: This is something that I actually looked into pretty heavily and struggled with several years ago. Back when I was running AuditShark, one of the ideas that I had come up with was, ironically, Bluetick, because I was doing a lot of outreach to people and I just needed to follow-up with them and keep on them. But also, as a side note, I was also helping out on the sponsorships side for MicroConf. For that particular problem, I found that I had to do the same thing.
I said, “Oh if I had this product or tool in place that would allow me to do that outreach as an event organizer that would help me out a lot.” I looked around. A bunch of different things didn’t really work very well for what my use case was. I said, “Well, could I build this? Is this something that I could basically move away from AuditShark?” because at the time, it wasn’t really on the best path, and I recognized that at the time.
Anyway, I looked into specifics of whether or not I could target event organizers with that. What I realized was that there’s a wide range of types of event organizers. Some of them, that’s all they do, they organize events like the AppsEvents company. They will organize hundreds of events every single year, and then there’s ones like MicroConf where we do it a couple of times a year, and that’s it.
For ones like that, a monthly pricing model really doesn’t work well because of the fact that you’re only running a couple of events. If you’re doing it on a regular basis, sure, it makes a lot more sense. But as you pointed out, it makes a lot more sense to just do with a percentage of the ticket price for those types of customers.
The other thing I would look at is, Eventbrite, yes, they do charge a percentage of the ticket, but they also give the event organizers the ability to pass that cost onto the attendees. That’s actually what we do with MicroConf. It’s only a couple of percent, but at the same time, it raises the ticket price by that amount. The question you have to ask is, “Well, as the event organizer, is that something that’s going to turn away people? Are they going to, not buy a ticket because they have to pay that extra fee?” That’s again, for the event coordinator to decide. But your problem is, how are you charging?
For us, Eventbrite is I’ll say, “free” and that we’re passing those cost on, and then on the other side, we’re paying the cost of the payment processing, which we would have to pay, regardless. Whether Eventbrite handles it or we do it through PayPal or Stripe or whoever, that fee has to be paid. But our payment to Eventbrite is basically, covered by the attendees buying those tickets, which make it free for us, which makes it a lot more attractive than a $97 a month plan or even a $50 a month plan. Coupled with the fact that, we also don’t run more than a couple of events a year. Why should we be paying for that over the course of the entire year if we’re only running events in a certain time window, I’ll say?
That’s exactly the problem that I ran into when I was trying to identify, “Well, how can I build this email follow-up product aimed at event organizers?” Event organizers, if they run a lot of events, awesome. They’re a good target. But if they don’t, then having them pay a monthly fee is not going to work.
Rob: Yeah. Basically, what Dan and Simon are talking about doing is doing pricing innovation in the events space. While I think it certainly saved Dan money from a customer perspective—he was paying Eventbrite thousands a year—I’m not sure it makes sense to do this from a business perspective.
There’s a reason that most of these events software companies charge the way they do. The reason, as you’ve laid it out, if your event is free, you don’t pay EventBrite anything. If you only sell 20 tickets, and they’re $5 each, then I believe you pay Eventbrite 2.5% of that. If they do the processing, they charge you 3% fee, payment processing fee or we use PayPal, and obviously, it’s whatever it is, 2.9% or 3% there.
Or, if you sell $100,000 worth of tickets in a year, then yeah, you do pay $2500, so I get the […] Eventbrite. It makes sense from a customer perspective of being like, “Man, I’m paying EventBrite so much money,” but now that you’re on the other side of it, and you’re running a business, my thought is like, “Yes, that’s how you want it. You want it so that the people who are getting a little bit of value out of this system aren’t paying that much for it and it scales up perfectly linearly with how they do it.”
If you sell $100,000 for the tickets, you’re probably making a chunk of money. We can argue about whether $2500 is too much money, but you definitely are getting quite a bit of value out of the system if you’re selling $100,000 worth.
Trying to do pricing innovation is a challenge. Is it business model canvas? That something that if you read that book, do you remember the book?
Mike: Yeah, I remember it. There was a whole worksheet that went with it.
Rob: Yup and that talks a lot about trying to do pricing innovation. I don’t know if it has practical enough tips to help you sort this out. But I will say that I tried to innovate on pricing in the early days of Drip, and instead of doing per subscriber just like MailChimp and everybody else is doing, I tried to do new subscribers per month, and it was a bad idea. Not only did they confuse people, but as we started to scale up, we were not growing nearly as fast as we should have.
That’s the thing that you’re going to run into is you’re going to have people who come and are selling half a million dollars’ worth of tickets on your system and they’re going to be paying $97 or even if you do tiers, it’s not going to be that much. They’re not going to be paying you 2.5% of $500,000.
I think since people are used to this, and it is a lucrative model. If anything, you could try to be the low-cost provider which I don’t think is a terrible idea in this space. I don’t know enough about the whole space. I know that EventBrite, yes, it does feel expensive to a lot of people, and it’s clunky, so you have those two things. They have a ton of features, but they’re a little more expensive than everybody wants them to be, and they’re arguably quite a bit harder to use, although they have a lot of features.
This is like going after a QuickBooks or InfusionSoft or Marketo—kind of going after that. If you make your software infinitely usable and slightly less expensive, but you still keep the same model, maybe only try 2.5%, I don’t know. I know you have other bootstrap competitors around you, look at what they’re doing. That’s probably where I would start is doing just a big survey of all the pricing structures of all the events SaaS apps, and mapping that out on a big sheet of paper or mind map or something, and trying to think that through.
I think in the end, you are going to want to be a percentage of revenue is my guess, because otherwise, you’re going to constantly have this problem. Try to think if there’s any way around it with tiers, try to think creatively. It’s like you could have a free tier or you can’t charge for events, and then you could have your $50 a month tier where you go to a certain amount of ticket sales. In essence, you’re taking a percentage, but you’re not, you’re just having tiers of it. That would maybe be the only other thing that I would consider. But man, just taking 1.5%, 2.5%, it’s so clean. It makes your pricing look so clean. It’s simple, and everybody understands that.
Mike: I think the problem that you just alluded to is that, depending on the size of the event that you’re dealing with, if it’s 5 or 10 people, you might have one price tier, and then if it’s 50, you could have another. Whether or not you deal with those, like what’s the price point of those? If it’s $25,000, but they only allow five people in it, is it a free account? Depending on the value that you’re providing to them, that’s really what you’re pricing should be based on.
I think you almost get into this territory of, you have an unlimited number of pricing tiers because how high could those ticket prices go or what is it that you actually basing it on? Is it the number of attendees or is it ticket price? Or is it a combination of the two? Once you get into that territory, it gets overly complicated, and people don’t want to deal with it because they’re like, “This pricing model is too confusing for me. I feel like I’m going to get screwed, so I’m going with the competitor because I understand it.”
Rob: Thanks for the question, Dan and Simon. I hope that was helpful and I definitely wish you guys the best of luck with EventsFrame.
Our next question is from Alex, and he says, “Hi again. Thanks for all the great content. I feel like I’m in a bit of a dilemma. I have an idea that I would like to turn into a business. It’s for a job site. I have the requirements, more or less hammered out to the point I can have a developer build it. I’ve recently been in the process of getting quotes from various companies, and freelancers to build it but I’m hesitant to make this jump. Aside from the inherent risk of it just failing, I’m concerned I will spend all my money on the MVP then quickly run out of money to fund any iterations on the site. I don’t know anyone willing to help me build this for free, and I also don’t know the first thing about raising money or how to prepare for that. I guess my question is, how would you approach building an MVP in the most affordable way?”
One thing I’ll throw out before you dive in Mike is, you’ll not be able to raise money, maybe from family and friends, but you’re not going to be able to raise money without a working app these days. It’s just kind of table stakes. Although he asked us, “How would you approach building an MVP is the most affordable way?” I don’t know that’s a question we should answer. I think the question we should answer is, how do you validate this more before building an MVP. Would you agree?
Mike: Yeah, I would agree. That’s the next step is like, what is the MVP? What question are you trying to answer? The question I think you’re trying to answer is, “How do I know if I should dump this money into this type of product?” I think the answer to that is the same thing that I did with Bluetick. Go to balsamiq.com, and buy a copy of Balsamiq for $80, and mock everything up. Then go try, and sell that to people, and see if people are actually interested in buying what it is that you have.
That will do a couple of different things for you. One is, it will help you find the types of people that you need to talk to, and the second thing it will do is, it’ll give you enough information to say like, “Is this something that people would actually pay for?” and that’s the answer to your question is, if you can get enough people and find the market for it and tap into a channel of people to talk to, to get them excited about it, and find out if they’re going to pay for it, then sure, go for it.
But if you can’t get past that part, if you can’t find the people to talk to, it’s never going to work. You’re just not going to be able to turn it into a working product, regardless whether you have code written or not. That’s not the problem. The problem is trying to find those customers and make sure they are willing to pay for it. There’s obvious concerns here about, Alex’s voice about, “I’m concerned about making the jump because of the risk of it failing,” and that’s how you make sure that it’s not going to fail.
Rob: Yup, I would agree with that. I think the question you need to ask yourself is, “How can you validate this before dumping a bunch of money into it and doing as much of that as possible?” Sometimes, an MVP is not even software. We’ve talked about this in the past. An MVP might be you with an Excel spreadsheet or a Google spreadsheet. It might be you manually writing things, taking in a list of keyword someone gives you, manually running an algorithm on them in Excel, and then giving back the keywords they’re most likely to rank for. That is basically what I would have done if I had built an MVP for HitTail, as an example, or any keyword tool.
There are ways to do it without needing to hire anyone to write a line of code. My second book, which is a collection of essays, is called Start Marketing The Day You Start Coding, but now, I think it’s Start Marketing Or At Least Validating Well Before You Start Coding. With Drip, I had 11 people who said that they would pay $99 a month for what we were going to build before we broke ground on code. I wanted 10, happened to get 11, then Derrick started writing code.
I know for Bluetick you got pre-orders. There is a lot of hustle that can happen up front. It’s hard work. This is the stuff that, “Well, is anyone going to trust me? Who am I? Is anyone going to trust me if I don’t have the software after the software ?” No, that’s an excuse. Yes, it would be better if you had all the software, and could just start marketing it. But that’s not the case.
I think your concern is valid, that going out and building an MVP, it’s very, very unlikely that’s going to have product fit, so you’re going to have to iterate. If you don’t have the money or the time or the skills to iterate on that, then you need to figure out how to get to the point where you feel more confident.
Here’s the thing. If you try to recruit a developer to build it for free—we’ve talked about this in the past—nope, no developer is going to want to do that. If you go to a developer and you say, “Hey, I built all these mockups, I have 25 phone calls, and I got 10 pre-orders, they paid for a quarter, three months of service, and they’ve all committed to—assuming it works and does what I say—it’s going to be $50 or $100 a month after that, boom, we’re going to be at $1000 MRR,” yes, that’s a lot of hustle, and it’s a lot of work, but that’s how you recruit a co-founder or at least a developer who is willing to build it maybe for an equity share or something like that.
I like the way you’re thinking about it. I’m glad you’re hesitant to just dive into the MVP, but I don’t think you should look at building an MVP as software in the most affordable way. I think you should look at, not automating them, doing stuff manually, and think of, “How can I possibly validate this?” The first step is going to be customer conversations, then it’s going to be trying to get pre-orders, then it’s going to be doing it manually until the software’s built, then it’s building a crappy software MVP, and then it’s doing a better job. I bet there’s a lot of steps between where you are today and basically, paying someone to build a complete SaaS app.
Mike: I think part of it just stems from the classic misunderstanding of what an MVP is because MVP has the word Product in it, and that’s not really what it means. I talked about this in my book, Single Founder Handbook, and I quote Wikipedia from […]. It says, “An MVP is not a minimal product. It is a strategy and process directed toward making and selling a product to customers.” What you have to understand there is that it explicitly calls out an MVP as a process, not as a product. Building a product is not your MVP; answering a question is what your MVP is. The first thing that you have to start with is, “What is my question?” and here it’s, “How do I know that I need to pay people to develop software?” It’s all the stuff before that that Rob just talked about, like talk to customers, find out what they really want, and whether they’re going to pay for it, that’s all the stuff that you need to do..
Thanks for the question, Alex. I hope that was really helpful. I think that about wraps us up for the day. If you have a question for us, you can email it to questions@startupsfortherestofus.com, or you can send us a voicemail by calling 1-888-801-9690. 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 and we’ll see you next time.
Episode 406 | Should Bootstrappers Raise Money?
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer the question of should bootstrappers raise money? The guys distinguish the difference between venture capital and angel investing and how raising an angel round may be a good fit for some types of entrepreneurs.
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 whether bootstrapper should raise money or not. This is Startups For The Rest Of Us episode 406.
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 avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: We have new iTunes reviews.
Mike: Oh, cool. What do we got?
Rob: This one from Find Fitness Pros. It says, “This is my go-to podcast every Tuesday morning. Rob and Mike continue to give their insights, not just info on exactly what to do,” and from Nathan Bell, he says, “Great information. I listened to one episode and I’m hooked. It was full of great information I can easily implement. Some of the info was a little bit advanced for me currently, but I’m confident that by selectively listening to more, I will pick up more.”
Those are a couple of new iTunes reviews that we have. I used to keep a worldwide tally of it using CommentCast and when I moved to my new computer, I don’t have the .exe or what is it called, it’s a .app I guess in Mac. I don’t have the executable anymore and you can’t download it anywhere. So I moved over to mypodcastreviews.com but it only gives me reviews, not ratings. We’re up to almost 600 worldwide ratings, I believe. People don’t necessarily need to write sentences or whatever, but I don’t have that tally anymore. Certainly, we’re above 600 at this point.
Now, what I have is I have 347 worldwide reviews and that’s a lesser number. I want to get back to the world’s rating. I think the guy at My Podcast Reviews says that they are going to add ratings but neither here nor there, the more reviews or ratings we get, the more likely people find the show, the more motivation it gives us. If you feel like we’ve given you some value as a listener to the show, it would be awesome if you can open iTunes or Stitcher and just give us a five-star review. Really appreciate it.
Mike: The solution to not having that app that gives you the numbers is just make up a number. So we’re at 3000 reviews I think.
Rob: That’s right. 3422 reviews. That’s great. How about you, man? What’s going on this week?
Mike: Well, this morning, I published a public API for Bluetick. Of course, I say it’s a public API but there’s actually only one person who actually knows about it.
Rob: It’s in beta?
Mike: Yeah, basically.
Rob: Early access, good.
Mike: I had a prospect who wanted to sign on and they’re like, “Yeah, I really need to have a public API that is available for me and Zapier wasn’t going to work for them. Basically as I said, I spun it out because I heard from a bunch of customers that I currently have, and I started talking to them about, “What is it that you need?” and trying to figure out what’s the minimum that I could build that this particular prospect or customer would need to get started. They only needed four things. Build those, put them into it, and then there’s all the infrastructure changes that needed to go into it.
It took a week-and-a-half just to do the infrastructure changes but now the best stuff if all taken cared of. I got that published out there and waiting for them to start using it, and then figure out what needs to change. I already made it very clear upfront, like, “Hey, here are some things that I know we’re going to change, and then over here, based on what you tell me, other things could change, so treat this as an absolute beta. Eventually at some point it will become stable, I guess, and then I’ll start pushing it live to everybody.
Rob: That’s nice. It’s nice to do. You’re basically doing customer development on what is its own little product. You can say it’s a feature but really some entire products are just APIs. You want to get it right from the start, and by start, I mean by the time you publish and people start hooking into it, you can’t change it at that point. I think it’s really good to take this approach of roll it out slowly, roll out one endpoint at a time and really think through how you want to structure it.
I was just on your site trying to guess the URL. I was going to just type in a bunch of stuff so you’re going to see a bunch of 404s in your error logs. Not a hacker, it was me, but I didn’t find it alas.
Mike: No, that sucks. I would tell you if you asked for the right price. Other than that, I also got my first fraudulent charge from Bluetick. It took a lot longer than I expected it to but somebody signed up, then they logged in, and absolutely they didn’t pay any attention to the onboarding emails. Come time when their trial is up, they got charged, and then I forget how long it was later. I was maybe probably three or four days later, I got a notification from Stripe saying, “Hey this charge looks fraudulent,” and I looked at it. I think it’s a debit card too and I was like, “Oh great.” Three hours later though like, “Oh you’ve had a chargeback.” I was like, “Wait, I didn’t even get a chance to decide that to do with this potentially fraudulent charge,” and they already converted it into a chargeback, which cost me an extra $15. Well that sucks, but, oh well.
Rob: Was it a person not using or was it a stolen credit card? Is that what you think? Or do you think that they just went in with the intention that it was their own credit card and they just intended at the whole time?
Mike: I’m not sure. It looks legit. The email address, I couldn’t quite tell whether it was real. I think it was a Gmail email address. I couldn’t really trace it back to a company or anything like that but the name on it seem to match what the email address was. I don’t know. I’m not entirely sure but I think it was from a real estate company or something like that. All right, well, whatever.
Rob: Yeah, that sucks. It’s going to happen. It’s definitely a milestone you don’t want to hit but you’re going to hit it eventually.
Mike: Yup. Certainly not a milestone to celebrate but I definitely hit it.
Rob: Yeah, exactly. Cool. What are we talking about today?
Mike: Today, I thought we would have a discussion about whether or not bootstrapper should be raising money. I guess by definition if you’re raising money, are you no longer a bootstrapper at that point? I think there’s maybe a time during which you are bootstrapping a company and self-funding it. I almost called it self-funding, like should people who are self-funding raise money, but again that would go against it.
The idea came because I saw Justin Jackson had tweeted out a link to an article he wrote over on Indie Hackers called The Bootstrapper’s Paradox. In that article, he shows a graph or what they’re doing for transistor.fm, which is the new startup that he’s working on. Basically it shows a graph of over the course of 60 months was 10% exponential growth and 5% turn. The MRR will get to $21,000. But 60 months is five years of time.
I thought it would be interesting to just have a conversation about this because when I was reading through the tweet that he had put out, there were a bunch of people who chimed in on it, mostly people who were listening to the show would have heard of like Des Traynor, Jason Collin, and Natalie Nagel. They’re giving their thoughts on this stuff and I just thought it would be interesting to talk about it.
Rob: Yeah, that’s for sure. 10% growth every month sounds like an impressive number but when the number starts very small, like $1000 a month, that means you’re growing $100 MRR a month. You just can’t do that early days or if you do, it’s going to take five years. You either need to figure out a way to grow faster or you need to be really patient.
This is a struggle. It’s funny that, Justin called it The Bootstrapper’s Paradox. I don’t know that it’s that as much as this is the reason people raise funding. We know people who are just bootstrapper through and through, you should never raise funding and 37signals used to say that and even mentions it that DHH and Jason Fried took funding from Jeff Bezos two years after launching Basecamp. It wasn’t even funding that went into the company. They took money off the table. If I recall, I think that number is public. I think it’s $10 million that he invested, was my memory and maybe I don’t think I’m making that up. It’s either rumored at that or it was announced.
They had essentially at that point had FU money and it’s really easy to make different decisions or just say, “Hey, we’re going to grow as slow or as fast as we need,” when you have that kind of money in your personal bank account and you’re just running this business day-to-day.
Justin’s article is a bootstrapper’s realization of “Oh Sh*t.” This is why people do raise money. It’s coming to that realization at this point and I think it’s a good thing to call out for sure. I’ve been thinking about this so much so I’m looking forward to today’s episode because in my Microconf talk this year, I talked about things that I learned bootstrapping and then self-funding and then in a venture back company after Leadpages acquired us.
In the last five to seven minutes I did just a little snippet about fundstrapping, which is this term that Colin from customer.io coined, where you’re kind of in-between. You bootstrapped a little bit and you raised a small round. I say it’s between 200,000 and 500,000 and you raise it with the intention of getting to profitability. Without, you’re never going to raise institutional money, or raise it from friends or families or angels, so you don’t give up control, you don’t give up a board seat, you really have the benefits of funding without the institutional chaos of it, the headache.
It wasn’t a throwaway piece but I almost didn’t include it in the talk. That piece has gotten me more emails, more comments, more thoughts, more people came up to me, ask me what that’s like, asked if I would invest or find new people who were doing fundstrapping. It’s just fascinating response to this, this thing that’s been percolating. It’s a long rant on it to start but I just think this is becoming more and more of a viable option and potentially even a necessity as the SaaS market gets more and more crowded.
Mike: Yeah. That’s the part that I think has changed over time, where five or 10 years ago, you could come out with a SaaS and you’d launch it to the public and you would start to grow by virtually the fact that there was nobody else out there or there were very few competitors out there doing what you were doing. Now if you launch anything, you probably got a couple of competitors just right out of the gate. If you don’t, then you probably don’t have a product that’s going to go anywhere. But if you have any competition, it’s probably substantially more competition today than you would’ve had five years ago or 10 years ago. Just by virtue of having launched five or 10 years ago, you were going to be more successful quicker than you would if you did the exact same thing now. It’s going to take longer, which means that you’re going to burn through more runway and it’s just going to be harder.
Rob: Right. Now, five or 10 years ago, there was less competition but the expenses would have been higher, 10 years ago especially because you literally needed a rack server. There was no Amazon EC2. In addition, there was still like when Basecamp first launched on their homepage, they were like, “You don’t have to install any software. No downloads needed.” They were still educating on just the concept of being in the cloud and there were hurdles there.
Mike: That was almost 15 years ago.
Rob: Yeah, that’s true. No, you’re right. That was 2005 or 2006? You’re right, 12 or 13. You’re right. But even with that, say 10 years ago, even with that, it’s still I believe was easier back then. But that doesn’t mean you shouldn’t start something today. It just means you got to house some more, you got to pick a better niche, you got to have more skills, or you need a little more money in the bank.
Whether that means you raise it yourself out of consulting efforts, which is what I did, or if there’s definitely more money being thrown around as funding these days that is, I’m not going to say no strings attached because it’s certainly they take equity, but 10 years ago if you took half-a-million bucks, boy that was typically institutional money, it was a pain in the butt to raise, you are giving up a lot of control, you are giving up a board seat, that is no longer the case. There really is this viable option, this in-between.
Mike: I think if you look at the businesses that, in the past have tried to figure out how to raise capital, one of the things that most people, 15-20 years ago, it was common to say, “Okay, let me go to a bank and get a loan from the bank.” But that is a non-starter for most new businesses. You got SBA loans and things like that where you can use the money to take over an existing business where they’re able to evaluate.
But if you have a business that you’re trying to get off the ground, a bank loan is basically a non-starter, especially when it comes to SaaS because they don’t understand how to calculate how much that business is worth. There isn’t any inventory and with software, it’s going to lag in terms of the revenue over something like a physical goods business, or a coffee shop, or a fitness studio where they know how many people are coming in and they can put a value on the equipment whether it’s the coffee machines or the spin cycles on a fitness studio. Banks are okay with that. They understand that.
But when you got a software business, the expectations today are much higher than they were five or 10 years ago. You have to do a lot more in order to make your product a lot more polished, which means it’s going to take time to do that which burns through your runway. It burns through that money a lot faster today. I guess you wouldn’t burn through it faster. It’s just you burn through more of it than you would have 10 years ago to get to the same point.
Rob: Even if you can get a loan, you have to send a personal guarantee. Now, all your personal assets are on the line. And if you decide to shut the company down, you owe them money. If you borrow $100,000 it’s a big deal. To me, that is more of a risk than I think an entrepreneur should take, unless you’re at the point where you already have, “All right, I’m at $10,000 MRR,” in which case you may or may not need the money, but if you’re at $10,000 MRR, you should raise equity funding anyway.
But if you know the business is going to succeed, that’s fine. When I hear that people charge $50,000 or $100,000 on credit cards to start a SaaS business, I’m like, “Oy vey.” That is going to be catastrophic. That is a really, really stressful way to live and it’s something I would not do, especially when we’re in a space where raising equity capital is relatively inexpensive. Raising a small angel round and selling 10% or even 20% of your company to reduce a lot of stress and to get there faster, I think it’s a pretty reasonable idea these days. It’s not impossible to do, I’ll say.
Mike: I want to talk about that specifically right there. What you just said was raising capital is relatively inexpensive. The reason I like the way that you put that is that when I think of the way I thought about raising funding years ago was that, “Oh, I’m going to have to give up a lot of control, I’m going to have to give up a lot of equity, and I don’t necessarily want to do either of those things.”
But if you’re thinking about putting together a business and you have anybody who’s helping you—a partner or a co-founder, something like that—your immediately giving up 50% of the company anyway, and then there’s a whole lot of difference between doing that and giving up 50% when there’s really nothing there, and yes, it could grow up to be something huge, but you’re giving up 50%.
So there’s like a mental block there of you saying, “Okay, well I’ll raise $250,000 in exchange for 10% of this,” and you don’t want to do that but you’re willing to give up 50% to somebody else when there’s really nothing there that’s being invested except for their time. Do you know what I mean?
Rob: Yeah. It’s cognitive dissonance I believe is the term where two things that don’t agree or paradox, I guess. It’s something in your head you’re rationalizing one way but then you turn around and give away 50% to a co-founder. That’s what you’re saying, It’s like you can give a small amount to get a big chunk of money, or even if it’s a small chunk of money.
Here’s the thing. Let’s say you live in the middle of Minnesota, or the middle of Nebraska, or something and you have an idea and you raised even $100,000 or $150,000 and you paid for your salary for a year or a year-and-a-half. That gives you a year or a year-and-a-half to get to some point of revenue that makes sense. Even if you gave away 15% of your company, you’re valuing it at $1 million right off the bat, or if you give away 20% or $750,000, it still makes your life a lot easier.
I think that’s the realization I’m coming to, is that at Microconf, or through this podcast, or whatever at different conferences, we meet smart people who are trying to launch businesses and something that stands in their way often is that, “I have a wife and kids. I have a house. I can’t do this nights and weekends. But I don’t want to raise funding because it’s really complicated. I don’t know how.”
What’s funny is you outlined this episode and you brought the topic up. But this is something I’ve been thinking a lot about, and there’s a gap here in the space. We do have folks like indie.vc which, if you haven’t heard my interview with Bryce from indie.vc, it’s episode 310 of this podcast, and it’s a more realistic approach to funding. It’s kind of a fundstrapping model. I’d recommend you go listen to that.
In addition, I feel we’re coming to an inflection point where there’s this gap and there’s a level of interest in something, and no one is filling it. No spoilers on what I’m up to next, but I’m starting to feel I might be the person to tackle this, to take it on. I’ve been spreading the word about it. I have been talking about it for years and I’ve been investing in startup like this.
We talk about Churn Buster, LeadFuze, CartHook. These are all small angel investments. I’ve done about 12 angel investments and I think three or four of them were essentially fundstrapped. it’s where they took money from a handful of folks and they never planned to raise a series A. I put my money where my mouth is, but now I’m thinking I only have so much money, how is it that I can take this to the next level in a realistic way. It’s something that’s definitely in the back of my mind and it’s something that I’ve been thinking a lot. Hopefully, we’ll dive into more in the future.
Speaking of that, if you listen to this and your thinking, “Oh, this is an interesting topic,” go to robwalling.com. Enter your email because it’s going to be something that I’m going to be thinking more about in the future as well as on this podcast for sure.
Mike: One of the comments that jumped out of me on the Twitter post that Justin had put out there was from Des Traynor and he said, “I think a second piece people don’t really internalize is that 60 months of the best years of your career is a substantial upfront investment too. Like a seed round but instead of money, it’s your life.”
That’s a fascinating way of looking at this because even back n the day, I would always say, “Oh, well. You know you’re basically trading money for time,” and I don’t think that I really equated time with years of my life. It sounds intuitively obvious. That’s exact same thing. But when you’re in the middle of working on stuff, you don’t think, “Oh, I’m trading five years of my life away of hard toil to get this thing to where it could be a lot sooner if I were just to take some money and trade some of that equity for it.”
Rob: Right. It could feasibly be a lot sooner. It may or may not. Money doesn’t solve all the problems but it certainly makes things, I’ll say less stressful and you having done it with true bootstrapping with basically nothing and doing nights and weekends, to then self-funding with revenue from HitTail going into Drip, and then venture funded. I’ve done all three of these. I will tell you that having that venture money, I didn’t have to raise it and I did attend the board meetings but I didn’t necessarily have to report to the board. My life was less stressful at that point than either of the prior two scenarios.
I think it’s a good point, man. I don’t want to come off. You can tell, I’m coming off kind of pro-raising a small round, and I don’t want to come off too one-sided. We’ve never been anti-funding ever. From the start, Microconf, I think in the original sales letter. It was, we’re not anti-funding. We’re anti everyone thinks the only way to start a software company or a startup is with funding. That maybe from the introduction of my book, actually—Start Small, Stay Small.
Even back then in 2010, I was saying, “Look, raising funding is not evil in and of itself. It’s the things that you have to give up by raising funding. Just know what you’re getting into.” Yes, we have seen founders that get kicked out of their own company. There was, I figure what that app it was. Was it Tinder? Something sold for $460 million. No. It’s FanDuel. It’s sold for $460 million and the founder who started it, and I believe was CEO when it started, he got no money because of liquidation preferences and he’s suing them.
That’s a huge exit. He got I believe it was zero dollars from the exit. There was an article or something that was like, he’s suing them now. If the contract say this is what the liquidation preference is, that’s one thing but he’s suing them because he thinks they screwed with the valuation intentionally and there was fraud or something. He’s not going to win if he just says, “No, that wasn’t the deal,” because he signed the papers. These VCs are not stupid but he’s trying to do that.
Yes, that does happen. But I believe there is a way to do this and I’m seeing it with these smaller SaaS apps. A way to do it without that much stress, without giving up that much equity. Brennan Dunn, RightMessage. That’s another one. I also wrote a check. And Rand Fishkin’s SparkToro. He’s doing the same thing. He’s not calling it fundstrapping, but he said, “Hey, we’re going to raise around, and we’re going to get to profitability, and we don’t want to do institutional money. If you listen to Lost and Founder which is his book, he talks about the perils of all that and you couldn’t read that and say, I can see really they didn’t like – once they raise funding, he really didn’t like it.
You can look and say, “Well, Rand’s anti-funding now.” But no, he’s more anti-institutional money, and there’s a difference. Venture capital is institutional money. These angel rounds tend not to be.
Mike: But I think even back, we’ve talked about it on the podcast before. As you said, we always had the position that, it’s not that we’re anti-funding, we’re anti-this-is-the-only-way-to-do-it. That’s always been my thought behind it. I’ll say the majority of my career and thought process has been like, “Yeah, I really just don’t want to take funding in this more because I don’t want to necessarily give up control.” Back then there weren’t really the options for that. Now, things have changed a lot. It’s not, say, front and center on my radar, but it’s something I’m definitely looking at niche and exploring a little bit more.
I definitely think that—like with Bluetick for example—there’s ways to go further faster, but I just don’t necessarily have the money to be able to do it, which sucks but at the same time, it’s always a trade-off. I think that’s what you always have to consider is, what is the trade-off and what am I going to have to give up in order for me to get X amount of influx and then what are you going to do with that?
You have to have a plan. You can’t just say, “I want to raise money.” You got to have a plan for not just raising money but also what are you going to do with that money when you get it? How are you going to deploy it? How are you going to build the company and how are you going to grow things? You can’t just drop $100,000 in your bank account or $500,000 and say, “Okay great. I’ve raised money. Now what?” They’re not going to give you the money if you don’t have a plan.
Rob: And if you don’t know what you’re doing, money’s not going to fix that. You’re just going to make bigger mistakes. This comes back to the stair-step approach. No chance I would have raised money in 2005-2009 with ,DotNetInvoice, and Wedding Toolbox and just beach towels and stuff. Even if I could have made the case that DotNetInvoice would grow to something, I would have made huge mistakes because I made small ones back then. But I learned and I gained experience and I gained confidence.
By the time I get to HitTail, I remember thinking, “Yeah,” because remember, I bought HitTail for $30,000 and then I grew it up to basically that much MRR per month but end and I value at it. Maybe I should raise a little bit of money in it. It would make this a little easier. But to me, it was the headache of it. I was like, “I do not want to slog around and spend months asking people and the paperwork.” It just felt like a pain in the butt to me. I don’t know if I could have. Did I have the name recognition? Could I have raised enough?
Arguably, yes. By the time I got to Drip, it was definitely like it. If I haven’t had that HitTail money, let’s just say I’d had none of it. I basically used a bunch or revenue from HitTail to fund Drip. If I hadn’t had that? I absolutely would have seriously considered doing what we’re talking about raising a small round. I knew Drip was ambitious, I knew it was going to get big at least by the time we are six or eight months in, and it had a need for that.
That’s what we’re saying here is the words always, never, and should, they’re not helpful words. Don’t say, “I should always raise funding.” “I should never raise funding.” “I should raise funding other people think I should or shouldn’t.” These are not helpful words. Just evaluate things and look at them, and like you said, look at the trade-offs. Pluses and the minuses, and the realities of them, not the FUD. Not the fear, uncertainty, and doubt.
I can tell you the story, “Oh, look. The founder of Fandle. He got screwed by his investors. Therefore, I’m never going to raise investing or I’m never going to raise funds.” That’s dumb. Actually look at the black-and-white of it. I think that’s what we’re talking about today. We;re not saying you should or should not, but it’s look at the reality of it.
Now, you and I talked about this in-depth in episode 211, When To Consider Outside Investment For Your Startup. We went in-depth on what are funds and family round, an angel round, or often called a seed round was. We talked about series A, B, C. Once you get to the serieses, that’s when you get to institutional money, which is when things get way more complicated. Once you raise a series A, it’s the point of no return. It’s implied you’re going to raise a B, a C, and go on to either have this huge exit or an IPO, and it’s growth at all cost for the most part.
But if you’re able to stop before that series A and stick to people who are on board with you, angel investors and such are on board with, “Hey, let’s build a $5 million, $10 million, $15 million company with it, it’ SaaS. Let’s do a 30%, 40%, 50% net margin on this thing.” That’s great. That’s the kind of company I want to build and that’s the kind of company I want to invest in.
But venture capitalists don’t want to invest in that. If that’s not your goal, to go to $100 million and do what it takes to do that, then you don’t want to go down that road. You want to have those expectations clear both in your head upfront, as well as anybody who’s writing you a check.
Mike: Right. The problem with that is that episode 211 when we talked about that, that was four years ago. That’s a long time in internet time.
Rob: I might need to go back and listen to that episode to hear what we said. How much you want to bet? Oh, I’m going to go search it and see if the word fundstrapping if I mentioned it in there.
Mike: I don’t think so. Oh, it is.
Rob: Is it?
Mike: Yup. About 20 minutes in, you said, “I heard the term fundstrapping and I really like it. It was from Colin at customer.io.”
Rob: There it is. In 20 minute then boom. This is 2014, November of 2014 even back then.
Mike: But you were in the middle of Drip at the time, were you?
Rob: Yeah.
Mike: Was that right?
Rob: Yup. In the middle of Drip and I was probably already thinking about because at this point, we were growing fast and I was dumping all the money I had into it, both from that revenue and from HitTail, and I was thinking, “Boy, if I had half a million bucks right now, given our growth rate could have raised it. If I had half a million bucks right now, we could grow faster. I can hire more and have more servers and not shut down EC2 instances on the weekend.”
We used to do that to save money that’s insane, that lengths. I remember valuating Wistia versus SproutVideo, and Wistia, for what we need, it was $150 a month and Sprout was $30. It’s a nice tool but now way it was Wistia. I went with SproutVideo because I needed that $120 bucks to pay something else. We had to migrate later and it was a bunch of time and all that stuff. I never would have made that choice if we’d had a little more money in the bank. It’s the luxury of having some investment capital.
Mike: Yeah and unfortunately, you have to make a lot of trade-offs like that. You spend a lot of mental cycles and overhead making those trade-offs and just making the decisions because you don’t have the money, which is a crappy situation to be in. All that said, part of the problem is, you don’t necessarily want to raise money if the idea itself or the business model just simply doesn’t have merit. Maybe that’s partly what those investors are there for is to make sure that they act as something of a filter.
That’s always the problem that I’ve seen with angel investors is that they’re the ones who are in control, not you. Maybe angel investors isn’t the right word, but outside investment where they basically end up getting control of enough of it that you don’t get to make the decisions anymore. They’re the ones who make the decisions whether or not your business is going to succeed based on whether or not you get the money. If you can’t set aside the time, like nights and weekends, to be able to do it, it’s just not going to work out. You need that money in order to make the business work, then it’s going to be a problem for you down the road.
Rob: And that’s the thing is the losing control of your business tends to be if you raised multiple rounds because each round you sell, let’s say, 15%-20% is typical. May 15%-25% and if you do one round, you still have control. You and your co-founder or you if you’re a solo founder still own that 80%. But if you do another round, another right you get two, three rounds in, it’s typically by series C or D where the founders are the minority shareholder and investors now own most of it. If you don’t been on the path, it’s unlikely, or if you just make bad decisions.
I saw someone on Shark Tank where they had no money upfront and they sold 80% of their company to an investor, to an angel investor. Shark Tank was like, “We can’t fund you because you’re working for nothing.” All the work is for the investor. If you make a bad choice, that’s another way to do it too. You do need to educate yourself about it and I think that’s something that some people don’t want to do because it is boring stuff.
I really like the books that Brad Feld does and this one is maybe like venture funding or like a guide to venture funding. I got four chapters in and I just couldn’t stand it because it was all terms. He didn’t write it. It was more of a series that he’s involved in. The terms were just so boring that I stopped. I understand if you don’t want to learn at all. You need to learn enough about it to do it.
I want to flip back to something that Natalie Nagele responded to Justin Jackson and then it was actually just what I was thinking when I saw his graph. It was five years to $21,000 MRR. In all honesty dude, I would shut that business down before I wait it that long. I forget how long it took Drip but it was maybe a year. I don’t think it was even a year from when we launched and it was probably 12-18 months from when we broke around on code, that we had $21,000 MRR.
Drip was admittedly a bit of a Cinderella story. It was fast at growth than most but if you’re growing $100 a month in the beginning and you continue that 10% growth like that, you can’t do that. You need to get it up—
Mike: But I don’t think that’s a fair comparison, though, because if you look at the way Drip was funded into, you said 21 months or so to get to that point? He’s talking about a completed self-funded company versus something where you put money in from HitTail. Those are two entirely different things. I don’t know all about the details of Transistor but my guess is that there’s a huge disparity in terms of the amount of code and the quality of code that needs to go into something like Drip because of the sheer complexity of it versus something like Transistor.
Rob: Yeah, that’s true. I was for the long entrepreneurial journey too, I would say. I had successes that I’ve parlaid into it. You’re right. It’s not a fair comparison. I shouldn’t say with the Drip but…
Mike: I was just arguing about the point of, if it was five years to get to the $20,000 in MRR, should you shut that down? I think it’s a very different answer based on what it is that you’re putting into it. If you’re dumping $200,000 into it, yeah, you probably should shut it down if it’s still going to take you five years to get to that. But if you put nothing into it, or $10,000 into it but it takes five years to get there, it’s like, “Uh, well, I don’t know.” It’s a judgment call.
Rob: It’s interesting and that’s the thing. When I think back in 2005, I started with DotNetInvoice, making a couple of grand a month. It took me until late 2008 to get to where I was making about $100,000 a year, between $100,000-$120,000 a year and that’s when I stopped consulting.
So it took me three and a half years. But again, I did it with no funding and I cobbled it all together myself. That’s the situation we’re talking. I wasn’t doing SaaS. I did it with these multiple products. I think if I was less risk-averse, I’ve could’ve done it faster. I think that’s probably what we’re talking about here. It’s getting a little bit more ambitious and trying to speed things up. How do you do that?
Mike: Part of being more ambitious these days, I think, is because you’re forced to, because of the level of competition that’s out there. You have to do something that’s quite a bit above and beyond what you would have done three or five years ago because the competition is there and people are going to be asking for features that they see in other products that you’re trying to compete against. If you don’t have those features, they’re going to say, “Well, I could pay the same amount of money to you versus this other product and they’ve already got those features so why would I go with you?”
You’re just not able to compete unless you have those features there that you can demonstrate. It’s not even just about the marking. It’s about having the things they need. If you don’t have them, they can’t go with you. It’s not even that they like you. They just won’t do it.
Rob: Yeah and that’s true. Again, funding even the way we’re talking about it, it’s not going to fix all ills. If you pick those markets that’s too small or you don’t build a good product, you’re not going to get to action. Or if it’s a market that people aren’t interested, or you don’t know how to market, you don’t have the experience, you don’t suddenly become an expert startup founder just because you raise funding but if you have the chops and funding is a big piece.
Time is a big piece because you’re only working nights and weekends. You can only put 10 hours a weekend or rather 15 hours. It’s a big difference if you can suddenly go to 40 or 50 hours with two co-founders. It doesn’t fix everything. In addition, does it come with complexity? Yes. You have to report to your investors once a month with an email. You can feel the stress of that.
That was actually something that I asked Justin McGill, Jordan Gal, and Matt Goldman, those are the co-founders of those three businesses that I mentioned earlier, CartHook, LeadFuze, and Churn Buster, and I said, “Hey, do you feel raising this money made things more stressful or less stressful?” They each have their own take on it. If I recall, Justin McGill was like, “It’s more stressful because I feel like if we don’t grow, we’re going to let you guys down.” A lot of the investors he has a lot of respect for. That’s one way it cut through. It can make it more stressful.
I don’t want to put words in people’s mouths but I think Jordan had said, “It’s more stressful but better because it motivates him to succeed.” you got to think about how your personality is and if you feel like it’s going to add more stress, if suddenly five or 10 people that you really respect, that are friends, colleagues, and fellow Microconf attendees write a check to you, how does that make you feel?
Mike: Yeah. I think the answer’s going to be different for every person, especially depending on what your product is like, what the expectations are, how you’ve position it, and how the investor views it. Some investors just say, “Yeah, I may lose all this and that’s totally okay,” and other ones may say, “I have these expectations and you’re not meeting them,” if you miss a deadline or something like that.
There’s a lot of dynamics and complexity there. Some people will thrive in it and some people won’t. I think at the end of the day, I also feel having money has the potential to make the downsides of your product or business model worse. It will just exacerbate some of those issues. If you don’t have a market that you can actually go to, if you think you do but you don’t, and you get a bunch of money in, I think it’s just going to make it worse because yes, you can try a bunch of things and you’ll be able to throw money on it, but then you’re burning more money than you would have otherwise.
Rob: That’s the thing. I know we’re going long on time but really important. I would not raise any type of funding before I have product market fit. That’s a personal thing because (a) your valuation is way last before then, and (b) no one is going to give you money if you don’t have a product, period. You have to have a product these days. You can’t raise money on an idea unless you’re Rand Fishkin, or Jason Cohen, or a founder who’s been there and done that.
You have to have a product, you have to probably be live or at least have beta users, your should have paying customers. That’s a bare minimum to even think about trying to raise funding. You have to get there. You have to write the code, you have to beg, steal and, borrow to get someone to write the code. But the valuation is going to be way less and you’re probably going to burn though a lot of that money just trying to get to product market fit. From the time you launch until you’re part of market fit, I’m going to say it’s 6-12 months if you know what you’re doing.
You see founders like Shawn Ellis, you saw Jason Cohen, you saw me do a Drip. You see people who are pretty good at it and know what they’re doing, and it still takes them six months, and ours still takes 9-12 months to do it. At that point, once you do it and you do kick it in a little bit of that growth mode where it’s like, “Okay people, are really starting to uptick it.” That’s when you pour gasoline on the fire.
But before that, I have seen at least one startup in the last year raise a small round before product market fit, and just burned through it really fast because they staffed up, do a lot of marketing and do a lot of sales, and it just that their churn was so high. That’s typically where you can tell his people aren’t converting to pay it or they aren’t sticking around. There are dangers there. Like a samurai sword, like a said in the past, it’s a weapon that you need to know what you’re doing with to wield well and I think you need to be smart about when you raise.
Mike: Yeah and it sounds like there’s obviously different takes on it. If you want to go down like the VC or angel route, series A funding down the road, I think it’s possible to probably raise money if you have any sort of history or relationship with them, like if you don’t have a product yet. But you’re still also going to get eaten alive in terms of the equity shares and everything.
I think that point that you raised about you have to have a product and you have to have paying customers before you start to go raise money, that’s how you maintain your equity, a fair amount of the equity, enough of the control to be able to what you want, need to with the business, and also be reasonable sure and confident that you’re not going to just waste the investor’s money and burn those relationships. You can use that money for good, and you know what that money will do for you versus you’re still trying to get to product market fit. You don’t know who’s going to but it or who uses it, or why.
Rob: Yeah and the once exception as I’m thinking about it is if you raise a big chunk, let’s say you raise $250,000 or $500,000 and you feel like you need to spend it, and so you staff up but your not part of market fit, you’re going to treat their money. But the exception I can think of, is like I said earlier. What if you just bought yourself 12 months of time and you didn’t staff up but you just worked on it, or 18 months. You didn’t raise this huge amount of money or raise a small amount to just focus on it and work, I could see doing that before product market fit. That would get you to the point where then you can raise that next round.
I’m not trying to be wish-wash but I’m realizing I never said never raise before product market fit but I did say I wouldn’t personally. But I have the resources to get me to product market fit and I could work on a full-time to do that. It’s an exception. If was I doing it nights and weekends, then I would take money before I see I have to think about where the advice is coming from or where the thoughts are coming from. I’m just thinking it through as if I were literally doing this nights and weekends, I would consider taking money as soon as I could. If I was going down this road because going full-time is a game-changer. Being able to focus full-time, being able to leave everything behind is a big deal. It really is and a night and day difference.
Mike: I know there’ll be a range of opinions on it, but I wonder what most investors would think about, somebody saying, “Hey, we got this product. I’ve been working on it and I’d like to get some funding and money in the bank, basically to extend the runway because I got a little bit of something going here, I got partial product in place, I got some customers, but it’s not a lot. I need runway in order to make it work but I don’t know specifically how much runway I necessarily need or how I’m going to get to having $10,000-$20,000 MRR, but I need time to get there. There’s something here but I don’t know what.” I think it’s hard to evaluate for anybody what that looks like.
Rob: Yeah. I don’t know of any investors today that would work with that. I think that’s a good thing to bring up. It’s like, is that a gap in the market then? Could that be a successful funding model of looking at people who essentially have the potential and have, like you said, pre-product market fit but have something to show for it and looking at backing them for a period of time.
Anyway, I love this topic and I think that we’ll probably talking about it again, just soon you’ll be hearing more on it from me, but I feel we might need to wrap this one up today.
Mike: Yeah. Great talk. I like it.
Rob: Me as well. So if you have a question for us about this or any other topic, 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 and visit startupsfortherestofus.com for a full transcript of each and every episode. Thanks for listening and 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 avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: We have new iTunes reviews.
Mike: Oh, cool. What do we got?
Rob: This one from Find Fitness Pros. It says, “This is my go-to podcast every Tuesday morning. Rob and Mike continue to give their insights, not just info on exactly what to do,” and from Nathan Bell, he says, “Great information. I listened to one episode and I’m hooked. It was full of great information I can easily implement. Some of the info was a little bit advanced for me currently, but I’m confident that by selectively listening to more, I will pick up more.”
Those are a couple of new iTunes reviews that we have. I used to keep a worldwide tally of it using CommentCast and when I moved to my new computer, I don’t have the .exe or what is it called, it’s a .app I guess in Mac. I don’t have the executable anymore and you can’t download it anywhere. So I moved over to mypodcastreviews.com but it only gives me reviews, not ratings. We’re up to almost 600 worldwide ratings, I believe. People don’t necessarily need to write sentences or whatever, but I don’t have that tally anymore. Certainly, we’re above 600 at this point.
Now, what I have is I have 347 worldwide reviews and that’s a lesser number. I want to get back to the world’s rating. I think the guy at My Podcast Reviews says that they are going to add ratings but neither here nor there, the more reviews or ratings we get, the more likely people find the show, the more motivation it gives us. If you feel like we’ve given you some value as a listener to the show, it would be awesome if you can open iTunes or Stitcher and just give us a five-star review. Really appreciate it.
Mike: The solution to not having that app that gives you the numbers is just make up a number. So we’re at 3000 reviews I think.
Rob: That’s right. 3422 reviews. That’s great. How about you, man? What’s going on this week?
Mike: Well, this morning, I published a public API for Bluetick. Of course, I say it’s a public API but there’s actually only one person who actually knows about it.
Rob: It’s in beta?
Mike: Yeah, basically.
Rob: Early access, good.
Mike: I had a prospect who wanted to sign on and they’re like, “Yeah, I really need to have a public API that is available for me and Zapier wasn’t going to work for them. Basically as I said, I spun it out because I heard from a bunch of customers that I currently have, and I started talking to them about, “What is it that you need?” and trying to figure out what’s the minimum that I could build that this particular prospect or customer would need to get started. They only needed four things. Build those, put them into it, and then there’s all the infrastructure changes that needed to go into it.
It took a week-and-a-half just to do the infrastructure changes but now the best stuff if all taken cared of. I got that published out there and waiting for them to start using it, and then figure out what needs to change. I already made it very clear upfront, like, “Hey, here are some things that I know we’re going to change, and then over here, based on what you tell me, other things could change, so treat this as an absolute beta. Eventually at some point it will become stable, I guess, and then I’ll start pushing it live to everybody.
Rob: That’s nice. It’s nice to do. You’re basically doing customer development on what is its own little product. You can say it’s a feature but really some entire products are just APIs. You want to get it right from the start, and by start, I mean by the time you publish and people start hooking into it, you can’t change it at that point. I think it’s really good to take this approach of roll it out slowly, roll out one endpoint at a time and really think through how you want to structure it.
I was just on your site trying to guess the URL. I was going to just type in a bunch of stuff so you’re going to see a bunch of 404s in your error logs. Not a hacker, it was me, but I didn’t find it alas.
Mike: No, that sucks. I would tell you if you asked for the right price. Other than that, I also got my first fraudulent charge from Bluetick. It took a lot longer than I expected it to but somebody signed up, then they logged in, and absolutely they didn’t pay any attention to the onboarding emails. Come time when their trial is up, they got charged, and then I forget how long it was later. I was maybe probably three or four days later, I got a notification from Stripe saying, “Hey this charge looks fraudulent,” and I looked at it. I think it’s a debit card too and I was like, “Oh great.” Three hours later though like, “Oh you’ve had a chargeback.” I was like, “Wait, I didn’t even get a chance to decide that to do with this potentially fraudulent charge,” and they already converted it into a chargeback, which cost me an extra $15. Well that sucks, but, oh well.
Rob: Was it a person not using or was it a stolen credit card? Is that what you think? Or do you think that they just went in with the intention that it was their own credit card and they just intended at the whole time?
Mike: I’m not sure. It looks legit. The email address, I couldn’t quite tell whether it was real. I think it was a Gmail email address. I couldn’t really trace it back to a company or anything like that but the name on it seem to match what the email address was. I don’t know. I’m not entirely sure but I think it was from a real estate company or something like that. All right, well, whatever.
Rob: Yeah, that sucks. It’s going to happen. It’s definitely a milestone you don’t want to hit but you’re going to hit it eventually.
Mike: Yup. Certainly not a milestone to celebrate but I definitely hit it.
Rob: Yeah, exactly. Cool. What are we talking about today?
Mike: Today, I thought we would have a discussion about whether or not bootstrapper should be raising money. I guess by definition if you’re raising money, are you no longer a bootstrapper at that point? I think there’s maybe a time during which you are bootstrapping a company and self-funding it. I almost called it self-funding, like should people who are self-funding raise money, but again that would go against it.
The idea came because I saw Justin Jackson had tweeted out a link to an article he wrote over on Indie Hackers called The Bootstrapper’s Paradox. In that article, he shows a graph or what they’re doing for transistor.fm, which is the new startup that he’s working on. Basically it shows a graph of over the course of 60 months was 10% exponential growth and 5% turn. The MRR will get to $21,000. But 60 months is five years of time.
I thought it would be interesting to just have a conversation about this because when I was reading through the tweet that he had put out, there were a bunch of people who chimed in on it, mostly people who were listening to the show would have heard of like Des Traynor, Jason Collin, and Natalie Nagel. They’re giving their thoughts on this stuff and I just thought it would be interesting to talk about it.
Rob: Yeah, that’s for sure. 10% growth every month sounds like an impressive number but when the number starts very small, like $1000 a month, that means you’re growing $100 MRR a month. You just can’t do that early days or if you do, it’s going to take five years. You either need to figure out a way to grow faster or you need to be really patient.
This is a struggle. It’s funny that, Justin called it The Bootstrapper’s Paradox. I don’t know that it’s that as much as this is the reason people raise funding. We know people who are just bootstrapper through and through, you should never raise funding and 37signals used to say that and even mentions it that DHH and Jason Fried took funding from Jeff Bezos two years after launching Basecamp. It wasn’t even funding that went into the company. They took money off the table. If I recall, I think that number is public. I think it’s $10 million that he invested, was my memory and maybe I don’t think I’m making that up. It’s either rumored at that or it was announced.
They had essentially at that point had FU money and it’s really easy to make different decisions or just say, “Hey, we’re going to grow as slow or as fast as we need,” when you have that kind of money in your personal bank account and you’re just running this business day-to-day.
Justin’s article is a bootstrapper’s realization of “Oh Sh*t.” This is why people do raise money. It’s coming to that realization at this point and I think it’s a good thing to call out for sure. I’ve been thinking about this so much so I’m looking forward to today’s episode because in my Microconf talk this year, I talked about things that I learned bootstrapping and then self-funding and then in a venture back company after Leadpages acquired us.
In the last five to seven minutes I did just a little snippet about fundstrapping, which is this term that Colin from customer.io coined, where you’re kind of in-between. You bootstrapped a little bit and you raised a small round. I say it’s between 200,000 and 500,000 and you raise it with the intention of getting to profitability. Without, you’re never going to raise institutional money, or raise it from friends or families or angels, so you don’t give up control, you don’t give up a board seat, you really have the benefits of funding without the institutional chaos of it, the headache.
It wasn’t a throwaway piece but I almost didn’t include it in the talk. That piece has gotten me more emails, more comments, more thoughts, more people came up to me, ask me what that’s like, asked if I would invest or find new people who were doing fundstrapping. It’s just fascinating response to this, this thing that’s been percolating. It’s a long rant on it to start but I just think this is becoming more and more of a viable option and potentially even a necessity as the SaaS market gets more and more crowded.
Mike: Yeah. That’s the part that I think has changed over time, where five or 10 years ago, you could come out with a SaaS and you’d launch it to the public and you would start to grow by virtually the fact that there was nobody else out there or there were very few competitors out there doing what you were doing. Now if you launch anything, you probably got a couple of competitors just right out of the gate. If you don’t, then you probably don’t have a product that’s going to go anywhere. But if you have any competition, it’s probably substantially more competition today than you would’ve had five years ago or 10 years ago. Just by virtue of having launched five or 10 years ago, you were going to be more successful quicker than you would if you did the exact same thing now. It’s going to take longer, which means that you’re going to burn through more runway and it’s just going to be harder.
Rob: Right. Now, five or 10 years ago, there was less competition but the expenses would have been higher, 10 years ago especially because you literally needed a rack server. There was no Amazon EC2. In addition, there was still like when Basecamp first launched on their homepage, they were like, “You don’t have to install any software. No downloads needed.” They were still educating on just the concept of being in the cloud and there were hurdles there.
Mike: That was almost 15 years ago.
Rob: Yeah, that’s true. No, you’re right. That was 2005 or 2006? You’re right, 12 or 13. You’re right. But even with that, say 10 years ago, even with that, it’s still I believe was easier back then. But that doesn’t mean you shouldn’t start something today. It just means you got to house some more, you got to pick a better niche, you got to have more skills, or you need a little more money in the bank.
Whether that means you raise it yourself out of consulting efforts, which is what I did, or if there’s definitely more money being thrown around as funding these days that is, I’m not going to say no strings attached because it’s certainly they take equity, but 10 years ago if you took half-a-million bucks, boy that was typically institutional money, it was a pain in the butt to raise, you are giving up a lot of control, you are giving up a board seat, that is no longer the case. There really is this viable option, this in-between.
Mike: I think if you look at the businesses that, in the past have tried to figure out how to raise capital, one of the things that most people, 15-20 years ago, it was common to say, “Okay, let me go to a bank and get a loan from the bank.” But that is a non-starter for most new businesses. You got SBA loans and things like that where you can use the money to take over an existing business where they’re able to evaluate.
But if you have a business that you’re trying to get off the ground, a bank loan is basically a non-starter, especially when it comes to SaaS because they don’t understand how to calculate how much that business is worth. There isn’t any inventory and with software, it’s going to lag in terms of the revenue over something like a physical goods business, or a coffee shop, or a fitness studio where they know how many people are coming in and they can put a value on the equipment whether it’s the coffee machines or the spin cycles on a fitness studio. Banks are okay with that. They understand that.
But when you got a software business, the expectations today are much higher than they were five or 10 years ago. You have to do a lot more in order to make your product a lot more polished, which means it’s going to take time to do that which burns through your runway. It burns through that money a lot faster today. I guess you wouldn’t burn through it faster. It’s just you burn through more of it than you would have 10 years ago to get to the same point.
Rob: Even if you can get a loan, you have to send a personal guarantee. Now, all your personal assets are on the line. And if you decide to shut the company down, you owe them money. If you borrow $100,000 it’s a big deal. To me, that is more of a risk than I think an entrepreneur should take, unless you’re at the point where you already have, “All right, I’m at $10,000 MRR,” in which case you may or may not need the money, but if you’re at $10,000 MRR, you should raise equity funding anyway.
But if you know the business is going to succeed, that’s fine. When I hear that people charge $50,000 or $100,000 on credit cards to start a SaaS business, I’m like, “Oy vey.” That is going to be catastrophic. That is a really, really stressful way to live and it’s something I would not do, especially when we’re in a space where raising equity capital is relatively inexpensive. Raising a small angel round and selling 10% or even 20% of your company to reduce a lot of stress and to get there faster, I think it’s a pretty reasonable idea these days. It’s not impossible to do, I’ll say.
Mike: I want to talk about that specifically right there. What you just said was raising capital is relatively inexpensive. The reason I like the way that you put that is that when I think of the way I thought about raising funding years ago was that, “Oh, I’m going to have to give up a lot of control, I’m going to have to give up a lot of equity, and I don’t necessarily want to do either of those things.”
But if you’re thinking about putting together a business and you have anybody who’s helping you—a partner or a co-founder, something like that—your immediately giving up 50% of the company anyway, and then there’s a whole lot of difference between doing that and giving up 50% when there’s really nothing there, and yes, it could grow up to be something huge, but you’re giving up 50%.
So there’s like a mental block there of you saying, “Okay, well I’ll raise $250,000 in exchange for 10% of this,” and you don’t want to do that but you’re willing to give up 50% to somebody else when there’s really nothing there that’s being invested except for their time. Do you know what I mean?
Rob: Yeah. It’s cognitive dissonance I believe is the term where two things that don’t agree or paradox, I guess. It’s something in your head you’re rationalizing one way but then you turn around and give away 50% to a co-founder. That’s what you’re saying, It’s like you can give a small amount to get a big chunk of money, or even if it’s a small chunk of money.
Here’s the thing. Let’s say you live in the middle of Minnesota, or the middle of Nebraska, or something and you have an idea and you raised even $100,000 or $150,000 and you paid for your salary for a year or a year-and-a-half. That gives you a year or a year-and-a-half to get to some point of revenue that makes sense. Even if you gave away 15% of your company, you’re valuing it at $1 million right off the bat, or if you give away 20% or $750,000, it still makes your life a lot easier.
I think that’s the realization I’m coming to, is that at Microconf, or through this podcast, or whatever at different conferences, we meet smart people who are trying to launch businesses and something that stands in their way often is that, “I have a wife and kids. I have a house. I can’t do this nights and weekends. But I don’t want to raise funding because it’s really complicated. I don’t know how.”
What’s funny is you outlined this episode and you brought the topic up. But this is something I’ve been thinking a lot about, and there’s a gap here in the space. We do have folks like indie.vc which, if you haven’t heard my interview with Bryce from indie.vc, it’s episode 310 of this podcast, and it’s a more realistic approach to funding. It’s kind of a fundstrapping model. I’d recommend you go listen to that.
In addition, I feel we’re coming to an inflection point where there’s this gap and there’s a level of interest in something, and no one is filling it. No spoilers on what I’m up to next, but I’m starting to feel I might be the person to tackle this, to take it on. I’ve been spreading the word about it. I have been talking about it for years and I’ve been investing in startup like this.
We talk about Churn Buster, LeadFuze, CartHook. These are all small angel investments. I’ve done about 12 angel investments and I think three or four of them were essentially fundstrapped. it’s where they took money from a handful of folks and they never planned to raise a series A. I put my money where my mouth is, but now I’m thinking I only have so much money, how is it that I can take this to the next level in a realistic way. It’s something that’s definitely in the back of my mind and it’s something that I’ve been thinking a lot. Hopefully, we’ll dive into more in the future.
Speaking of that, if you listen to this and your thinking, “Oh, this is an interesting topic,” go to robwalling.com. Enter your email because it’s going to be something that I’m going to be thinking more about in the future as well as on this podcast for sure.
Mike: One of the comments that jumped out of me on the Twitter post that Justin had put out there was from Des Traynor and he said, “I think a second piece people don’t really internalize is that 60 months of the best years of your career is a substantial upfront investment too. Like a seed round but instead of money, it’s your life.”
That’s a fascinating way of looking at this because even back n the day, I would always say, “Oh, well. You know you’re basically trading money for time,” and I don’t think that I really equated time with years of my life. It sounds intuitively obvious. That’s exact same thing. But when you’re in the middle of working on stuff, you don’t think, “Oh, I’m trading five years of my life away of hard toil to get this thing to where it could be a lot sooner if I were just to take some money and trade some of that equity for it.”
Rob: Right. It could feasibly be a lot sooner. It may or may not. Money doesn’t solve all the problems but it certainly makes things, I’ll say less stressful and you having done it with true bootstrapping with basically nothing and doing nights and weekends, to then self-funding with revenue from HitTail going into Drip, and then venture funded. I’ve done all three of these. I will tell you that having that venture money, I didn’t have to raise it and I did attend the board meetings but I didn’t necessarily have to report to the board. My life was less stressful at that point than either of the prior two scenarios.
I think it’s a good point, man. I don’t want to come off. You can tell, I’m coming off kind of pro-raising a small round, and I don’t want to come off too one-sided. We’ve never been anti-funding ever. From the start, Microconf, I think in the original sales letter. It was, we’re not anti-funding. We’re anti everyone thinks the only way to start a software company or a startup is with funding. That maybe from the introduction of my book, actually—Start Small, Stay Small.
Even back then in 2010, I was saying, “Look, raising funding is not evil in and of itself. It’s the things that you have to give up by raising funding. Just know what you’re getting into.” Yes, we have seen founders that get kicked out of their own company. There was, I figure what that app it was. Was it Tinder? Something sold for $460 million. No. It’s FanDuel. It’s sold for $460 million and the founder who started it, and I believe was CEO when it started, he got no money because of liquidation preferences and he’s suing them.
That’s a huge exit. He got I believe it was zero dollars from the exit. There was an article or something that was like, he’s suing them now. If the contract say this is what the liquidation preference is, that’s one thing but he’s suing them because he thinks they screwed with the valuation intentionally and there was fraud or something. He’s not going to win if he just says, “No, that wasn’t the deal,” because he signed the papers. These VCs are not stupid but he’s trying to do that.
Yes, that does happen. But I believe there is a way to do this and I’m seeing it with these smaller SaaS apps. A way to do it without that much stress, without giving up that much equity. Brennan Dunn, RightMessage. That’s another one. I also wrote a check. And Rand Fishkin’s SparkToro. He’s doing the same thing. He’s not calling it fundstrapping, but he said, “Hey, we’re going to raise around, and we’re going to get to profitability, and we don’t want to do institutional money. If you listen to Lost and Founder which is his book, he talks about the perils of all that and you couldn’t read that and say, I can see really they didn’t like – once they raise funding, he really didn’t like it.
You can look and say, “Well, Rand’s anti-funding now.” But no, he’s more anti-institutional money, and there’s a difference. Venture capital is institutional money. These angel rounds tend not to be.
Mike: But I think even back, we’ve talked about it on the podcast before. As you said, we always had the position that, it’s not that we’re anti-funding, we’re anti-this-is-the-only-way-to-do-it. That’s always been my thought behind it. I’ll say the majority of my career and thought process has been like, “Yeah, I really just don’t want to take funding in this more because I don’t want to necessarily give up control.” Back then there weren’t really the options for that. Now, things have changed a lot. It’s not, say, front and center on my radar, but it’s something I’m definitely looking at niche and exploring a little bit more.
I definitely think that—like with Bluetick for example—there’s ways to go further faster, but I just don’t necessarily have the money to be able to do it, which sucks but at the same time, it’s always a trade-off. I think that’s what you always have to consider is, what is the trade-off and what am I going to have to give up in order for me to get X amount of influx and then what are you going to do with that?
You have to have a plan. You can’t just say, “I want to raise money.” You got to have a plan for not just raising money but also what are you going to do with that money when you get it? How are you going to deploy it? How are you going to build the company and how are you going to grow things? You can’t just drop $100,000 in your bank account or $500,000 and say, “Okay great. I’ve raised money. Now what?” They’re not going to give you the money if you don’t have a plan.
Rob: And if you don’t know what you’re doing, money’s not going to fix that. You’re just going to make bigger mistakes. This comes back to the stair-step approach. No chance I would have raised money in 2005-2009 with ,DotNetInvoice, and Wedding Toolbox and just beach towels and stuff. Even if I could have made the case that DotNetInvoice would grow to something, I would have made huge mistakes because I made small ones back then. But I learned and I gained experience and I gained confidence.
By the time I get to HitTail, I remember thinking, “Yeah,” because remember, I bought HitTail for $30,000 and then I grew it up to basically that much MRR per month but end and I value at it. Maybe I should raise a little bit of money in it. It would make this a little easier. But to me, it was the headache of it. I was like, “I do not want to slog around and spend months asking people and the paperwork.” It just felt like a pain in the butt to me. I don’t know if I could have. Did I have the name recognition? Could I have raised enough?
Arguably, yes. By the time I got to Drip, it was definitely like it. If I haven’t had that HitTail money, let’s just say I’d had none of it. I basically used a bunch or revenue from HitTail to fund Drip. If I hadn’t had that? I absolutely would have seriously considered doing what we’re talking about raising a small round. I knew Drip was ambitious, I knew it was going to get big at least by the time we are six or eight months in, and it had a need for that.
That’s what we’re saying here is the words always, never, and should, they’re not helpful words. Don’t say, “I should always raise funding.” “I should never raise funding.” “I should raise funding other people think I should or shouldn’t.” These are not helpful words. Just evaluate things and look at them, and like you said, look at the trade-offs. Pluses and the minuses, and the realities of them, not the FUD. Not the fear, uncertainty, and doubt.
I can tell you the story, “Oh, look. The founder of Fandle. He got screwed by his investors. Therefore, I’m never going to raise investing or I’m never going to raise funds.” That’s dumb. Actually look at the black-and-white of it. I think that’s what we’re talking about today. We;re not saying you should or should not, but it’s look at the reality of it.
Now, you and I talked about this in-depth in episode 211, When To Consider Outside Investment For Your Startup. We went in-depth on what are funds and family round, an angel round, or often called a seed round was. We talked about series A, B, C. Once you get to the serieses, that’s when you get to institutional money, which is when things get way more complicated. Once you raise a series A, it’s the point of no return. It’s implied you’re going to raise a B, a C, and go on to either have this huge exit or an IPO, and it’s growth at all cost for the most part.
But if you’re able to stop before that series A and stick to people who are on board with you, angel investors and such are on board with, “Hey, let’s build a $5 million, $10 million, $15 million company with it, it’ SaaS. Let’s do a 30%, 40%, 50% net margin on this thing.” That’s great. That’s the kind of company I want to build and that’s the kind of company I want to invest in.
But venture capitalists don’t want to invest in that. If that’s not your goal, to go to $100 million and do what it takes to do that, then you don’t want to go down that road. You want to have those expectations clear both in your head upfront, as well as anybody who’s writing you a check.
Mike: Right. The problem with that is that episode 211 when we talked about that, that was four years ago. That’s a long time in internet time.
Rob: I might need to go back and listen to that episode to hear what we said. How much you want to bet? Oh, I’m going to go search it and see if the word fundstrapping if I mentioned it in there.
Mike: I don’t think so. Oh, it is.
Rob: Is it?
Mike: Yup. About 20 minutes in, you said, “I heard the term fundstrapping and I really like it. It was from Colin at customer.io.”
Rob: There it is. In 20 minute then boom. This is 2014, November of 2014 even back then.
Mike: But you were in the middle of Drip at the time, were you?
Rob: Yeah.
Mike: Was that right?
Rob: Yup. In the middle of Drip and I was probably already thinking about because at this point, we were growing fast and I was dumping all the money I had into it, both from that revenue and from HitTail, and I was thinking, “Boy, if I had half a million bucks right now, given our growth rate could have raised it. If I had half a million bucks right now, we could grow faster. I can hire more and have more servers and not shut down EC2 instances on the weekend.”
We used to do that to save money that’s insane, that lengths. I remember valuating Wistia versus SproutVideo, and Wistia, for what we need, it was $150 a month and Sprout was $30. It’s a nice tool but now way it was Wistia. I went with SproutVideo because I needed that $120 bucks to pay something else. We had to migrate later and it was a bunch of time and all that stuff. I never would have made that choice if we’d had a little more money in the bank. It’s the luxury of having some investment capital.
Mike: Yeah and unfortunately, you have to make a lot of trade-offs like that. You spend a lot of mental cycles and overhead making those trade-offs and just making the decisions because you don’t have the money, which is a crappy situation to be in. All that said, part of the problem is, you don’t necessarily want to raise money if the idea itself or the business model just simply doesn’t have merit. Maybe that’s partly what those investors are there for is to make sure that they act as something of a filter.
That’s always the problem that I’ve seen with angel investors is that they’re the ones who are in control, not you. Maybe angel investors isn’t the right word, but outside investment where they basically end up getting control of enough of it that you don’t get to make the decisions anymore. They’re the ones who make the decisions whether or not your business is going to succeed based on whether or not you get the money. If you can’t set aside the time, like nights and weekends, to be able to do it, it’s just not going to work out. You need that money in order to make the business work, then it’s going to be a problem for you down the road.
Rob: And that’s the thing is the losing control of your business tends to be if you raised multiple rounds because each round you sell, let’s say, 15%-20% is typical. May 15%-25% and if you do one round, you still have control. You and your co-founder or you if you’re a solo founder still own that 80%. But if you do another round, another right you get two, three rounds in, it’s typically by series C or D where the founders are the minority shareholder and investors now own most of it. If you don’t been on the path, it’s unlikely, or if you just make bad decisions.
I saw someone on Shark Tank where they had no money upfront and they sold 80% of their company to an investor, to an angel investor. Shark Tank was like, “We can’t fund you because you’re working for nothing.” All the work is for the investor. If you make a bad choice, that’s another way to do it too. You do need to educate yourself about it and I think that’s something that some people don’t want to do because it is boring stuff.
I really like the books that Brad Feld does and this one is maybe like venture funding or like a guide to venture funding. I got four chapters in and I just couldn’t stand it because it was all terms. He didn’t write it. It was more of a series that he’s involved in. The terms were just so boring that I stopped. I understand if you don’t want to learn at all. You need to learn enough about it to do it.
I want to flip back to something that Natalie Nagele responded to Justin Jackson and then it was actually just what I was thinking when I saw his graph. It was five years to $21,000 MRR. In all honesty dude, I would shut that business down before I wait it that long. I forget how long it took Drip but it was maybe a year. I don’t think it was even a year from when we launched and it was probably 12-18 months from when we broke around on code, that we had $21,000 MRR.
Drip was admittedly a bit of a Cinderella story. It was fast at growth than most but if you’re growing $100 a month in the beginning and you continue that 10% growth like that, you can’t do that. You need to get it up—
Mike: But I don’t think that’s a fair comparison, though, because if you look at the way Drip was funded into, you said 21 months or so to get to that point? He’s talking about a completed self-funded company versus something where you put money in from HitTail. Those are two entirely different things. I don’t know all about the details of Transistor but my guess is that there’s a huge disparity in terms of the amount of code and the quality of code that needs to go into something like Drip because of the sheer complexity of it versus something like Transistor.
Rob: Yeah, that’s true. I was for the long entrepreneurial journey too, I would say. I had successes that I’ve parlaid into it. You’re right. It’s not a fair comparison. I shouldn’t say with the Drip but…
Mike: I was just arguing about the point of, if it was five years to get to the $20,000 in MRR, should you shut that down? I think it’s a very different answer based on what it is that you’re putting into it. If you’re dumping $200,000 into it, yeah, you probably should shut it down if it’s still going to take you five years to get to that. But if you put nothing into it, or $10,000 into it but it takes five years to get there, it’s like, “Uh, well, I don’t know.” It’s a judgment call.
Rob: It’s interesting and that’s the thing. When I think back in 2005, I started with DotNetInvoice, making a couple of grand a month. It took me until late 2008 to get to where I was making about $100,000 a year, between $100,000-$120,000 a year and that’s when I stopped consulting.
So it took me three and a half years. But again, I did it with no funding and I cobbled it all together myself. That’s the situation we’re talking. I wasn’t doing SaaS. I did it with these multiple products. I think if I was less risk-averse, I’ve could’ve done it faster. I think that’s probably what we’re talking about here. It’s getting a little bit more ambitious and trying to speed things up. How do you do that?
Mike: Part of being more ambitious these days, I think, is because you’re forced to, because of the level of competition that’s out there. You have to do something that’s quite a bit above and beyond what you would have done three or five years ago because the competition is there and people are going to be asking for features that they see in other products that you’re trying to compete against. If you don’t have those features, they’re going to say, “Well, I could pay the same amount of money to you versus this other product and they’ve already got those features so why would I go with you?”
You’re just not able to compete unless you have those features there that you can demonstrate. It’s not even just about the marking. It’s about having the things they need. If you don’t have them, they can’t go with you. It’s not even that they like you. They just won’t do it.
Rob: Yeah and that’s true. Again, funding even the way we’re talking about it, it’s not going to fix all ills. If you pick those markets that’s too small or you don’t build a good product, you’re not going to get to action. Or if it’s a market that people aren’t interested, or you don’t know how to market, you don’t have the experience, you don’t suddenly become an expert startup founder just because you raise funding but if you have the chops and funding is a big piece.
Time is a big piece because you’re only working nights and weekends. You can only put 10 hours a weekend or rather 15 hours. It’s a big difference if you can suddenly go to 40 or 50 hours with two co-founders. It doesn’t fix everything. In addition, does it come with complexity? Yes. You have to report to your investors once a month with an email. You can feel the stress of that.
That was actually something that I asked Justin McGill, Jordan Gal, and Matt Goldman, those are the co-founders of those three businesses that I mentioned earlier, CartHook, LeadFuze, and Churn Buster, and I said, “Hey, do you feel raising this money made things more stressful or less stressful?” They each have their own take on it. If I recall, Justin McGill was like, “It’s more stressful because I feel like if we don’t grow, we’re going to let you guys down.” A lot of the investors he has a lot of respect for. That’s one way it cut through. It can make it more stressful.
I don’t want to put words in people’s mouths but I think Jordan had said, “It’s more stressful but better because it motivates him to succeed.” you got to think about how your personality is and if you feel like it’s going to add more stress, if suddenly five or 10 people that you really respect, that are friends, colleagues, and fellow Microconf attendees write a check to you, how does that make you feel?
Mike: Yeah. I think the answer’s going to be different for every person, especially depending on what your product is like, what the expectations are, how you’ve position it, and how the investor views it. Some investors just say, “Yeah, I may lose all this and that’s totally okay,” and other ones may say, “I have these expectations and you’re not meeting them,” if you miss a deadline or something like that.
There’s a lot of dynamics and complexity there. Some people will thrive in it and some people won’t. I think at the end of the day, I also feel having money has the potential to make the downsides of your product or business model worse. It will just exacerbate some of those issues. If you don’t have a market that you can actually go to, if you think you do but you don’t, and you get a bunch of money in, I think it’s just going to make it worse because yes, you can try a bunch of things and you’ll be able to throw money on it, but then you’re burning more money than you would have otherwise.
Rob: That’s the thing. I know we’re going long on time but really important. I would not raise any type of funding before I have product market fit. That’s a personal thing because (a) your valuation is way last before then, and (b) no one is going to give you money if you don’t have a product, period. You have to have a product these days. You can’t raise money on an idea unless you’re Rand Fishkin, or Jason Cohen, or a founder who’s been there and done that.
You have to have a product, you have to probably be live or at least have beta users, your should have paying customers. That’s a bare minimum to even think about trying to raise funding. You have to get there. You have to write the code, you have to beg, steal and, borrow to get someone to write the code. But the valuation is going to be way less and you’re probably going to burn though a lot of that money just trying to get to product market fit. From the time you launch until you’re part of market fit, I’m going to say it’s 6-12 months if you know what you’re doing.
You see founders like Shawn Ellis, you saw Jason Cohen, you saw me do a Drip. You see people who are pretty good at it and know what they’re doing, and it still takes them six months, and ours still takes 9-12 months to do it. At that point, once you do it and you do kick it in a little bit of that growth mode where it’s like, “Okay people, are really starting to uptick it.” That’s when you pour gasoline on the fire.
But before that, I have seen at least one startup in the last year raise a small round before product market fit, and just burned through it really fast because they staffed up, do a lot of marketing and do a lot of sales, and it just that their churn was so high. That’s typically where you can tell his people aren’t converting to pay it or they aren’t sticking around. There are dangers there. Like a samurai sword, like a said in the past, it’s a weapon that you need to know what you’re doing with to wield well and I think you need to be smart about when you raise.
Mike: Yeah and it sounds like there’s obviously different takes on it. If you want to go down like the VC or angel route, series A funding down the road, I think it’s possible to probably raise money if you have any sort of history or relationship with them, like if you don’t have a product yet. But you’re still also going to get eaten alive in terms of the equity shares and everything.
I think that point that you raised about you have to have a product and you have to have paying customers before you start to go raise money, that’s how you maintain your equity, a fair amount of the equity, enough of the control to be able to what you want, need to with the business, and also be reasonable sure and confident that you’re not going to just waste the investor’s money and burn those relationships. You can use that money for good, and you know what that money will do for you versus you’re still trying to get to product market fit. You don’t know who’s going to but it or who uses it, or why.
Rob: Yeah and the once exception as I’m thinking about it is if you raise a big chunk, let’s say you raise $250,000 or $500,000 and you feel like you need to spend it, and so you staff up but your not part of market fit, you’re going to treat their money. But the exception I can think of, is like I said earlier. What if you just bought yourself 12 months of time and you didn’t staff up but you just worked on it, or 18 months. You didn’t raise this huge amount of money or raise a small amount to just focus on it and work, I could see doing that before product market fit. That would get you to the point where then you can raise that next round.
I’m not trying to be wish-wash but I’m realizing I never said never raise before product market fit but I did say I wouldn’t personally. But I have the resources to get me to product market fit and I could work on a full-time to do that. It’s an exception. If was I doing it nights and weekends, then I would take money before I see I have to think about where the advice is coming from or where the thoughts are coming from. I’m just thinking it through as if I were literally doing this nights and weekends, I would consider taking money as soon as I could. If I was going down this road because going full-time is a game-changer. Being able to focus full-time, being able to leave everything behind is a big deal. It really is and a night and day difference.
Mike: I know there’ll be a range of opinions on it, but I wonder what most investors would think about, somebody saying, “Hey, we got this product. I’ve been working on it and I’d like to get some funding and money in the bank, basically to extend the runway because I got a little bit of something going here, I got partial product in place, I got some customers, but it’s not a lot. I need runway in order to make it work but I don’t know specifically how much runway I necessarily need or how I’m going to get to having $10,000-$20,000 MRR, but I need time to get there. There’s something here but I don’t know what.” I think it’s hard to evaluate for anybody what that looks like.
Rob: Yeah. I don’t know of any investors today that would work with that. I think that’s a good thing to bring up. It’s like, is that a gap in the market then? Could that be a successful funding model of looking at people who essentially have the potential and have, like you said, pre-product market fit but have something to show for it and looking at backing them for a period of time.
Anyway, I love this topic and I think that we’ll probably talking about it again, just soon you’ll be hearing more on it from me, but I feel we might need to wrap this one up today.
Mike: Yeah. Great talk. I like it.
Rob: Me as well. So if you have a question for us about this or any other topic, 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 and visit startupsfortherestofus.com for a full transcript of each and every episode. Thanks for listening and we’ll see you next time.
Episode 405 | Minimum Viable Security, Moving on from AuditShark, 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 Mike’s thoughts on moving on from AuditShark, minimum viable security, and more.
Items mentioned in this episode:
- Indie Hackers Podcast with Mike Taber
- Release Notes Podcast with Mike Taber
- Segment
- Zapier
- Nomad List
- Comics ‘N’ Coffee
- Medium.com Post
- Medium.com Post #2
- Safestack.io Post (Security)
- SaaS Security Checklist
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about minimum viable security, moving on from AuditShark and answering more of our listener questions. This is Startups For The Rest Of Us episode 405.
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 officially the answer to the ultimate question of life, the universe, and everything.
Rob: 42.
Mike: Yes.
Rob: Did you just turn 42?
Mike: Yup.
Rob: Congratulations man. Happy birthday!
Mike: Yeah, I finally made it. It’s like my kids. I keep telling them, “Oh if only you make it to 10, or 11, or 12.”
Rob: You finally made it to the end. I can’t believe I didn’t even think about that when I was 42. Ooh, people get to guess now how old I am. It’s fun.
Mike: I know. Oh you’re screwing up the intro.
Rob: And we’re here to share our experiences to help you avoid the same mistakes that we’ve made. Where are we this week sir aside from happy birthday wishes to you?
Mike: Well, I was in The Indie Hackers podcast, I think about a week and a half ago. That was with Courtland Allen. I was also on the Release Notes podcast with Charles Perry. There are actually two episodes to that. They split it up into part one and part two. I think that part two will be live by the time this episode goes out. Both were a lot of fun. I’ve got a lot of feedback from both The Indie Hackers podcast through The Indie Hackers forum and then over Twitter. It was nice to see the stuff I was talking about was resonating with people in terms of my journey, and path, and things with Bluetick and how that was validated, and how AuditShark went off the rails and everything else.
Rob: That’s cool. I heard the Release Notes episode. It actually came up in a Google alert. I have a Google alert on maybe Founder Cafe or maybe Startups For The Rest Of Us or something, and so it came up because it was in the show notes, and I so I picked up the episode. I actually enjoy hearing you on other podcasts because they ask you questions that we never cover on this show, and so I learn something, “Oh I didn’t know he did that.” You talked about your past and then even just hearing your retelling of the story of AuditShark, and Bluetick and stuff was kind of fun. I enjoyed it. We’re going to link up both of those episodes in this week’s show notes, episode 405.
Mike: Aside from that, I’ve started working on public API for Bluetick. I knew that I wanted to do it, at some point but the entire application itself is a single page application, so everything’s driven with an API. But in the process of building the app and creating that API, I found all these things that are just, I’ll say, are not probably done in the best of ways. It’s nice to have version 2–is the API that will be public versus 1, which is for internal use only.
Rob: Yeah, I was going to say that. But obviously, be sure to have a /V1 or /V2 when you publish it because you’re going to need to update it at some point and you don’t want to break retroactively. The other thing is, have rate limiting in from the start because, by the time you get to the point where you need it. It’s not good to have somebody take your API down.
I would also, this is all just from experience, if possible, put the API on a separate server or separate banks of servers because if someone takes your API down, you don’t want your main app to go down. What else? I bet there’s like four of these totally off the top of my head. I had not pre-planned these, but yeah, there’s really good ways to do APIs at this point.
I remember, again, dating my years back 10 or 12 years ago, all the APIs were different, REST was not a thing, it was all post-APIs. It was really jenky, and I guess, they were what, it was like web service, it was like XML. Remember, it was all XML?
Mike: Yeah, Microsoft came up with this thing as WSDL.
Rob: It was WSDL, SOAP, all that crap. It was terrible. You’ll still see some old APIs use that, but REST APIs now are so clean. A lot of them are stateless. There’s these best practices that people use. I would really try to implement because they definitely makes a cleaner experience for everyone.
Mike: I use Swagger to document the API, kind of hooked it, so if I make any changes to the API, I’ve got to document that basically says how it works. That’s an easy enough thing to incorporate into the public API but the other nice thing that I found is that there are utilities out there that you can use to query your Swagger documentation, and then it will build libraries for you in various languages so, Python, C#, and various other things. It’ll just create a library for you, and then you can make it available to people so that if they want to hook it directly into their application, they’ve got the code to do it, and they don’t have to write all of the wrapper stuff that goes with it which is awesome.
Rob: Assuming that it works well, that is awesome. Really, really cool. I know that with Drip early on, obviously, we released a Ruby wrapper because Drip was written in Ruby, and then someone built an open source. Python was one, I believe, and then someone built a .NET one. I think they kind of just open sourced it, and we linked out to it which was cool especially in the early days. It did kind of stink as we got further on because they weren’t actively maintaining it because they have built it for themselves and implemented it.
We added more to the API later on, a bunch of more methods, they didn’t implement them, so people would email us and be like, “Hey you need to add this.” It’s like, “We don’t even know anything on the code base.” and we didn’t have any .NET developers on staff. There’s different things. Everybody wants a wrapper in every language, and you just can’t do it, and it’s just not feasible. But if you are able to roll up the top two or three most common ones and then be able to maintain them, that would be a big deal.
Mike: I don’t know how many people are going to hooking into it, but I have talked to other people who run apps like SaaS apps, and they are interested in hooking into Bluetick. Question is, “How do I make it available for them? How do I make it available as a public API for customers? Do I have separate endpoints for each of them?” I’m not entirely sure on it yet but I suspect it’d probably be easier to maintain if I just have one public API, and that was it, regardless of whether you’re integrating directly or not.
Rob: I would tend to do that although—we had the public API and anyone could consume it. If we wanted like, when Leadpages wanted to integrate with us or if it was an official integration that we were both going to promote, and it was going to be on our integrations page, we typically fork off a separate endpoint so that we could handle that differently. Because sometimes, with that one, we wanted to give it a higher rate limit or we wanted to route the traffic slightly differently based on what it was, and if it was coming to the public API we didn’t know–that is one thing to think about. In the end, we had 35-40 integrations. We did not have a full, 40 different endpoints but I do think we had a handful for especially the most popular ones.
Mike: I could see having a third party integration API, like a dedicated endpoint for that, and then for certain ones, you say, “Okay, we’re going to fork this code and give it additional functionality or put it on a different server.” Because it justifies having higher rate limits just because of the data going back and you trust them to send you things in a normal fashion versus if you just have that public endpoint, who knows what they could be doing or sending. Most of those are going to be for regular customers versus somebody who is sending stuff over on behalf of a lot of customers.
Rob: Yeah, totally. Here is something to think about as well. For some reason, segment.com—at least last I heard when I still at Drip—they don’t honor rate limits, they just never implemented it. They said that they were working on it but they would DDoS us about every two months or three months. They would take the API pretty much down, and we would be frantically emailing them because we would return a 403 I believe which is, “You’re over your rate limit. Please stop sending.” and there’s a bunch of stuff in the response code. You say, “You have to wait 57 minutes before you can send another whatever.”
Zapier is an example, has a rate limit, and when we would go out and webhook into Zapier, we would read that response, and then we’d throw it into a queue for 57 minutes later. It would say, “You can have up to 1000 per hour.” You can just read the response, and it will allow us to rate limit stuff out. Segment never bothered to build that, and so someone would come in with half a million uniques a day, and they would be pumping everything into the segment, and they just click the check the box of like, “Yes, stuff everything into Drip.” All of a sudden it will be just, boom. Beware of that.
Again, we talked with Segment quite a bit about it, and they were like, “We’re working on this. It’s a problem for other folks too.” But at one point, we, for a couple of hours, we had to block all of Segment’s IPs. It was crazy. We’re at the firewall, and then they would get it turned off. Just beware. It’s not going to happen day one, but it will happen eventually.
Mike: I don’t know. It may happen day one.
Rob: Yeah, that’s the thing, right? You never know.
Mike: I’ve seen, just because of the volume of data that Bluetick handles on the backend because it’s a mailbox. When I split things off onto two servers. Part of the reason I ended up having to do two servers was because when I got a new sign-up, if they had a large mailbox, the first thing it does is it indexes everything. Right there, just adding a new customer will basically DDoS the entire application, it depends on how large they were, so I added a bunch of code to back things off a little bit and do internal rate limiting on how much calculations and stuff it does, and how quickly it does stuff.
I even added code that would monitor the process that was currently running, and then throttle it up and down in terms of the CPU usage which was kind of crazy because it works across the entire process, you can’t do that on a […] basis in Windows. I don’t know. I considered moving it off into its own separate process, but that one involved a different service. I was just like, “I’ll put it on a different server, and I then I won’t have to worry about it.” that was the solution I ended up with.
Rob: Yeah, that makes sense. Something else to consider, in the early days, reset the rate limit pretty low knowing you can always increase it but decreasing it later is not going to go well. We set it low and when people come in and say, “I need to import 100,000, and your rate limit is going to take me two days to do it.” So we’d said, “Okay, we’re going to build a bulk endpoint for you.” so then we build a public endpoint that was, instead of add subscriber, it was bulk add subscriber, and you could I think it was 1000 per payload, 1000 subscribers. It was still the same amount of submissions, it was still rate limited at that, but you could then send 1000 instead of just one. We built several bulk endpoints both in, and I believe out as the troubleshooting.
This is one of those things where customers say, “No. I need a higher rate limit.” It’s like, “What do you actually need?” “What I actually need to do is import 100,000 people.” “Oh well, there’s a better solution than increasing the rate limit across the board for all 30,000 people or whatever who use this app because that could be catastrophic for the thing.” so we did do that. It’s just something to think about. It’s product decisions. But there’s often more elegant ways to do things than just what the customer is asking for.
Mike: Yeah. I like to have early conversations with pretty much every customer that comes on to Bluetick just because I want to know what it is that you’re actually trying to do. Like yesterday, I had a call with somebody who had signed up, and I was trying to figure out what it was they were trying to do. They’re in the fashion industry, and they have all these samples and stuff of people, like manufacturers and vendors, that they have to follow up with, and they ask for samples, and if they don’t get them or they don’t hear back, they have to follow-up with them.
It was very interesting hearing the conversation about exactly the specifics of the problem that they were trying to solve. Ultimately, we concluded that the volume isn’t high enough right now to justify using Bluetick, but once it starts scaling up, which they expect that to happen, then Bluetick is going to be really helpful for them.
Rob: On my end, as you know, I recently moved. We were in California for two weeks, and then we flew in and landed at midnight on a Wednesday, and we closed on the house on Friday. When we were in California, I really wasn’t thinking much about the house closing. All of the stuff was in-flight, and there wasn’t much work to do on it. When we got back, I’m like, “I need to start changing our address.” Thursday and Friday, as we’re about to get the keys, I start changing the address, I start moving utilities, I start doing all that. I forget that for internet access, a: how critical it is—it is perhaps more important than a lot of other things.
Mike: […]?
Rob: Yeah, I was going to say electricity, but it’s really not because you need both. It is as important to me as having electricity. It was crazy to not have it. What I forget is that cable, internet, and DSL—they can turn it on same day or they overnight you the equipment, and you get it the next day. That’s what I was thinking. But of course, we have fiber here. We’re at the luxury of having fiber gigabit fiber.
There’s two companies that offer it in the neighborhood, really cool. I call up, and they’re like, “Yeah, we can get to you in 11 days.” Then the other one said, “We have to trench…” not trench but put pipe under the ground, so it’s going to take 30 days. I was like, “No, this is catastrophic,” because we’ve been spoiled by having this fiber at the other house, so I set up the appointment. The 30-day fiber is a local company called US Internet, and super fast, and it’s $70 per gig, up and down. They are at the street, but it’ll take them about a month to get in.
But I signed up for cable. I’m going to basically have it for a month. I had them overnight the equipment, so within 36-48 hours of moving in we had real internet but it is cable which is crazy. It used to be blazing fast, but now it feels–I think if Sherri and I if we’re both on video calls, and the kids are streaming, you start to have issues. It’s funny how quickly you get spoiled by having gigabit which you never, I will say, we never maxed it out.
Mike: Yup.
Rob: The moral of the story is a couple of things; if you’re moving, and you’d only need DSL or cable, you can probably just give them a few days’ notice assuming it’s already wired in but if you’re going to do something like fiber, this is a reminder to myself be like, “Yeah, you wanna give somebody a few weeks because it may not actually be wired to all the houses.”
Do we want to answer some listener questions today?
Mike: Let’s get to it.
Rob: Alright. Our first question comes from Nick Malcolm, and he recorded an audio question, and so he went straight to the top of the pile—as they always do—so voicemail to us or emailing us with an MP3 or M4A gets you to the top of the stacks. Let’s listen to that audio here.
“Hello, Mike and Rob. I’m a long time listener from New Zealand. I’ve been involved in startups in the past, in technical roles but now I’m working as a consultant helping companies to better at security. I work alongside development teams doing things like threat modeling and teaching about common risks like […] and also at an organizational level with processes and policy and risk management. I’d be really interested to hear your thoughts on what minimum viable security should look like for startups and how this might change as the company grows. Thank you for everything you both give to the startup community, that’s much appreciated. Thanks.”
Mike: I think the trouble with security or trying to address the problem of minimum viable security in a startup is it competes with the aims of the business especially when you’re first starting out. There’re pre-profitability and then post-profitability. If you’re talking about pre-profitability, you need to do at least the varied minimum basics such as making sure that the code that you’re writing is, if it’s proprietary code, you’re not going to be releasing it, just make sure that it’s in a secret repository someplace, it’s not like a public repo. But obviously, if it’s open source, that kind of stuff doesn’t matter.
In terms of the server and infrastructure, for a startup, it so depends on what the startup is doing, how their infrastructure is configured, and the, I’ll say, knowledge of security that the people who are building it have. If you’re the type of person who is like, “Oh let me handle all these edge cases and make sure that I’m doing the right things,” then that’s fine. But if you’re not, then you just have to be aware that those things are probably going to need to be dealt with at some point down the road. Maybe not today but you have to do a good job of being diligent about marking where your code could potentially be exploited or places where things could go sideways. Whether it’s cross-site scripting attacks or things going into the query string and the API being used for things that it really shouldn’t be. Beyond that, you can go so far into the weeds that it’s just not even funny.
Security companies make their living basically, sort of being ambulance chasers to start with. If somebody has a security breach, they suddenly come up with all these articles about, “Hey, you have to be careful of these two, and this just happened to this person.” because it’s scare tactics. That’s really what they’re trying to sell on. But in terms of the basics, if you’re using password, make sure they’re one-way encrypted, make sure that anything that is sensitive is being encrypted inside of the database.
Those are the types of things that you want to at least pay minimum attention to. If you’re running Windows, obviously, you’d probably want to be running antivirus software of some kind on each of the machines in the environment. But as I’ve said, you can go so far into the weeds like putting data loss prevention things on your phones or laptops or all these other stuff. You don’t need to go that far, in most cases, I don’t think. Unless you are a security company selling security software, in which case, being hacked would obviously, be the worst thing in the world for you.
Beyond that, just do what you need to do in order to protect the customer’s data. Making sure information does not bleed from one customer over to another. That’s a pretty basic thing, but sometimes it can go wrong if you’re not careful about how you’re doing database queries or packeting data between customers.
Rob: I agree with you. This is the kind of stuff that you have to worry about just enough, and not any more than that because it will slow your business down, it’ll slow building features down, but you have to pay attention to it as you go. These days, when I think of minimum viable security for startups, I think of starting with a language that has that built-in or a framework that does. I know that Rails has a bunch of stuff that validates the incoming request streams, and it’ll pull out cross-site scripting sequence injection, and all of the stuff. That‘s a good place to start.
If you use Azure or if you use EC2 or Google cloud, there’s a lot of security best practices built into there. Nick, who sent the question, included what looks like three blog posts that we will link up in the show notes as well as a SaaS CTO security checklist. Again, this is stuff that you do it just enough to where you feel comfortable. It’s like GDPR. Do you implement a full-blown thing and pay $10,000 to hire a lawyer or do you pay someone $500 and the be mostly compliant?
The TLDR that Nick sent over is like, “Use version control, have logging and monitoring, and continuous integration.” so that you’re constantly running unit tests. I think you should have some unit tests that are testing security, and making sure that things are not going to be easily hacked or whatever. Hopefully, those thoughts are helpful. I realized that it’s kind of an “it depends”, and it’s definitely always a “there’s a continuum” when you’re doing these things but it’s also similar to a question of, “How much should I worry about the legal stuff surrounding getting my LLC set-up and getting every trademarked.” and getting all that. It’s like, “Well, I should worry about it just enough.” It depends on your risk tolerance in all honesty. Thanks for the question, Nick. That was a good one.
Next, we have a comment about moving on from AuditShark. He says, “Hey, guys. I’ve been listening for a while now. Over two years ago, I started an app part-time. Finally, after all these time and all the money I’ve sunk into it, I’ve decided to let it go. There were a number of reasons it failed. Most important being that I’ve never launched my own product before and didn’t fully understand what it took. Listening to Mike’s decision to move from AuditShark…” we have an episode called Moving On from AuditShark. It’s probably 150, 200 episodes ago. He said, “It’s given me the confidence to know this is the right decision. I felt his pain in the episode because it’s the same pain I’m going through now. I’ve decided to do this stair-step approach and practice learning simpler products like an e-book or audio course. Hopefully, this will both give me the confidence and an audience when I’m ready to launch another product. It still hurts and I still think what if all the time but I know I’m making the right decision. Love the show and congrats on 400.”
Thanks for writing in, Greg. It’s always good to hear from folks who experienced things. We talked about trying to help people avoid the same mistakes we’ve made. Sometimes you’re going to make the same mistakes we’ve made but maybe knowing that we made them, there’s some solidarity in knowing, “Oh, other people make them too,” and kind of we’ve all been there so. I think this thing will go away over time. Mike, from your perspective, you went through it, and now you’re in the middle of AuditShark building something that’s obviously starting to get some traction. What are your thoughts on this?
Mike: I’m not in the middle of audit shark anymore. What are you saying?
Rob: Freudian slip, that’s funny. What do you think?
Mike: Well, I definitely get how you can think what if all the time. I really don’t. AuditShark would not have been a good fit for me long-term. I didn’t realize that when I started out. I didn’t realize it ‘til I was probably very close to the end but it didn’t fit me as founder, and it wasn’t the type of business that I probably would have wanted to own long-term. I looked at it from more of a financial perspective of, “Oh I really want to be able to sell this and make a lot of money from it.” I enjoyed the problem space itself, but I did not enjoy trying to sell that type of a product versus Bluetick where I actually do it because I feel it’s legitimately helping people that need that help, and with AuditShark it was more about meeting the checkbox requirement for people, and nobody actually cared about it. It was just like, “Oh, our company says we have to do this so we’ll do it.”
Rob: Yup, that makes sense. I think early on you probably thought what if a bit, and then you moved past it. That’s the healing process of letting something like this go.
Mike: Yup, definitely.
Rob: Cool. Our next question/comment is a comment on episode 403, so go to startupsfortherestofus.com if you ever want to leave a comment, read all your comments. Doug said, “First of all where do you find the time to play D&D?” which I think is funny. From my perspective, I am trying to think, I got back into it, what is it, my kid is 12, and I think I taught him when he was maybe eight, and so it’s been about four years so yeah, Drip was going on. Frankly, we don’t play D&D very much. I mean, we do more now that I’m not working on Drop anymore, but when I was growing Drip, we would maybe play every few months. It really was not an on-going campaign thing, but it’s definitely gotten easier for me to carve out the time.
I think if we have a recurring campaign that was with other people, you just kind of find the time. If it’s every week or twice a month on a Thursday at seven, and you know that you’re going to let people down if you don’t show up, that would be something. The other thing for me is we keep our sessions short. They’re typically 60-90 minutes. They’re not these four-hour campaigns, and we enjoy it that way. How about you, Mike? How do you find the time?
Mike: I have two different ones. […] morning is with a friend of mine and our kids, kind of collectively, that we’ve run very sporadically. We might need once in a month or once every two or three months. That’s been going on for probably close to two years at this point. The other one that I just started up, I think we’ve had three sessions so far, but it’s every Tuesday night. We meet up at 7:30 PM. Two nights ago we’ve had a rather lengthy one. It went until 12:30 AM. It was almost 1:00 in the morning by the time I got home. It was 7:30 PM to 12:30 AM, that was kind of the ballpark thing.
We’re shooting for 2-3 hours, three hours is kind of the minimum that we want, and then after that, it’s kind of wherever is a decent stopping point. That session just happened to be longer. But I agree with you that having a set time of the day each week or every couple of weeks that you’re shooting for, that’s the best way to go just because you’re making a commitment to other people to be there and show up. I think that’s really helpful.
Rob: Here’s the thing, when I was doing startups on nights and weekends and had a day job, I didn’t play any of this. There were years where I didn’t go to happy hours with friends when they would go. I didn’t play any type of tabletop games because I work all day, and then I work all night. My kids were either not born yet, or they were really young, so they would go to sleep at seven, and then I would just work ‘till 1:00 in the morning, and I was tired, but that was the slog.
You and I both moved into the position. Once I’m working on it full-time during the day, and I’m putting the seven-nine hours a day of startup work, then in the evenings I actually like to not continue to do that, and so it depends on the phase you’re in. If you are still working nights and weekends, I would say don’t get involved, like don’t have a hobby. It’s crazy advice, but I really put all my hobbies on hold while I was getting that initial traction. It was definitely a couple of years, it was even more than that, actually. It was probably over the span of about five or six years, but it wasn’t constantly I would tackle a project, work on it for six months, and I wasn’t doing anything nights and weekends, and yeah, it sucked, but I had that goal. I wanted to get that financial freedom. I wanted to get out of my day job. It would crash and burn, and then I’d be all dejected and disappointed. I would go back to having a hobby for a while until I got motivated enough to do the next effort.
Mike: I find that setting aside the time is a nice distraction as well because it’s very easy to get stuck into the pattern of working on the same thing all day every day and let it bleed into other parts of your life which ultimately is probably not good for you. I think that they’re just making sure that there’s a set commitment that I have that is external to work in any way, shape or form. I find that that’s helpful.
Rob: I agree. I fully agree. I think of this podcast a little bit like that. Every week, no matter how bad things were, how hard they were, how stressed I was, you and I would have this one hour blocked off to sit and talk about this stuff, and that’s something that we’ve done for a long time. Even though it’s talking about work, in essence, it did help the days. I think you have to have some variety to them.
Doug has another question, he says, “Rob, you say wanting financial freedom was motivating. Is that another way of saying I hated my day job? How far can not liking the cubicle and office get you on a startup journey? Comfortable paycheck is the enemy of great startup ideas. I am proof of that.”
It’s an interesting question. In all honesty, I hear this from people time to time, and they’re like, “Well, my day job’s good enough. I’m kind of motivated to do. It sounds like it’s fun to do a startup.” In my opinion, if you’re not all in on it, you’re just not going to put in the time to do it. If it really is a major pain point, like for me, yes, I hated my day job. I hated all of the day jobs I did. Hate is a strong word, but I was never happy for very long. Maybe it was 12-18 months, and then it was like, “No, I have to move onto the next thing.”
The further I got along, not only would I burn out on a job within, let’s say, 12-24 months. But I also realized I wanted to make money more as a salaried or even as a contractor. I wanted mobility. I wanted to be able to travel, and not have to worry about being in one place or living in the same city or being concerned that I was going to get laid off, so I wanted the confidence that I was in control of my own destiny. Frankly, I did want more control of my time.
I hated having to be in an office at 8:30 AM or needing to be available at these hours, so I just wanted that. Especially as I got older, when I’ve gotten to my early 30s, I realized, “This was not going to work for me.” It was a real, true pain point in my life and I was willing to put it all on the table. I was willing to sacrifice nights and weekends for years to do this. If that’s not you and you don’t have the burning desire, that’s okay. I’ve some good friends who I envy because they’ve been happy.
Mien, a really good friend of mine in Sacramento, started the day job the same week back in 2000. He still works at that company. It’s 18 years later. He’s a developer, and he works at a consulting firm. I’ve had 20 jobs since then. I bounced to different jobs, different products if you count it all, maybe even more than that. We’re just cut from a different cloth. I would be so hopelessly unhappy and depressed if I had his life but I don’t judge him and say, “Oh you could do better if you’ve done startups.” because I don’t think he really had the desire. I don’t know if his personality is cut out for it. He really didn’t want the stress. He’s just more conventional than I am.
We each have different priorities, and we have different personalities. I think you really have to look in the mirror and ask yourself, “Am I willing to do what it takes?” because this startups stuff is not easy. I hope that’s something we’ve communicated in the past 405 episodes both through just talking about stuff theoretically and also the agony of episodes like moving on from AuditShark and the agony of some of the stuff that I’ve talked about here. That was a good rant for me. What do you think, Mike? You have other thoughts?
Mike: The summary of what you just said is like, it’s a personal decision for each person. I can relate to your friend out of Seattle. I was up in Rochester within the past couple of years, and one of the reasons I had left Wagman’s was there was a guy who’d recently got promoted to a position that I had wanted, not that I was going to get promoted to it, it’s just that it was one that I aspired to. He got promoted to it after being at the company for 18 years. I was like, “I’m not waiting 18 years to get promoted to that level.”
I ran into him a couple of years ago, and he’s still there working at the same company that he’s been at for 30 years. That would not have worked for me. I don’t have the personality to have been working in that business for that long and not transition around. I’m sure that he works on different things, but it would not be a good fit for me.
Rob: Thanks for the questions, Doug. I enjoyed them so much. I didn’t answer them on the blog. I wanted to talk about them on the show. Our final listener question for the day is from Ricardo Feliciano, and he says, “Hey Mike and Rob. I love the podcast. I find it very valuable. My question is, what is the best way to charge for an online and real-life community? The two best examples I’ve seen are Founder Cafe from the two of you and Nomad List, nomadlist.com. I ask because I’m starting a community for Marvel and DC fans called Comics and Coffee, that’s comicsncoffer.com. I don’t know if I should pay wallet or try to monetize it through merchandise. Perhaps through a premium program such as what Reddit does with Reddit Gold or Discord with Nitro. Thanks for your time. PS for comics and coffee background: We started up with a podcast, and we’re adding a form, and in-person meetups for movie nights soon.” What do you think?
Mike: I think if you’re going to have a community, there has to be some compelling reason for people to join and stick with their membership is, really what it comes down to. When you look at something like Nomad List, that’s aimed at people who are traveling around the world—and they’re probably constantly traveling—they’re more likely to become and remain a member for longer periods of time. Because even though they may be in Thailand for three months or six months or even a year or two, then they go over to Belarus or Spain or Africa or wherever, and then they’re going to need to be able to connect to other people either locally or online or potentially both, that’s one of those communities where it’s an ongoing thing, that they don’t just need the service once versus something like, trying to meet up with other people locally and those people are not moving around.
Everybody lives in the same community. For example, I live here in Massachusetts. If I wanted to get together with people and wanted to form a group or an organization or something like that, I might use meetup.com for that. The benefit of that is finding other people but if you’ve already got an established location, and a group of people that are coming, chances are good that they associate with other people outside of that who are also involved in comics. They’re going to invite their friends.
Now, the advantage of your platform or your community is that you are going to be able to attract more people to it and that’s the value proposition you have which is, “Hey, find other people and stick with a local community.” The problem is that once they have found your community and are coming to whatever meeting’s there are on a regular basis or semi-regular basis, what additional value are you offering? I’m not clear on what that would be.
With Founder Cafe, it’s a little different because everybody’s remote. Because it’s all remote like, if you join the community and then you leave, you no longer have access to it versus if it’s a local, in-person meet up and there’s a regular meeting every Tuesday at 7:00 o’clock, everybody comes at 7:00 and once you’ve found it, you kind of no longer need the platform anymore, so what value is it that you offer?
I think that’s what you need to focus in on in terms of trying to figure out how to monetize it. You might be able to pay wallet and have some sort of merchandise behind it, I’m not sure how would that go though. I don’t know is charging on ongoing basis is for would be terribly lucrative, I’ll say.
Rob: Yeah. B2B is easier than B2C. In this case, Founder Cafe or the Dynamite Circle or Nomad List, they tend to surround people who run businesses, who are making money through something, who the network they know can help them make more money, help them to have a more successful business whereas going to gamers, I mean gamers are notoriously cheap. They’ll spend money on games but trying to ask consumer to do a subscription tends to be a harder thing to do. I’m not saying that you shouldn’t do it but know that when I think about the $99 every quarter that we charge for Founder Cafe, most business owners see that and think, “Yeah, that’s not very much money compared to what I’m paying for all the other services I’m using.” But if you were to try to charge that in your case, it will be very hard.
Basically, no one would sign-up. I bet people would be like, “Are you kidding me? $33 a month to have access to this list?” You’re going to be more down in the, I’ll say, the Netflix zone where you’re probably looking at $5-$10 a month, I would think. I would probably either charge it quarterly or charge it annually. It’s such a small dollar amount. You don’t want to have these $5 charges all over the place. Maybe it’s $50 a year, $80 a year, $100 a year, somewhere in that range is what I initially think about.
I don’t think it’s a bad experiment. I mean depending on how many people you already have on the list, merch is fun, but merch is going to take time, the margins are low, and you really need a lot of people on your list in order to sell enough merch to get any type of revenue, you’re only getting, what’s the net margin on merch? Is it 10%, 20%? It’s going to be very small. I think that could be an interesting revenue stream to explore, but I would do that later. Having a premium membership, I think could be very interesting.
You could also consider doing a Patreon but again, you need quite a few people to do that, then you can have that insider’s group pretty easily, and all the mechanics are handled for it. People already know, it’s becoming pretty popular to hear this word Patreon and to know what that means. It’s not like reinvent the wheel and introduce everybody to, “Yeah, this premium membership,” blah blah blah. It’s just like, “Go to your Patreon account. You already potentially support some other podcast creators, support it, and if you support it at the $5 a month level,” and then Patreon handles all that for you—all the billing and all that—then you get this extra perk of getting this log in, or getting this episode earlier, getting these episodes that are only published on the Patreon feeds.”
Those are my initial thoughts on it. I love the idea of Chris. I’d love to do something like this, but it is going to be hard to pull the viable business out of it. You’re going to need a lot of people listening to you. B2C is the volume play. You need a lot more people selling something for $5 a month versus $50 or $100 a month.
Mike: The other thing that occurs to me is something like this seems similar to there’s a website called Roll20 which is mainly aimed at roleplaying games but obviously, there’s a lot of Dungeons and Dragons players on there, but playing various editions, and Pathfinder, and various other roleplaying games and they have a mechanism where they’re charging, I think it’s either $5 or $10 a month and it’s an annual fee.
I agree with Rob but I think going the annual route is probably the best way to go to get some of that initial revenue and then down the road, you could look at that and say, “Okay, now that I’ve got 500, 1000, or 10,000 who have paid that much money.” Again, with 1000 people paying $50 for a year, that’s $50,000, it’s not enough to support one person for the most part full-time.
One thing you could do is start offering like an escrow service for people who want to buy or sell comic books. Yes, you can do it on eBay, but then you have to deal with PayPal, and all these other stuff, for higher-end, and Rob maybe you could speak into this because I know you’re in the comic books but would you pay for an escrow service for something like a high-value comic book? Because we’ve talked about, in episode 403, about analyzing another type of business but I think part of that is looking at the type of customer that you want. People who are buying and selling extremely valuable comic books, they want to make sure that what they’re getting is good quality, and that they’re actually going to get it and not going to get ripped off. By offering an escrow service as an add-on later, that might be an option.
Rob: Yeah, I think that could get traction. I don’t know if that exists today, to be honest. I wish there was a text box, we could type search terms into, and it could potentially tell us if that exists today.
Mike: I know. That’d be fantastic.
Rob: It’s crazy. Anyway, enough daydreaming. But yeah, I think that’s a good point. Again, then do you have to build a large enough community that the small percentage who use whatever service offshoot making enough money to be viable. But I do think that’s a cool thought experiment or an interesting way to think about it. It’s a creative way to think about, I’ll say. I think adding offshoot businesses rather than just charging directly is another way you could potentially monetize it.
Mike: Thanks for the question, Ricardo. I think that about wraps us up for the day.
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.
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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 Rob.
Mike: And I’m officially the answer to the ultimate question of life, the universe, and everything.
Rob: 42.
Mike: Yes.
Rob: Did you just turn 42?
Mike: Yup.
Rob: Congratulations man. Happy birthday!
Mike: Yeah, I finally made it. It’s like my kids. I keep telling them, “Oh if only you make it to 10, or 11, or 12.”
Rob: You finally made it to the end. I can’t believe I didn’t even think about that when I was 42. Ooh, people get to guess now how old I am. It’s fun.
Mike: I know. Oh you’re screwing up the intro.
Rob: And we’re here to share our experiences to help you avoid the same mistakes that we’ve made. Where are we this week sir aside from happy birthday wishes to you?
Mike: Well, I was in The Indie Hackers podcast, I think about a week and a half ago. That was with Courtland Allen. I was also on the Release Notes podcast with Charles Perry. There are actually two episodes to that. They split it up into part one and part two. I think that part two will be live by the time this episode goes out. Both were a lot of fun. I’ve got a lot of feedback from both The Indie Hackers podcast through The Indie Hackers forum and then over Twitter. It was nice to see the stuff I was talking about was resonating with people in terms of my journey, and path, and things with Bluetick and how that was validated, and how AuditShark went off the rails and everything else.
Rob: That’s cool. I heard the Release Notes episode. It actually came up in a Google alert. I have a Google alert on maybe Founder Cafe or maybe Startups For The Rest Of Us or something, and so it came up because it was in the show notes, and I so I picked up the episode. I actually enjoy hearing you on other podcasts because they ask you questions that we never cover on this show, and so I learn something, “Oh I didn’t know he did that.” You talked about your past and then even just hearing your retelling of the story of AuditShark, and Bluetick and stuff was kind of fun. I enjoyed it. We’re going to link up both of those episodes in this week’s show notes, episode 405.
Mike: Aside from that, I’ve started working on public API for Bluetick. I knew that I wanted to do it, at some point but the entire application itself is a single page application, so everything’s driven with an API. But in the process of building the app and creating that API, I found all these things that are just, I’ll say, are not probably done in the best of ways. It’s nice to have version 2–is the API that will be public versus 1, which is for internal use only.
Rob: Yeah, I was going to say that. But obviously, be sure to have a /V1 or /V2 when you publish it because you’re going to need to update it at some point and you don’t want to break retroactively. The other thing is, have rate limiting in from the start because, by the time you get to the point where you need it. It’s not good to have somebody take your API down.
I would also, this is all just from experience, if possible, put the API on a separate server or separate banks of servers because if someone takes your API down, you don’t want your main app to go down. What else? I bet there’s like four of these totally off the top of my head. I had not pre-planned these, but yeah, there’s really good ways to do APIs at this point.
I remember, again, dating my years back 10 or 12 years ago, all the APIs were different, REST was not a thing, it was all post-APIs. It was really jenky, and I guess, they were what, it was like web service, it was like XML. Remember, it was all XML?
Mike: Yeah, Microsoft came up with this thing as WSDL.
Rob: It was WSDL, SOAP, all that crap. It was terrible. You’ll still see some old APIs use that, but REST APIs now are so clean. A lot of them are stateless. There’s these best practices that people use. I would really try to implement because they definitely makes a cleaner experience for everyone.
Mike: I use Swagger to document the API, kind of hooked it, so if I make any changes to the API, I’ve got to document that basically says how it works. That’s an easy enough thing to incorporate into the public API but the other nice thing that I found is that there are utilities out there that you can use to query your Swagger documentation, and then it will build libraries for you in various languages so, Python, C#, and various other things. It’ll just create a library for you, and then you can make it available to people so that if they want to hook it directly into their application, they’ve got the code to do it, and they don’t have to write all of the wrapper stuff that goes with it which is awesome.
Rob: Assuming that it works well, that is awesome. Really, really cool. I know that with Drip early on, obviously, we released a Ruby wrapper because Drip was written in Ruby, and then someone built an open source. Python was one, I believe, and then someone built a .NET one. I think they kind of just open sourced it, and we linked out to it which was cool especially in the early days. It did kind of stink as we got further on because they weren’t actively maintaining it because they have built it for themselves and implemented it.
We added more to the API later on, a bunch of more methods, they didn’t implement them, so people would email us and be like, “Hey you need to add this.” It’s like, “We don’t even know anything on the code base.” and we didn’t have any .NET developers on staff. There’s different things. Everybody wants a wrapper in every language, and you just can’t do it, and it’s just not feasible. But if you are able to roll up the top two or three most common ones and then be able to maintain them, that would be a big deal.
Mike: I don’t know how many people are going to hooking into it, but I have talked to other people who run apps like SaaS apps, and they are interested in hooking into Bluetick. Question is, “How do I make it available for them? How do I make it available as a public API for customers? Do I have separate endpoints for each of them?” I’m not entirely sure on it yet but I suspect it’d probably be easier to maintain if I just have one public API, and that was it, regardless of whether you’re integrating directly or not.
Rob: I would tend to do that although—we had the public API and anyone could consume it. If we wanted like, when Leadpages wanted to integrate with us or if it was an official integration that we were both going to promote, and it was going to be on our integrations page, we typically fork off a separate endpoint so that we could handle that differently. Because sometimes, with that one, we wanted to give it a higher rate limit or we wanted to route the traffic slightly differently based on what it was, and if it was coming to the public API we didn’t know–that is one thing to think about. In the end, we had 35-40 integrations. We did not have a full, 40 different endpoints but I do think we had a handful for especially the most popular ones.
Mike: I could see having a third party integration API, like a dedicated endpoint for that, and then for certain ones, you say, “Okay, we’re going to fork this code and give it additional functionality or put it on a different server.” Because it justifies having higher rate limits just because of the data going back and you trust them to send you things in a normal fashion versus if you just have that public endpoint, who knows what they could be doing or sending. Most of those are going to be for regular customers versus somebody who is sending stuff over on behalf of a lot of customers.
Rob: Yeah, totally. Here is something to think about as well. For some reason, segment.com—at least last I heard when I still at Drip—they don’t honor rate limits, they just never implemented it. They said that they were working on it but they would DDoS us about every two months or three months. They would take the API pretty much down, and we would be frantically emailing them because we would return a 403 I believe which is, “You’re over your rate limit. Please stop sending.” and there’s a bunch of stuff in the response code. You say, “You have to wait 57 minutes before you can send another whatever.”
Zapier is an example, has a rate limit, and when we would go out and webhook into Zapier, we would read that response, and then we’d throw it into a queue for 57 minutes later. It would say, “You can have up to 1000 per hour.” You can just read the response, and it will allow us to rate limit stuff out. Segment never bothered to build that, and so someone would come in with half a million uniques a day, and they would be pumping everything into the segment, and they just click the check the box of like, “Yes, stuff everything into Drip.” All of a sudden it will be just, boom. Beware of that.
Again, we talked with Segment quite a bit about it, and they were like, “We’re working on this. It’s a problem for other folks too.” But at one point, we, for a couple of hours, we had to block all of Segment’s IPs. It was crazy. We’re at the firewall, and then they would get it turned off. Just beware. It’s not going to happen day one, but it will happen eventually.
Mike: I don’t know. It may happen day one.
Rob: Yeah, that’s the thing, right? You never know.
Mike: I’ve seen, just because of the volume of data that Bluetick handles on the backend because it’s a mailbox. When I split things off onto two servers. Part of the reason I ended up having to do two servers was because when I got a new sign-up, if they had a large mailbox, the first thing it does is it indexes everything. Right there, just adding a new customer will basically DDoS the entire application, it depends on how large they were, so I added a bunch of code to back things off a little bit and do internal rate limiting on how much calculations and stuff it does, and how quickly it does stuff.
I even added code that would monitor the process that was currently running, and then throttle it up and down in terms of the CPU usage which was kind of crazy because it works across the entire process, you can’t do that on a […] basis in Windows. I don’t know. I considered moving it off into its own separate process, but that one involved a different service. I was just like, “I’ll put it on a different server, and I then I won’t have to worry about it.” that was the solution I ended up with.
Rob: Yeah, that makes sense. Something else to consider, in the early days, reset the rate limit pretty low knowing you can always increase it but decreasing it later is not going to go well. We set it low and when people come in and say, “I need to import 100,000, and your rate limit is going to take me two days to do it.” So we’d said, “Okay, we’re going to build a bulk endpoint for you.” so then we build a public endpoint that was, instead of add subscriber, it was bulk add subscriber, and you could I think it was 1000 per payload, 1000 subscribers. It was still the same amount of submissions, it was still rate limited at that, but you could then send 1000 instead of just one. We built several bulk endpoints both in, and I believe out as the troubleshooting.
This is one of those things where customers say, “No. I need a higher rate limit.” It’s like, “What do you actually need?” “What I actually need to do is import 100,000 people.” “Oh well, there’s a better solution than increasing the rate limit across the board for all 30,000 people or whatever who use this app because that could be catastrophic for the thing.” so we did do that. It’s just something to think about. It’s product decisions. But there’s often more elegant ways to do things than just what the customer is asking for.
Mike: Yeah. I like to have early conversations with pretty much every customer that comes on to Bluetick just because I want to know what it is that you’re actually trying to do. Like yesterday, I had a call with somebody who had signed up, and I was trying to figure out what it was they were trying to do. They’re in the fashion industry, and they have all these samples and stuff of people, like manufacturers and vendors, that they have to follow up with, and they ask for samples, and if they don’t get them or they don’t hear back, they have to follow-up with them.
It was very interesting hearing the conversation about exactly the specifics of the problem that they were trying to solve. Ultimately, we concluded that the volume isn’t high enough right now to justify using Bluetick, but once it starts scaling up, which they expect that to happen, then Bluetick is going to be really helpful for them.
Rob: On my end, as you know, I recently moved. We were in California for two weeks, and then we flew in and landed at midnight on a Wednesday, and we closed on the house on Friday. When we were in California, I really wasn’t thinking much about the house closing. All of the stuff was in-flight, and there wasn’t much work to do on it. When we got back, I’m like, “I need to start changing our address.” Thursday and Friday, as we’re about to get the keys, I start changing the address, I start moving utilities, I start doing all that. I forget that for internet access, a: how critical it is—it is perhaps more important than a lot of other things.
Mike: […]?
Rob: Yeah, I was going to say electricity, but it’s really not because you need both. It is as important to me as having electricity. It was crazy to not have it. What I forget is that cable, internet, and DSL—they can turn it on same day or they overnight you the equipment, and you get it the next day. That’s what I was thinking. But of course, we have fiber here. We’re at the luxury of having fiber gigabit fiber.
There’s two companies that offer it in the neighborhood, really cool. I call up, and they’re like, “Yeah, we can get to you in 11 days.” Then the other one said, “We have to trench…” not trench but put pipe under the ground, so it’s going to take 30 days. I was like, “No, this is catastrophic,” because we’ve been spoiled by having this fiber at the other house, so I set up the appointment. The 30-day fiber is a local company called US Internet, and super fast, and it’s $70 per gig, up and down. They are at the street, but it’ll take them about a month to get in.
But I signed up for cable. I’m going to basically have it for a month. I had them overnight the equipment, so within 36-48 hours of moving in we had real internet but it is cable which is crazy. It used to be blazing fast, but now it feels–I think if Sherri and I if we’re both on video calls, and the kids are streaming, you start to have issues. It’s funny how quickly you get spoiled by having gigabit which you never, I will say, we never maxed it out.
Mike: Yup.
Rob: The moral of the story is a couple of things; if you’re moving, and you’d only need DSL or cable, you can probably just give them a few days’ notice assuming it’s already wired in but if you’re going to do something like fiber, this is a reminder to myself be like, “Yeah, you wanna give somebody a few weeks because it may not actually be wired to all the houses.”
Do we want to answer some listener questions today?
Mike: Let’s get to it.
Rob: Alright. Our first question comes from Nick Malcolm, and he recorded an audio question, and so he went straight to the top of the pile—as they always do—so voicemail to us or emailing us with an MP3 or M4A gets you to the top of the stacks. Let’s listen to that audio here.
“Hello, Mike and Rob. I’m a long time listener from New Zealand. I’ve been involved in startups in the past, in technical roles but now I’m working as a consultant helping companies to better at security. I work alongside development teams doing things like threat modeling and teaching about common risks like […] and also at an organizational level with processes and policy and risk management. I’d be really interested to hear your thoughts on what minimum viable security should look like for startups and how this might change as the company grows. Thank you for everything you both give to the startup community, that’s much appreciated. Thanks.”
Mike: I think the trouble with security or trying to address the problem of minimum viable security in a startup is it competes with the aims of the business especially when you’re first starting out. There’re pre-profitability and then post-profitability. If you’re talking about pre-profitability, you need to do at least the varied minimum basics such as making sure that the code that you’re writing is, if it’s proprietary code, you’re not going to be releasing it, just make sure that it’s in a secret repository someplace, it’s not like a public repo. But obviously, if it’s open source, that kind of stuff doesn’t matter.
In terms of the server and infrastructure, for a startup, it so depends on what the startup is doing, how their infrastructure is configured, and the, I’ll say, knowledge of security that the people who are building it have. If you’re the type of person who is like, “Oh let me handle all these edge cases and make sure that I’m doing the right things,” then that’s fine. But if you’re not, then you just have to be aware that those things are probably going to need to be dealt with at some point down the road. Maybe not today but you have to do a good job of being diligent about marking where your code could potentially be exploited or places where things could go sideways. Whether it’s cross-site scripting attacks or things going into the query string and the API being used for things that it really shouldn’t be. Beyond that, you can go so far into the weeds that it’s just not even funny.
Security companies make their living basically, sort of being ambulance chasers to start with. If somebody has a security breach, they suddenly come up with all these articles about, “Hey, you have to be careful of these two, and this just happened to this person.” because it’s scare tactics. That’s really what they’re trying to sell on. But in terms of the basics, if you’re using password, make sure they’re one-way encrypted, make sure that anything that is sensitive is being encrypted inside of the database.
Those are the types of things that you want to at least pay minimum attention to. If you’re running Windows, obviously, you’d probably want to be running antivirus software of some kind on each of the machines in the environment. But as I’ve said, you can go so far into the weeds like putting data loss prevention things on your phones or laptops or all these other stuff. You don’t need to go that far, in most cases, I don’t think. Unless you are a security company selling security software, in which case, being hacked would obviously, be the worst thing in the world for you.
Beyond that, just do what you need to do in order to protect the customer’s data. Making sure information does not bleed from one customer over to another. That’s a pretty basic thing, but sometimes it can go wrong if you’re not careful about how you’re doing database queries or packeting data between customers.
Rob: I agree with you. This is the kind of stuff that you have to worry about just enough, and not any more than that because it will slow your business down, it’ll slow building features down, but you have to pay attention to it as you go. These days, when I think of minimum viable security for startups, I think of starting with a language that has that built-in or a framework that does. I know that Rails has a bunch of stuff that validates the incoming request streams, and it’ll pull out cross-site scripting sequence injection, and all of the stuff. That‘s a good place to start.
If you use Azure or if you use EC2 or Google cloud, there’s a lot of security best practices built into there. Nick, who sent the question, included what looks like three blog posts that we will link up in the show notes as well as a SaaS CTO security checklist. Again, this is stuff that you do it just enough to where you feel comfortable. It’s like GDPR. Do you implement a full-blown thing and pay $10,000 to hire a lawyer or do you pay someone $500 and the be mostly compliant?
The TLDR that Nick sent over is like, “Use version control, have logging and monitoring, and continuous integration.” so that you’re constantly running unit tests. I think you should have some unit tests that are testing security, and making sure that things are not going to be easily hacked or whatever. Hopefully, those thoughts are helpful. I realized that it’s kind of an “it depends”, and it’s definitely always a “there’s a continuum” when you’re doing these things but it’s also similar to a question of, “How much should I worry about the legal stuff surrounding getting my LLC set-up and getting every trademarked.” and getting all that. It’s like, “Well, I should worry about it just enough.” It depends on your risk tolerance in all honesty. Thanks for the question, Nick. That was a good one.
Next, we have a comment about moving on from AuditShark. He says, “Hey, guys. I’ve been listening for a while now. Over two years ago, I started an app part-time. Finally, after all these time and all the money I’ve sunk into it, I’ve decided to let it go. There were a number of reasons it failed. Most important being that I’ve never launched my own product before and didn’t fully understand what it took. Listening to Mike’s decision to move from AuditShark…” we have an episode called Moving On from AuditShark. It’s probably 150, 200 episodes ago. He said, “It’s given me the confidence to know this is the right decision. I felt his pain in the episode because it’s the same pain I’m going through now. I’ve decided to do this stair-step approach and practice learning simpler products like an e-book or audio course. Hopefully, this will both give me the confidence and an audience when I’m ready to launch another product. It still hurts and I still think what if all the time but I know I’m making the right decision. Love the show and congrats on 400.”
Thanks for writing in, Greg. It’s always good to hear from folks who experienced things. We talked about trying to help people avoid the same mistakes we’ve made. Sometimes you’re going to make the same mistakes we’ve made but maybe knowing that we made them, there’s some solidarity in knowing, “Oh, other people make them too,” and kind of we’ve all been there so. I think this thing will go away over time. Mike, from your perspective, you went through it, and now you’re in the middle of AuditShark building something that’s obviously starting to get some traction. What are your thoughts on this?
Mike: I’m not in the middle of audit shark anymore. What are you saying?
Rob: Freudian slip, that’s funny. What do you think?
Mike: Well, I definitely get how you can think what if all the time. I really don’t. AuditShark would not have been a good fit for me long-term. I didn’t realize that when I started out. I didn’t realize it ‘til I was probably very close to the end but it didn’t fit me as founder, and it wasn’t the type of business that I probably would have wanted to own long-term. I looked at it from more of a financial perspective of, “Oh I really want to be able to sell this and make a lot of money from it.” I enjoyed the problem space itself, but I did not enjoy trying to sell that type of a product versus Bluetick where I actually do it because I feel it’s legitimately helping people that need that help, and with AuditShark it was more about meeting the checkbox requirement for people, and nobody actually cared about it. It was just like, “Oh, our company says we have to do this so we’ll do it.”
Rob: Yup, that makes sense. I think early on you probably thought what if a bit, and then you moved past it. That’s the healing process of letting something like this go.
Mike: Yup, definitely.
Rob: Cool. Our next question/comment is a comment on episode 403, so go to startupsfortherestofus.com if you ever want to leave a comment, read all your comments. Doug said, “First of all where do you find the time to play D&D?” which I think is funny. From my perspective, I am trying to think, I got back into it, what is it, my kid is 12, and I think I taught him when he was maybe eight, and so it’s been about four years so yeah, Drip was going on. Frankly, we don’t play D&D very much. I mean, we do more now that I’m not working on Drop anymore, but when I was growing Drip, we would maybe play every few months. It really was not an on-going campaign thing, but it’s definitely gotten easier for me to carve out the time.
I think if we have a recurring campaign that was with other people, you just kind of find the time. If it’s every week or twice a month on a Thursday at seven, and you know that you’re going to let people down if you don’t show up, that would be something. The other thing for me is we keep our sessions short. They’re typically 60-90 minutes. They’re not these four-hour campaigns, and we enjoy it that way. How about you, Mike? How do you find the time?
Mike: I have two different ones. […] morning is with a friend of mine and our kids, kind of collectively, that we’ve run very sporadically. We might need once in a month or once every two or three months. That’s been going on for probably close to two years at this point. The other one that I just started up, I think we’ve had three sessions so far, but it’s every Tuesday night. We meet up at 7:30 PM. Two nights ago we’ve had a rather lengthy one. It went until 12:30 AM. It was almost 1:00 in the morning by the time I got home. It was 7:30 PM to 12:30 AM, that was kind of the ballpark thing.
We’re shooting for 2-3 hours, three hours is kind of the minimum that we want, and then after that, it’s kind of wherever is a decent stopping point. That session just happened to be longer. But I agree with you that having a set time of the day each week or every couple of weeks that you’re shooting for, that’s the best way to go just because you’re making a commitment to other people to be there and show up. I think that’s really helpful.
Rob: Here’s the thing, when I was doing startups on nights and weekends and had a day job, I didn’t play any of this. There were years where I didn’t go to happy hours with friends when they would go. I didn’t play any type of tabletop games because I work all day, and then I work all night. My kids were either not born yet, or they were really young, so they would go to sleep at seven, and then I would just work ‘till 1:00 in the morning, and I was tired, but that was the slog.
You and I both moved into the position. Once I’m working on it full-time during the day, and I’m putting the seven-nine hours a day of startup work, then in the evenings I actually like to not continue to do that, and so it depends on the phase you’re in. If you are still working nights and weekends, I would say don’t get involved, like don’t have a hobby. It’s crazy advice, but I really put all my hobbies on hold while I was getting that initial traction. It was definitely a couple of years, it was even more than that, actually. It was probably over the span of about five or six years, but it wasn’t constantly I would tackle a project, work on it for six months, and I wasn’t doing anything nights and weekends, and yeah, it sucked, but I had that goal. I wanted to get that financial freedom. I wanted to get out of my day job. It would crash and burn, and then I’d be all dejected and disappointed. I would go back to having a hobby for a while until I got motivated enough to do the next effort.
Mike: I find that setting aside the time is a nice distraction as well because it’s very easy to get stuck into the pattern of working on the same thing all day every day and let it bleed into other parts of your life which ultimately is probably not good for you. I think that they’re just making sure that there’s a set commitment that I have that is external to work in any way, shape or form. I find that that’s helpful.
Rob: I agree. I fully agree. I think of this podcast a little bit like that. Every week, no matter how bad things were, how hard they were, how stressed I was, you and I would have this one hour blocked off to sit and talk about this stuff, and that’s something that we’ve done for a long time. Even though it’s talking about work, in essence, it did help the days. I think you have to have some variety to them.
Doug has another question, he says, “Rob, you say wanting financial freedom was motivating. Is that another way of saying I hated my day job? How far can not liking the cubicle and office get you on a startup journey? Comfortable paycheck is the enemy of great startup ideas. I am proof of that.”
It’s an interesting question. In all honesty, I hear this from people time to time, and they’re like, “Well, my day job’s good enough. I’m kind of motivated to do. It sounds like it’s fun to do a startup.” In my opinion, if you’re not all in on it, you’re just not going to put in the time to do it. If it really is a major pain point, like for me, yes, I hated my day job. I hated all of the day jobs I did. Hate is a strong word, but I was never happy for very long. Maybe it was 12-18 months, and then it was like, “No, I have to move onto the next thing.”
The further I got along, not only would I burn out on a job within, let’s say, 12-24 months. But I also realized I wanted to make money more as a salaried or even as a contractor. I wanted mobility. I wanted to be able to travel, and not have to worry about being in one place or living in the same city or being concerned that I was going to get laid off, so I wanted the confidence that I was in control of my own destiny. Frankly, I did want more control of my time.
I hated having to be in an office at 8:30 AM or needing to be available at these hours, so I just wanted that. Especially as I got older, when I’ve gotten to my early 30s, I realized, “This was not going to work for me.” It was a real, true pain point in my life and I was willing to put it all on the table. I was willing to sacrifice nights and weekends for years to do this. If that’s not you and you don’t have the burning desire, that’s okay. I’ve some good friends who I envy because they’ve been happy.
Mien, a really good friend of mine in Sacramento, started the day job the same week back in 2000. He still works at that company. It’s 18 years later. He’s a developer, and he works at a consulting firm. I’ve had 20 jobs since then. I bounced to different jobs, different products if you count it all, maybe even more than that. We’re just cut from a different cloth. I would be so hopelessly unhappy and depressed if I had his life but I don’t judge him and say, “Oh you could do better if you’ve done startups.” because I don’t think he really had the desire. I don’t know if his personality is cut out for it. He really didn’t want the stress. He’s just more conventional than I am.
We each have different priorities, and we have different personalities. I think you really have to look in the mirror and ask yourself, “Am I willing to do what it takes?” because this startups stuff is not easy. I hope that’s something we’ve communicated in the past 405 episodes both through just talking about stuff theoretically and also the agony of episodes like moving on from AuditShark and the agony of some of the stuff that I’ve talked about here. That was a good rant for me. What do you think, Mike? You have other thoughts?
Mike: The summary of what you just said is like, it’s a personal decision for each person. I can relate to your friend out of Seattle. I was up in Rochester within the past couple of years, and one of the reasons I had left Wagman’s was there was a guy who’d recently got promoted to a position that I had wanted, not that I was going to get promoted to it, it’s just that it was one that I aspired to. He got promoted to it after being at the company for 18 years. I was like, “I’m not waiting 18 years to get promoted to that level.”
I ran into him a couple of years ago, and he’s still there working at the same company that he’s been at for 30 years. That would not have worked for me. I don’t have the personality to have been working in that business for that long and not transition around. I’m sure that he works on different things, but it would not be a good fit for me.
Rob: Thanks for the questions, Doug. I enjoyed them so much. I didn’t answer them on the blog. I wanted to talk about them on the show. Our final listener question for the day is from Ricardo Feliciano, and he says, “Hey Mike and Rob. I love the podcast. I find it very valuable. My question is, what is the best way to charge for an online and real-life community? The two best examples I’ve seen are Founder Cafe from the two of you and Nomad List, nomadlist.com. I ask because I’m starting a community for Marvel and DC fans called Comics and Coffee, that’s comicsncoffer.com. I don’t know if I should pay wallet or try to monetize it through merchandise. Perhaps through a premium program such as what Reddit does with Reddit Gold or Discord with Nitro. Thanks for your time. PS for comics and coffee background: We started up with a podcast, and we’re adding a form, and in-person meetups for movie nights soon.” What do you think?
Mike: I think if you’re going to have a community, there has to be some compelling reason for people to join and stick with their membership is, really what it comes down to. When you look at something like Nomad List, that’s aimed at people who are traveling around the world—and they’re probably constantly traveling—they’re more likely to become and remain a member for longer periods of time. Because even though they may be in Thailand for three months or six months or even a year or two, then they go over to Belarus or Spain or Africa or wherever, and then they’re going to need to be able to connect to other people either locally or online or potentially both, that’s one of those communities where it’s an ongoing thing, that they don’t just need the service once versus something like, trying to meet up with other people locally and those people are not moving around.
Everybody lives in the same community. For example, I live here in Massachusetts. If I wanted to get together with people and wanted to form a group or an organization or something like that, I might use meetup.com for that. The benefit of that is finding other people but if you’ve already got an established location, and a group of people that are coming, chances are good that they associate with other people outside of that who are also involved in comics. They’re going to invite their friends.
Now, the advantage of your platform or your community is that you are going to be able to attract more people to it and that’s the value proposition you have which is, “Hey, find other people and stick with a local community.” The problem is that once they have found your community and are coming to whatever meeting’s there are on a regular basis or semi-regular basis, what additional value are you offering? I’m not clear on what that would be.
With Founder Cafe, it’s a little different because everybody’s remote. Because it’s all remote like, if you join the community and then you leave, you no longer have access to it versus if it’s a local, in-person meet up and there’s a regular meeting every Tuesday at 7:00 o’clock, everybody comes at 7:00 and once you’ve found it, you kind of no longer need the platform anymore, so what value is it that you offer?
I think that’s what you need to focus in on in terms of trying to figure out how to monetize it. You might be able to pay wallet and have some sort of merchandise behind it, I’m not sure how would that go though. I don’t know is charging on ongoing basis is for would be terribly lucrative, I’ll say.
Rob: Yeah. B2B is easier than B2C. In this case, Founder Cafe or the Dynamite Circle or Nomad List, they tend to surround people who run businesses, who are making money through something, who the network they know can help them make more money, help them to have a more successful business whereas going to gamers, I mean gamers are notoriously cheap. They’ll spend money on games but trying to ask consumer to do a subscription tends to be a harder thing to do. I’m not saying that you shouldn’t do it but know that when I think about the $99 every quarter that we charge for Founder Cafe, most business owners see that and think, “Yeah, that’s not very much money compared to what I’m paying for all the other services I’m using.” But if you were to try to charge that in your case, it will be very hard.
Basically, no one would sign-up. I bet people would be like, “Are you kidding me? $33 a month to have access to this list?” You’re going to be more down in the, I’ll say, the Netflix zone where you’re probably looking at $5-$10 a month, I would think. I would probably either charge it quarterly or charge it annually. It’s such a small dollar amount. You don’t want to have these $5 charges all over the place. Maybe it’s $50 a year, $80 a year, $100 a year, somewhere in that range is what I initially think about.
I don’t think it’s a bad experiment. I mean depending on how many people you already have on the list, merch is fun, but merch is going to take time, the margins are low, and you really need a lot of people on your list in order to sell enough merch to get any type of revenue, you’re only getting, what’s the net margin on merch? Is it 10%, 20%? It’s going to be very small. I think that could be an interesting revenue stream to explore, but I would do that later. Having a premium membership, I think could be very interesting.
You could also consider doing a Patreon but again, you need quite a few people to do that, then you can have that insider’s group pretty easily, and all the mechanics are handled for it. People already know, it’s becoming pretty popular to hear this word Patreon and to know what that means. It’s not like reinvent the wheel and introduce everybody to, “Yeah, this premium membership,” blah blah blah. It’s just like, “Go to your Patreon account. You already potentially support some other podcast creators, support it, and if you support it at the $5 a month level,” and then Patreon handles all that for you—all the billing and all that—then you get this extra perk of getting this log in, or getting this episode earlier, getting these episodes that are only published on the Patreon feeds.”
Those are my initial thoughts on it. I love the idea of Chris. I’d love to do something like this, but it is going to be hard to pull the viable business out of it. You’re going to need a lot of people listening to you. B2C is the volume play. You need a lot more people selling something for $5 a month versus $50 or $100 a month.
Mike: The other thing that occurs to me is something like this seems similar to there’s a website called Roll20 which is mainly aimed at roleplaying games but obviously, there’s a lot of Dungeons and Dragons players on there, but playing various editions, and Pathfinder, and various other roleplaying games and they have a mechanism where they’re charging, I think it’s either $5 or $10 a month and it’s an annual fee.
I agree with Rob but I think going the annual route is probably the best way to go to get some of that initial revenue and then down the road, you could look at that and say, “Okay, now that I’ve got 500, 1000, or 10,000 who have paid that much money.” Again, with 1000 people paying $50 for a year, that’s $50,000, it’s not enough to support one person for the most part full-time.
One thing you could do is start offering like an escrow service for people who want to buy or sell comic books. Yes, you can do it on eBay, but then you have to deal with PayPal, and all these other stuff, for higher-end, and Rob maybe you could speak into this because I know you’re in the comic books but would you pay for an escrow service for something like a high-value comic book? Because we’ve talked about, in episode 403, about analyzing another type of business but I think part of that is looking at the type of customer that you want. People who are buying and selling extremely valuable comic books, they want to make sure that what they’re getting is good quality, and that they’re actually going to get it and not going to get ripped off. By offering an escrow service as an add-on later, that might be an option.
Rob: Yeah, I think that could get traction. I don’t know if that exists today, to be honest. I wish there was a text box, we could type search terms into, and it could potentially tell us if that exists today.
Mike: I know. That’d be fantastic.
Rob: It’s crazy. Anyway, enough daydreaming. But yeah, I think that’s a good point. Again, then do you have to build a large enough community that the small percentage who use whatever service offshoot making enough money to be viable. But I do think that’s a cool thought experiment or an interesting way to think about it. It’s a creative way to think about, I’ll say. I think adding offshoot businesses rather than just charging directly is another way you could potentially monetize it.
Mike: Thanks for the question, Ricardo. I think that about wraps us up for the day.
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.
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Episode 404 | How to Dissect Your Business Competitors
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to dissect your business competitors. Gaining insight can help with validating an ideas and understanding the landscape. The guys give you 8 ways to better understand your competitors.
Items mentioned in this episode:
Mike: In this episode of Startups for the Rest of Us, Rob and I talk about how to dissect your business competitors. This is Startups for the Rest of Us episode 404. Is this podcast not found?
Rob: What?
Mike: Is that what this episode is?
Rob: Why?
Mike: I don’t know. Because it’s episode 404. Come on! Give me the nerd joke.
Rob: Oh, sorry. I totally missed the prompt.
Mike: Come on man. Alright. Theme music.
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 just thinking about it. I’m Mike.
Rob: And I’m the guy that doesn’t know what 404 means.
Mike: And we’re here to share our experiences to help you avoid the same mistakes that we’ve made. How are you doing this week, Rob?
Rob: I’m doing pretty good, actually. Aside from missing that bump set that you just gave me at the top of the intro there, we have wrapped up our move. Sherry and I bought a house in Minneapolis, we decided to stick around for a few years. We’ve been renting for two years. Have I gone on my rant about how buying a home is like not a good financial decision? Have I done that?
Mike: You have not done that but I have seen various people say that.
Rob: Yeah. I won’t do that here. I’ll spare everyone, maybe in an after show at some point I’ll dig into that. But I realized that sometimes you make decisions that are not the best financial but you make it more for your life, your lifestyle, or your family, or really, we wanted more control of exactly where we lived. We wanted to live right around this lake in Minneapolis called Lake Calhoun. There are just very, very few rentals here, we have lived in one for two years. It was kind of a crappy house, it was fine but the landlord didn’t do much upkeep on it, I’ll put it that way.
Really, we just wanted more control. Also, didn’t want to ever be like, “Hey, we sold the house. You guys have to move in 30 days.” you know that type of thing because we know that would have happened at the worst possible time. It wouldn’t happen when I’m totally off and not working. It would happen right in the middle of me starting a new startup or something.
Anyway, it’s all I have to say, we bought a house, we’re just one block away from where we lived before. Got the keys on a Friday, packed or showed up on Sunday, moved or showed up on Monday.
Of all the moves we’ve done, it was by far the most seamless and least stressful. It really helped neither Sherri and I really worked very much last week, and so we’re almost unpacked. We’re also motivated by our packers. They gave us two prices; one was to pack into cardboard boxes where you have all the waste and you have to get rid of it or to pack in these plastic reusable tubs that they take back and you basically just rent it for the move. The fact that you only have them for a few weeks, it was just motivational like, get those things returned and get the whole house unpacked quickly.
Mike: That’s cool. I’ve always had to move myself. I haven’t moved in more than 10 years at this point. It’s been close to 13. I don’t look forward to ever moving again. It’s one of those things where—I know at some point we’ll probably have to—but I just don’t feel like it at the moment.
Rob: It’s not fun. It’s a short-term pain for what could be a long-term gain. In our case, now that we’re in this house that’s larger, closer to the lake, we like it more, it’s newer, just all of these things. It was totally worth it but yeah, coming up to it I was just filled with anxiety, “Oh, god. This is going to be such a terrible experience,” because so many of them have been in the past. We used to move ourselves. When Sherri got the job in Fresno, they paid to move us across the country, and then obviously, Leadpages, they offered for anybody on the Drip team to move here.
Now that we’ve done it a few times and paid someone to do it, it would be hard to go back especially we have three kids. There’s a lot of moving parts in it, I can imagine. Even packing our stuff at this point will take a couple of weeks. It’s not ideal. We could obviously do it if we need to, we’ve done it before, but it really does help to reduce the stress of the move knowing that in one day they’re going to come and it was three guys showed up and in seven hours they’ve packed our whole house. It’s crazy how fast they are.
Mike: Well, because they don’t care because none of the stuff is theirs. It’s easier for them to just throw out stuff in a box because they’re not like, “Oh, I’m going to reminisce about this for a few minutes or talk to so and so, have a conversation about it.” because you’re going to procrastinate to some extent because you don’t want to move because it sucks.
Rob: Totally.
Mike: They’re just going to go in, get the stuff done, get it taken cared of. They also don’t necessarily need to worry as much about like, “Oh, this item here, I want that in the new living room,” versus right now it’s in the dining room, they just throw it in a box.
Rob: Right, they just throw it in the box. To tell you the truth, the other things that made it really less stressful than it used to be—aside from the Minneapolis move—we were in Fresno for seven years, I believe. Something that’s different now is we got in this house and it’s like, “Oh, the doorbell doesn’t work. Well, I’m going to need to go get a doorbell. I need this halogen lamp that burned out in here and I’m certain it’s some specialty halogen lamp so I don’t have that. This towel rack is broken.” there’s just a bunch of stuff.
In general, the house is in great shape but there’s little things, those little things tend to bother me. I don’t have to drive all over town doing that. I jump on Amazon, I order it. I probably spent $300 in the last week on little knick-knacks and parts and things that used to be a 3-hour drive all around town to find all these things. Now, it shows up in 48 hours. It really kind of reduces the time commitment of this move because I’m able to add on an ongoing basis. Then, of course, I would have driven around, I would’ve found the halogen, come home, put it in, and the next day notice something else, so then I would’ve driven around again. It reduces the need to waste time which I think is good.
The other thing—and then I’ll stop talking about the move—is changing addresses is way easier than it used to be. Eight, ten years ago, I used to call everybody. I would have this huge list of our credit card companies and all the stuff, and I would call the 800 numbers, you wait on hold, you change the address. Now, I just went through LastPass and I looked through all of our accounts. We also have a list, there’s a few alumni associations or whatever that I don’t have accounts for but it was so much faster. It probably took me 90 minutes. I was able to do it without talking to anybody on the phone, I was listening to some music, and just hammering through different tabs in Chrome to be able to change them all. I don’t know, I think life’s a little better than it used to be.
Mike: Cool.
Rob: How about you? What’s going on?
Mike: Not a lot. Just kind of keeping track of the MicroConf Europe tickets, they’re going on sale. We’ve released those to FounderCafe members and then we went out to a second round for the previous attendees for MicroConf. I think by the time this episode goes live, the next round of tickets is just going to be available. This episode go live on Tuesday and then the following is when it will go out to the early bird list. If you’re interested in meeting up with us in Croatia and 120-150 other entrepreneurs, go over to microconfeurope.com, sign-up for the mailing list. As long as you do that on Tuesday before the email goes out on Wednesday, you should be able to get into that. We’ll send out the links and you’ll be good to go.
Rob: Sounds good. It’s going to be a good time. What are we talking about today?
Mike: Today, we’re going to be talking about how to dissect your business competitors. I’ve done this—I’ll say somewhat ad hoc—over the years where I’ve been talking to somebody and the conversation would come up about who their competitors are and how big they are and how well they’re doing.
There’s some several rules of thumb that I learned from the VP of Marketing at Pedestal Software back 12-15 years ago. He basically laid out, he’s like, “Oh, well, this is how I go about doing it.” so we just got to talking and he talked about revenue, how you look at the number of employees, and all these different things. I’ve kind of had these things in my head for a while. What I did was I’ve put them down into a list and walked thru how you can go through and analyze how big a competitor is, and how much, I’ll say, strength or resources they have to bring to bear on a particular problem in their space or to turn around and crush you.
If you’re looking at a market and you’re trying to figure out, should I even go in here or not? Is there a valid business here just knowing that there is another business in that space is a good data point but knowing the specifics and being able to drill into those, it’s good to know how it is that they make their money, and how you can do it as well. Because what you don’t want to do is you don’t want to go into a market and decide to do things in a completely different way without any justification. If something is already working well, especially if it’s an entrenched competitor, they’ve been there for a while, and the industry is already used to operating in that way, then you can come in and do kind of the same thing but you have to know what the lay of the land is, how things are currently working in order to be able to make it successful for yourself.
Rob: Why is it important to do this? What are the benefits that you get from learning all these information that we’re going to talk about a competitor?
Mike: This is a way to basically go partly through the validation process. If you already have a product for example, and you want to know like, “Are there other people in an adjacent market that I could serve?” Looking at one of your competitors who already serves that market would be a good way for you to decide whether or not you should go into that. If so, how you would position yourself in the market to them. Obviously, there is low-end, there’s mid-tier, and then there’s higher-end like enterprise level sales, there’s B2B, B2C—all these different things that you can talk about or look at in terms of the business—just knowing where all of the different pieces are is going to help you figure out where to position yourself. It’s partly about market validation but it’s also about being able to position yourself in the market and explain to people why it is that they should buy from you.
Rob: Yep, that makes a lot of sense. I also think it can help you perhaps know the […] economics or the profitability potential of the business. Because if you find out the revenue is $5 million and they have 10 employees, that’s probably a very, very profitable business and easy to run. You can think to yourself, “Oh, I can do it with only 10 employees.” or, “I should keep my headcount down if I’m going to be a similar business model.” Versus if they’re at $5 million and they have 100 or 200 employees it’s like, “It’s a very labor-intensive company. Do I even want to get into this business? Or, “Are they just hiring out ahead of growth?” and you can listen to that.
If they’ve raised funding, you know how much they raised, and you know they’re at x million in revenue and these many employees, you can back-of-the-napkin calculate their burn rate, and you can back-of-the-napkin calculate when they need to start raising another round or if they’re going to run out of funding or that kind of stuff. I think the more of these things that you learn—and we’re going to talk about revenue and target customer type and other things—it just helps you get that mental map of the landscape. You don’t just do this for one competitor, you do it for four or five of your closest competitors, and you put it all up on a whiteboard or in a doc and you start to get this understanding of the landscape and how they think about things. Let’s dive into the first one.
Mike: The first one is trying to figure out how much revenue they make. There’s a couple of back-of-the-envelope calculations you can do for this and it does depend greatly on the industry. For example, with a software type business, most of those types of businesses tend to make somewhere between $150,000 and $200,000, that’s kind of like the, I’ll say, the average range but there are certainly exceptions to that. If you look around, there are companies like Apple, and I think, Balsamiq and several others that have been public about what some of their numbers. But you can get up above $200,000 in revenue per full-time employee. You have to remember that’s revenue, not profit and that’s per full-time employee.
Usually, you can do a back-of-the-envelope calculation to figure out how much money a business is making based on the number of employees they have. If it’s a software company, they probably make somewhere between $150,000 and $200,000 per employee. You say, “Okay, well, just quick math on that, $1.5 to $2 million.” That’s not exact, obviously. There’s a range there and it could also be much lower. They could be making $100,000 per employee or they could be making $250,000 or $300,000 per employee. That also depends a lot on whether or not they’re funded. We’ll talk about some of those things but just a raw calculation, that gets you in the ballpark but, it’s by no means, exact. You have to make sure you bear that in mind. It is not exact at all.
In terms of the industry, it can vary greatly from there. I have a friend who’s in the oil industry and we got to talking about this exact same topic. I kind of gave him that ballpark estimate and he’s like, “You’re off by a factor of 10.” I was like, “Well, why is that?” He’s like, “Because in the oil industry, we sell based on margins and we have to sell a lot more. Our margins are much lower. Basically, you have to multiply by 10 in order to get the revenue.” and then their profit is basically what they support their employees on. It was 9x off.
Rob: Right. Because their profit margins are so slim that they have to make a way more revenue. That’s the thing, we should probably stick to online businesses when talking about this, bringing up the oil example is fine but we should clarify that we’re really talking about startups. Even physical e-commerce is tough because I know someone who runs a $2 million or $3 million e-commerce business but the net margin on that is 10-15%. You can imagine, they couldn’t support 30 employees on that because you just don’t make enough. I think we’re talking more about software companies.
Mike: Yep, I agree. I brought up the oil example just to point out that when you get into physical goods, like with software, your profit margins tend to be 90% or upwards of 90% but with something like selling oil, for example, you sell oil at $2 per gallon, your actual profit on that is only ¢10 or ¢20. That ¢10 or ¢20 is what comes back into your business and you can use that to support your employees. That’s why my back-of-the-envelope calculation was so far off by a magnitude of 10 when I was talking to that guy who’s an executive in the oil company.
Just keep in mind, physical production costs really eat into that, and your revenue will be substantially higher or their revenue will be substantially higher because of that but it doesn’t necessarily translate to profit and […].
Rob: Yeah. This is the formula, the 100k-200k per employee that I use in my head just when I ballpark things. As you said, there can be outliers. You can have some startups will be five people and they’re doing $5 million or $10 million, and they’re super profitable. Then others that have raised funding are the exact opposite. They’re doing 200k in ARR–Annual Recurring Revenue and they have 20 employees because they’ve staffed up. It can be skewed but this is for a—when I think of it—it’s like a bootstrapped and profitable or even funded but kind of well-run and capital efficient company, I think this is a reasonable number. If someone is growing really fast, this number can get skewed in one direction or another. As you said in the outline here, you have early-stage or pre-employees where it’s just founders, it’s pretty much guesswork. Unless, you hear them comment in a podcast, or in a blog post, or they posted it live on Baremetrics or something, it’s just pure guesswork at that point.
Mike: The second thing to look at is their target customer type. To do this, you can look at their pricing and specifically who they are targeting. By who they are targeting, there’s two different classifications. Generally, it’s either B2B or B2C, and within B2B, there’s several different levels; there’s the high-end enterprise, there’s the small-medium business market, and then there’s the professionals, so freelancers, various small agencies, or partnerships–things like that. I would throw prosumers in there as well. Those are people who are professional freelancers but maybe they do it on the side or it’s something that they are interested in but they don’t necessarily gain their full time living from it.
Then B2C, it’s something like a mass market where you’re trying to sell one of every single thing to every person on the planet. Then there’s well-off individuals or trying to sell the families or pro-hobbyists sort of prosumers. Those are the two general classifications; B2B and B2C and then within each of those you have to also be aware of what type of customer they’re selling to. That’s mostly a function of price but again, it depends on what it is they’re selling, whether it’s a software, or digital asset, or a physical product.
Rob: I think pricing is a big indicator here and then just with their marketing–look at their headlines, look at their copy, look at their colors and their design. I was thinking, what’s a mobile phone company that really caters to the youth these days? They’re going to have a different logo. Is Boost Mobile still around or am I totally dating myself?
Mike: I don’t know. I don’t think so. I think they’re part of, I don’t know, the one with the purple logo.
Rob: Yeah, exactly. This is great radio here. Sorry folks. Some brand like that that’s targeting kids in college is going to have a very different language and very different logo than salesforce.com–that’s B2B enterprise, all that stuff. You can get a feel from that if they’re positioning themselves well and then price, of course, is a big deal.
When I was first trying to figure out pricing for Drip and I was really agonizing over it. I went out to all the competitors that I knew about and I put it all in a single doc of what everyone’s pricing was. All the grids and I was just trying to analyze it. It really helped me get a feel for where we should land that as a new startup that’s launching. Of course, pricing is tough, it’s always a lot of guesswork but it gave me a really clear picture of again, the landscape.
What was interesting is that I returned back to that doc every six months or so, and so many of the prices were just dramatically different. The people had different tier levels, some had raised prices, some had lowered prices, some had raised them on the low-end, lowered them on a high-end. It was really interesting to watch that over time. I updated it a few times and did a snapshot over time but it is fascinating if you watch competitors and make it, every 60 days or every 3 or 4 months, go into this group and whether you have a VA do it or do it yourself, then just take another snapshot of their pricing and you can watch how stuff shifts over time in a space.
Mike: The next thing to look at is what their sales and acquisition channels are. There’s a few different categories. Obviously, there’s online which includes either website, their content marketing, advertising, email list, etc, and then there’s offline channels which are much, much more difficult to find and analyze the effectiveness of. The things like trade shows, physical mailings, relationships and partnerships that they’re leveraging, if they have a brick and mortar store, there’s obviously heavy infrastructure cost and logistical cost of just getting products to those.
Again, we’re probably going to lean away from the physical product side of things but you can imagine that with offline channel such as a trade show, how do you know how many customers they’re getting in contact with, or what their cost to acquire those customers. You can guess based on what it costs to attend the trade show. You could go to some of them, like a competitor, let’s say they go to trade show x and you go to trade show x and say, “Hey, can I see your sponsorship rate card?” You look through that, figure out what sponsorship level they went in on and then figure out how many people they probably sent. If you are at the trade show then it makes obviously, that easier because you can just go up to those people and ask them questions. But you can get a sense of what their marketing budget is like based on some of the different things that they do.
Obviously, trade shows are easier to calculate but if they’re doing physical mailings, it’s really hard to get any insight there because you don’t know how they’re getting their list, what they’re paying for it, or the effectiveness of it. All that stuff is going to be, very much siloed inside their company. It’s going to be much harder for you to figure out, not just how much money they’re spending on it, but whether or not it’s effective.
Rob: You know, one way to also get an idea is to use an online tool to look at your competitors’ keywords that they rank for, to look at ads they’ve run or are running. There are tools like Spyfu and ahrefs.com which you can type in a competitor website and it’ll give you a good idea of what they rank for, and what the terms are, and how much traffic potentially. It’s all estimates but it gives you some idea.
Then, just to get an idea of their top-level traffic like, “How many uniques do we think they get?” I used to go to compete.com but that shut down and so now, I’ve really been using rank2traffic.com. There is another one—I can’t think off the top of my head—but what I did is I searched for compete.com competitors or replacements and there’s actually a Quora thread where folks named a bunch of them and I tried 10 of them, and Rank2Traffic and another one was I felt like had at least the best guesses.
Again, these can be off by a factor of two or three in either direction. It is a bummer but at least it gives you some idea. Sometimes you’ll put in a competitor and it’ll just say, “Not enough traffic to list here.” It’s like, “Oh, they’re probably getting less than 5000 uniques.” That’s not a major channel for them most likely.
Mike: The next thing to look at is the type of products they’re offering. We’re going to neglect the physical product side of the equation and focus on digital products. But even within digital products, you’ve got things like software, you’ve got courses, all sorts of things that fall under that digital category. There’s going to be support costs differences for them, and engineering, and research and development costs that are radically different.
If you have a course, for example, the support cost on that is way, way less than they are for a software product. Just because with software products, you have to train and educate people versus a course that is the whole goal of it.
In addition with most software products, you’re going to have to offer some sort of ongoing support. If it’s a SaaS application, that is a monthly ongoing support that you’re offering but with training courses, if there’s a bug or a problem in it, you typically fix it and roll out the new version to everybody and that’s it. You don’t have to continually update it–at least in terms of fixing things inside that. It doesn’t mean you can’t offer a new version of it or an updated version for 2018 versus 2016 but the length of the time that you’re going to be spending doing support and offering any sort of warranties or bug fixes or anything like that is dramatically lower for a course than it is for a SaaS product.
Rob: Another thing that you can look at is the length of time they’ve been in business. Older businesses do tend to be more stable without massive revenue fluctuations, they also tend to be in the software space slower. They’re slower to release features. There’s a lot of opportunity when competing against older businesses that have gotten kind of big and bloated.
Newer businesses can obviously have a lot more revenue swings or faster revenue growth in terms of percentage wise, but they can be harder competitors for you to compete against because a lot of times, if you’re just a team of one, two, three people, your advantage is that you can move quickly and you can take refugees from those older, larger companies. I think there’s a lot of opportunity. It was the playbook of Drip–that we were the young upstart, and we were smaller but we were shipping features so much faster than a lot of our competitors. It was kind of easy pickings against companies that had been around for 10 years and had a bunch of legacy.
That’s the thing with oil companies, or paper manufacturing–kind of typical brick and mortar businesses. If you’re 50 years old or 100 years old, you have a brand name, you can be entrenched in a space but if you’re a software company that’s 10 or 15 years old, you are very likely to have a ton of legacy code, and your software is very likely to not be as good as software that was built today. It is this kind of inverse thing where, older companies will have a lot of revenue, and they have a lot of momentum and they’ll have a lot of brand, there tends to be a pretty good factor to get in there as an upstart and make some traction.
Mike: Just to kind of tackle on or clarify a little bit of what Rob is saying because I don’t want people to misunderstand him based on exactly what he said. But when he said that the new businesses tend to have a better code, it’s not like the ones and zeroes are any better, it’s really just that they have basically, honed in on exactly what it is the customer wants in terms of the minimum stuff that needs to be built versus the businesses that have been around for a long time.
It’s just so much harder for them to make a change even if it would be better for their customers because they have to take into consideration the existing customer base. If they make a large change to the frontend of their product and they suddenly alienate 30,000 customers, it’s really bad for them. That’s just going to make massive problems for them and support headaches. They’re going to choose to not make those changes even though they could and they have the resources to.
Rob: Yeah, that’s right. There’s legacy customer stuff. That’s what you’re talking about if you can’t make a change, and then there’s legacy code stuff. When I think of how much better software development practices have gotten over the past 15 years with extensive unit testing, the frontend integration testing, and the agile development methodologies–the software I was writing and working on 15 years ago was harder to maintain. Maybe that’s not across the board and maybe that’s not for everyone, but that software, we could not ship features nearly as fast because the software didn’t have unit tests and it was more crafty–it was all these things. These days I believe the practices, they’ve gotten better. I think software these days is easier to work on assuming that you have knowledgeable people who are using the right engineering practices and aren’t just hackers throwing stuff at the wall on a weekend or something.
Mike: The next thing you look at is the company leadership and how that is structured. If they’re self-funded, the founders tend to be in those company leadership positions. If it’s angel or VC funded, the founders may be there still in the executive capacity or they may have put into more of a director role and they brought in professional CTOs or CEOs, for example. It depends on how far along they are.
If it’s a established business that’s been around for 10, 15, 20 years then who knows what that looks like but it also gives you an indication of what things are going to change in the future. They just brought in a new CEO or they just got a round of funding, for example, that dramatically changes what the future vision for the company is going to look like.
Those are just, again, just data points that you can look at but it helps you to understand how quickly is this company going to change direction and are they likely to change direction? If the company’s been doing their business exactly the same way for the past five years, chances are good they’re probably going to do that for at least the next year or two but there’s no guarantee.
Rob: You can go to Crunchbase for this. You can signup for Google alerts on the company names. I think that’s a good idea anyways. One thing I’ll caution as we’re talking through this is, I have been in environments where people were way too fixated on what are competitors are doing. “Oh, they just shipped this thing. Oh, they just raised this round of funding.” I was like, “This stuff is good to know but this is not make or break. You should be focusing way more on your customers than on your competitors.” With that said, everything we’re talking about here is still good to know, to have an idea of the landscape, and to revisit it every—I would say in a startup environment—probably every month to three months if you’re in the early stage. But this is not something that everyday you should just be thinking about and trying to look and watch competitors and watch what they do because it just matters so much less. Unless you’re in a neck and neck race with your competitor, it’s just not a good thing to be overly fixated on what other people are doing.
I think another thing to look at is red flags or exceptions. These indicate potential problems or major changes that could be good or bad that a competitor is doing. If you hear about layoffs they’re doing, if there’s a quick change of leadership where the CEO was perhaps, asked to leave–anytime there’s a change of leadership you always wonder what happened; if they raised funding recently, they have new product announcements, all kinds of stuff. This is where you can again, monitor the email list, there’s people talking about any industry. If you’re in marketing automation and then there’s three or four people who are kind of the industry experts that you can be on their list or you can like I said, subscribe to Crunchbase updates or do Google alerts just to hear about what your competitors are up to.
Mike: The last thing you can look at to dissect your business competitors is to pose as a customer and try and find out how they treat their customers. There’s obviously some ethical questions that you have to answer for yourself here in terms of how far you’re going to go. Obviously, you can sign-up for a competitor’s products, you could just get on their mailing list, you could call or email their support and directly ask questions.
Posing as a customer gets a little dicey of course in terms of ethics and how far you want to go with that but each person has their own, I’ll say, line in the sand for that. Personally, I don’t think that I would go too far with that. I might look at their email list. What I don’t know is I would sign-up for a trial if I wasn’t actually interested in it though. But all of these gives you an idea of how they treat their customers and whether or not there are ways that you can position yourself to customers that are unhappy with their product or their service in order to make yourself more attractive to those customers that are leaving.
Rob: To recap, we had eight way to dissect your business competitors.the first was, look at their revenue. Second was target customer type. Third was sales and acquisition channels. Fourth was software versus courses. Fifth was length of time in business. Next was company leadership, then red flags and exceptions. Eight one was posing as a customer.
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Rob: What?
Mike: Is that what this episode is?
Rob: Why?
Mike: I don’t know. Because it’s episode 404. Come on! Give me the nerd joke.
Rob: Oh, sorry. I totally missed the prompt.
Mike: Come on man. Alright. Theme music.
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 just thinking about it. I’m Mike.
Rob: And I’m the guy that doesn’t know what 404 means.
Mike: And we’re here to share our experiences to help you avoid the same mistakes that we’ve made. How are you doing this week, Rob?
Rob: I’m doing pretty good, actually. Aside from missing that bump set that you just gave me at the top of the intro there, we have wrapped up our move. Sherry and I bought a house in Minneapolis, we decided to stick around for a few years. We’ve been renting for two years. Have I gone on my rant about how buying a home is like not a good financial decision? Have I done that?
Mike: You have not done that but I have seen various people say that.
Rob: Yeah. I won’t do that here. I’ll spare everyone, maybe in an after show at some point I’ll dig into that. But I realized that sometimes you make decisions that are not the best financial but you make it more for your life, your lifestyle, or your family, or really, we wanted more control of exactly where we lived. We wanted to live right around this lake in Minneapolis called Lake Calhoun. There are just very, very few rentals here, we have lived in one for two years. It was kind of a crappy house, it was fine but the landlord didn’t do much upkeep on it, I’ll put it that way.
Really, we just wanted more control. Also, didn’t want to ever be like, “Hey, we sold the house. You guys have to move in 30 days.” you know that type of thing because we know that would have happened at the worst possible time. It wouldn’t happen when I’m totally off and not working. It would happen right in the middle of me starting a new startup or something.
Anyway, it’s all I have to say, we bought a house, we’re just one block away from where we lived before. Got the keys on a Friday, packed or showed up on Sunday, moved or showed up on Monday.
Of all the moves we’ve done, it was by far the most seamless and least stressful. It really helped neither Sherri and I really worked very much last week, and so we’re almost unpacked. We’re also motivated by our packers. They gave us two prices; one was to pack into cardboard boxes where you have all the waste and you have to get rid of it or to pack in these plastic reusable tubs that they take back and you basically just rent it for the move. The fact that you only have them for a few weeks, it was just motivational like, get those things returned and get the whole house unpacked quickly.
Mike: That’s cool. I’ve always had to move myself. I haven’t moved in more than 10 years at this point. It’s been close to 13. I don’t look forward to ever moving again. It’s one of those things where—I know at some point we’ll probably have to—but I just don’t feel like it at the moment.
Rob: It’s not fun. It’s a short-term pain for what could be a long-term gain. In our case, now that we’re in this house that’s larger, closer to the lake, we like it more, it’s newer, just all of these things. It was totally worth it but yeah, coming up to it I was just filled with anxiety, “Oh, god. This is going to be such a terrible experience,” because so many of them have been in the past. We used to move ourselves. When Sherri got the job in Fresno, they paid to move us across the country, and then obviously, Leadpages, they offered for anybody on the Drip team to move here.
Now that we’ve done it a few times and paid someone to do it, it would be hard to go back especially we have three kids. There’s a lot of moving parts in it, I can imagine. Even packing our stuff at this point will take a couple of weeks. It’s not ideal. We could obviously do it if we need to, we’ve done it before, but it really does help to reduce the stress of the move knowing that in one day they’re going to come and it was three guys showed up and in seven hours they’ve packed our whole house. It’s crazy how fast they are.
Mike: Well, because they don’t care because none of the stuff is theirs. It’s easier for them to just throw out stuff in a box because they’re not like, “Oh, I’m going to reminisce about this for a few minutes or talk to so and so, have a conversation about it.” because you’re going to procrastinate to some extent because you don’t want to move because it sucks.
Rob: Totally.
Mike: They’re just going to go in, get the stuff done, get it taken cared of. They also don’t necessarily need to worry as much about like, “Oh, this item here, I want that in the new living room,” versus right now it’s in the dining room, they just throw it in a box.
Rob: Right, they just throw it in the box. To tell you the truth, the other things that made it really less stressful than it used to be—aside from the Minneapolis move—we were in Fresno for seven years, I believe. Something that’s different now is we got in this house and it’s like, “Oh, the doorbell doesn’t work. Well, I’m going to need to go get a doorbell. I need this halogen lamp that burned out in here and I’m certain it’s some specialty halogen lamp so I don’t have that. This towel rack is broken.” there’s just a bunch of stuff.
In general, the house is in great shape but there’s little things, those little things tend to bother me. I don’t have to drive all over town doing that. I jump on Amazon, I order it. I probably spent $300 in the last week on little knick-knacks and parts and things that used to be a 3-hour drive all around town to find all these things. Now, it shows up in 48 hours. It really kind of reduces the time commitment of this move because I’m able to add on an ongoing basis. Then, of course, I would have driven around, I would’ve found the halogen, come home, put it in, and the next day notice something else, so then I would’ve driven around again. It reduces the need to waste time which I think is good.
The other thing—and then I’ll stop talking about the move—is changing addresses is way easier than it used to be. Eight, ten years ago, I used to call everybody. I would have this huge list of our credit card companies and all the stuff, and I would call the 800 numbers, you wait on hold, you change the address. Now, I just went through LastPass and I looked through all of our accounts. We also have a list, there’s a few alumni associations or whatever that I don’t have accounts for but it was so much faster. It probably took me 90 minutes. I was able to do it without talking to anybody on the phone, I was listening to some music, and just hammering through different tabs in Chrome to be able to change them all. I don’t know, I think life’s a little better than it used to be.
Mike: Cool.
Rob: How about you? What’s going on?
Mike: Not a lot. Just kind of keeping track of the MicroConf Europe tickets, they’re going on sale. We’ve released those to FounderCafe members and then we went out to a second round for the previous attendees for MicroConf. I think by the time this episode goes live, the next round of tickets is just going to be available. This episode go live on Tuesday and then the following is when it will go out to the early bird list. If you’re interested in meeting up with us in Croatia and 120-150 other entrepreneurs, go over to microconfeurope.com, sign-up for the mailing list. As long as you do that on Tuesday before the email goes out on Wednesday, you should be able to get into that. We’ll send out the links and you’ll be good to go.
Rob: Sounds good. It’s going to be a good time. What are we talking about today?
Mike: Today, we’re going to be talking about how to dissect your business competitors. I’ve done this—I’ll say somewhat ad hoc—over the years where I’ve been talking to somebody and the conversation would come up about who their competitors are and how big they are and how well they’re doing.
There’s some several rules of thumb that I learned from the VP of Marketing at Pedestal Software back 12-15 years ago. He basically laid out, he’s like, “Oh, well, this is how I go about doing it.” so we just got to talking and he talked about revenue, how you look at the number of employees, and all these different things. I’ve kind of had these things in my head for a while. What I did was I’ve put them down into a list and walked thru how you can go through and analyze how big a competitor is, and how much, I’ll say, strength or resources they have to bring to bear on a particular problem in their space or to turn around and crush you.
If you’re looking at a market and you’re trying to figure out, should I even go in here or not? Is there a valid business here just knowing that there is another business in that space is a good data point but knowing the specifics and being able to drill into those, it’s good to know how it is that they make their money, and how you can do it as well. Because what you don’t want to do is you don’t want to go into a market and decide to do things in a completely different way without any justification. If something is already working well, especially if it’s an entrenched competitor, they’ve been there for a while, and the industry is already used to operating in that way, then you can come in and do kind of the same thing but you have to know what the lay of the land is, how things are currently working in order to be able to make it successful for yourself.
Rob: Why is it important to do this? What are the benefits that you get from learning all these information that we’re going to talk about a competitor?
Mike: This is a way to basically go partly through the validation process. If you already have a product for example, and you want to know like, “Are there other people in an adjacent market that I could serve?” Looking at one of your competitors who already serves that market would be a good way for you to decide whether or not you should go into that. If so, how you would position yourself in the market to them. Obviously, there is low-end, there’s mid-tier, and then there’s higher-end like enterprise level sales, there’s B2B, B2C—all these different things that you can talk about or look at in terms of the business—just knowing where all of the different pieces are is going to help you figure out where to position yourself. It’s partly about market validation but it’s also about being able to position yourself in the market and explain to people why it is that they should buy from you.
Rob: Yep, that makes a lot of sense. I also think it can help you perhaps know the […] economics or the profitability potential of the business. Because if you find out the revenue is $5 million and they have 10 employees, that’s probably a very, very profitable business and easy to run. You can think to yourself, “Oh, I can do it with only 10 employees.” or, “I should keep my headcount down if I’m going to be a similar business model.” Versus if they’re at $5 million and they have 100 or 200 employees it’s like, “It’s a very labor-intensive company. Do I even want to get into this business? Or, “Are they just hiring out ahead of growth?” and you can listen to that.
If they’ve raised funding, you know how much they raised, and you know they’re at x million in revenue and these many employees, you can back-of-the-napkin calculate their burn rate, and you can back-of-the-napkin calculate when they need to start raising another round or if they’re going to run out of funding or that kind of stuff. I think the more of these things that you learn—and we’re going to talk about revenue and target customer type and other things—it just helps you get that mental map of the landscape. You don’t just do this for one competitor, you do it for four or five of your closest competitors, and you put it all up on a whiteboard or in a doc and you start to get this understanding of the landscape and how they think about things. Let’s dive into the first one.
Mike: The first one is trying to figure out how much revenue they make. There’s a couple of back-of-the-envelope calculations you can do for this and it does depend greatly on the industry. For example, with a software type business, most of those types of businesses tend to make somewhere between $150,000 and $200,000, that’s kind of like the, I’ll say, the average range but there are certainly exceptions to that. If you look around, there are companies like Apple, and I think, Balsamiq and several others that have been public about what some of their numbers. But you can get up above $200,000 in revenue per full-time employee. You have to remember that’s revenue, not profit and that’s per full-time employee.
Usually, you can do a back-of-the-envelope calculation to figure out how much money a business is making based on the number of employees they have. If it’s a software company, they probably make somewhere between $150,000 and $200,000 per employee. You say, “Okay, well, just quick math on that, $1.5 to $2 million.” That’s not exact, obviously. There’s a range there and it could also be much lower. They could be making $100,000 per employee or they could be making $250,000 or $300,000 per employee. That also depends a lot on whether or not they’re funded. We’ll talk about some of those things but just a raw calculation, that gets you in the ballpark but, it’s by no means, exact. You have to make sure you bear that in mind. It is not exact at all.
In terms of the industry, it can vary greatly from there. I have a friend who’s in the oil industry and we got to talking about this exact same topic. I kind of gave him that ballpark estimate and he’s like, “You’re off by a factor of 10.” I was like, “Well, why is that?” He’s like, “Because in the oil industry, we sell based on margins and we have to sell a lot more. Our margins are much lower. Basically, you have to multiply by 10 in order to get the revenue.” and then their profit is basically what they support their employees on. It was 9x off.
Rob: Right. Because their profit margins are so slim that they have to make a way more revenue. That’s the thing, we should probably stick to online businesses when talking about this, bringing up the oil example is fine but we should clarify that we’re really talking about startups. Even physical e-commerce is tough because I know someone who runs a $2 million or $3 million e-commerce business but the net margin on that is 10-15%. You can imagine, they couldn’t support 30 employees on that because you just don’t make enough. I think we’re talking more about software companies.
Mike: Yep, I agree. I brought up the oil example just to point out that when you get into physical goods, like with software, your profit margins tend to be 90% or upwards of 90% but with something like selling oil, for example, you sell oil at $2 per gallon, your actual profit on that is only ¢10 or ¢20. That ¢10 or ¢20 is what comes back into your business and you can use that to support your employees. That’s why my back-of-the-envelope calculation was so far off by a magnitude of 10 when I was talking to that guy who’s an executive in the oil company.
Just keep in mind, physical production costs really eat into that, and your revenue will be substantially higher or their revenue will be substantially higher because of that but it doesn’t necessarily translate to profit and […].
Rob: Yeah. This is the formula, the 100k-200k per employee that I use in my head just when I ballpark things. As you said, there can be outliers. You can have some startups will be five people and they’re doing $5 million or $10 million, and they’re super profitable. Then others that have raised funding are the exact opposite. They’re doing 200k in ARR–Annual Recurring Revenue and they have 20 employees because they’ve staffed up. It can be skewed but this is for a—when I think of it—it’s like a bootstrapped and profitable or even funded but kind of well-run and capital efficient company, I think this is a reasonable number. If someone is growing really fast, this number can get skewed in one direction or another. As you said in the outline here, you have early-stage or pre-employees where it’s just founders, it’s pretty much guesswork. Unless, you hear them comment in a podcast, or in a blog post, or they posted it live on Baremetrics or something, it’s just pure guesswork at that point.
Mike: The second thing to look at is their target customer type. To do this, you can look at their pricing and specifically who they are targeting. By who they are targeting, there’s two different classifications. Generally, it’s either B2B or B2C, and within B2B, there’s several different levels; there’s the high-end enterprise, there’s the small-medium business market, and then there’s the professionals, so freelancers, various small agencies, or partnerships–things like that. I would throw prosumers in there as well. Those are people who are professional freelancers but maybe they do it on the side or it’s something that they are interested in but they don’t necessarily gain their full time living from it.
Then B2C, it’s something like a mass market where you’re trying to sell one of every single thing to every person on the planet. Then there’s well-off individuals or trying to sell the families or pro-hobbyists sort of prosumers. Those are the two general classifications; B2B and B2C and then within each of those you have to also be aware of what type of customer they’re selling to. That’s mostly a function of price but again, it depends on what it is they’re selling, whether it’s a software, or digital asset, or a physical product.
Rob: I think pricing is a big indicator here and then just with their marketing–look at their headlines, look at their copy, look at their colors and their design. I was thinking, what’s a mobile phone company that really caters to the youth these days? They’re going to have a different logo. Is Boost Mobile still around or am I totally dating myself?
Mike: I don’t know. I don’t think so. I think they’re part of, I don’t know, the one with the purple logo.
Rob: Yeah, exactly. This is great radio here. Sorry folks. Some brand like that that’s targeting kids in college is going to have a very different language and very different logo than salesforce.com–that’s B2B enterprise, all that stuff. You can get a feel from that if they’re positioning themselves well and then price, of course, is a big deal.
When I was first trying to figure out pricing for Drip and I was really agonizing over it. I went out to all the competitors that I knew about and I put it all in a single doc of what everyone’s pricing was. All the grids and I was just trying to analyze it. It really helped me get a feel for where we should land that as a new startup that’s launching. Of course, pricing is tough, it’s always a lot of guesswork but it gave me a really clear picture of again, the landscape.
What was interesting is that I returned back to that doc every six months or so, and so many of the prices were just dramatically different. The people had different tier levels, some had raised prices, some had lowered prices, some had raised them on the low-end, lowered them on a high-end. It was really interesting to watch that over time. I updated it a few times and did a snapshot over time but it is fascinating if you watch competitors and make it, every 60 days or every 3 or 4 months, go into this group and whether you have a VA do it or do it yourself, then just take another snapshot of their pricing and you can watch how stuff shifts over time in a space.
Mike: The next thing to look at is what their sales and acquisition channels are. There’s a few different categories. Obviously, there’s online which includes either website, their content marketing, advertising, email list, etc, and then there’s offline channels which are much, much more difficult to find and analyze the effectiveness of. The things like trade shows, physical mailings, relationships and partnerships that they’re leveraging, if they have a brick and mortar store, there’s obviously heavy infrastructure cost and logistical cost of just getting products to those.
Again, we’re probably going to lean away from the physical product side of things but you can imagine that with offline channel such as a trade show, how do you know how many customers they’re getting in contact with, or what their cost to acquire those customers. You can guess based on what it costs to attend the trade show. You could go to some of them, like a competitor, let’s say they go to trade show x and you go to trade show x and say, “Hey, can I see your sponsorship rate card?” You look through that, figure out what sponsorship level they went in on and then figure out how many people they probably sent. If you are at the trade show then it makes obviously, that easier because you can just go up to those people and ask them questions. But you can get a sense of what their marketing budget is like based on some of the different things that they do.
Obviously, trade shows are easier to calculate but if they’re doing physical mailings, it’s really hard to get any insight there because you don’t know how they’re getting their list, what they’re paying for it, or the effectiveness of it. All that stuff is going to be, very much siloed inside their company. It’s going to be much harder for you to figure out, not just how much money they’re spending on it, but whether or not it’s effective.
Rob: You know, one way to also get an idea is to use an online tool to look at your competitors’ keywords that they rank for, to look at ads they’ve run or are running. There are tools like Spyfu and ahrefs.com which you can type in a competitor website and it’ll give you a good idea of what they rank for, and what the terms are, and how much traffic potentially. It’s all estimates but it gives you some idea.
Then, just to get an idea of their top-level traffic like, “How many uniques do we think they get?” I used to go to compete.com but that shut down and so now, I’ve really been using rank2traffic.com. There is another one—I can’t think off the top of my head—but what I did is I searched for compete.com competitors or replacements and there’s actually a Quora thread where folks named a bunch of them and I tried 10 of them, and Rank2Traffic and another one was I felt like had at least the best guesses.
Again, these can be off by a factor of two or three in either direction. It is a bummer but at least it gives you some idea. Sometimes you’ll put in a competitor and it’ll just say, “Not enough traffic to list here.” It’s like, “Oh, they’re probably getting less than 5000 uniques.” That’s not a major channel for them most likely.
Mike: The next thing to look at is the type of products they’re offering. We’re going to neglect the physical product side of the equation and focus on digital products. But even within digital products, you’ve got things like software, you’ve got courses, all sorts of things that fall under that digital category. There’s going to be support costs differences for them, and engineering, and research and development costs that are radically different.
If you have a course, for example, the support cost on that is way, way less than they are for a software product. Just because with software products, you have to train and educate people versus a course that is the whole goal of it.
In addition with most software products, you’re going to have to offer some sort of ongoing support. If it’s a SaaS application, that is a monthly ongoing support that you’re offering but with training courses, if there’s a bug or a problem in it, you typically fix it and roll out the new version to everybody and that’s it. You don’t have to continually update it–at least in terms of fixing things inside that. It doesn’t mean you can’t offer a new version of it or an updated version for 2018 versus 2016 but the length of the time that you’re going to be spending doing support and offering any sort of warranties or bug fixes or anything like that is dramatically lower for a course than it is for a SaaS product.
Rob: Another thing that you can look at is the length of time they’ve been in business. Older businesses do tend to be more stable without massive revenue fluctuations, they also tend to be in the software space slower. They’re slower to release features. There’s a lot of opportunity when competing against older businesses that have gotten kind of big and bloated.
Newer businesses can obviously have a lot more revenue swings or faster revenue growth in terms of percentage wise, but they can be harder competitors for you to compete against because a lot of times, if you’re just a team of one, two, three people, your advantage is that you can move quickly and you can take refugees from those older, larger companies. I think there’s a lot of opportunity. It was the playbook of Drip–that we were the young upstart, and we were smaller but we were shipping features so much faster than a lot of our competitors. It was kind of easy pickings against companies that had been around for 10 years and had a bunch of legacy.
That’s the thing with oil companies, or paper manufacturing–kind of typical brick and mortar businesses. If you’re 50 years old or 100 years old, you have a brand name, you can be entrenched in a space but if you’re a software company that’s 10 or 15 years old, you are very likely to have a ton of legacy code, and your software is very likely to not be as good as software that was built today. It is this kind of inverse thing where, older companies will have a lot of revenue, and they have a lot of momentum and they’ll have a lot of brand, there tends to be a pretty good factor to get in there as an upstart and make some traction.
Mike: Just to kind of tackle on or clarify a little bit of what Rob is saying because I don’t want people to misunderstand him based on exactly what he said. But when he said that the new businesses tend to have a better code, it’s not like the ones and zeroes are any better, it’s really just that they have basically, honed in on exactly what it is the customer wants in terms of the minimum stuff that needs to be built versus the businesses that have been around for a long time.
It’s just so much harder for them to make a change even if it would be better for their customers because they have to take into consideration the existing customer base. If they make a large change to the frontend of their product and they suddenly alienate 30,000 customers, it’s really bad for them. That’s just going to make massive problems for them and support headaches. They’re going to choose to not make those changes even though they could and they have the resources to.
Rob: Yeah, that’s right. There’s legacy customer stuff. That’s what you’re talking about if you can’t make a change, and then there’s legacy code stuff. When I think of how much better software development practices have gotten over the past 15 years with extensive unit testing, the frontend integration testing, and the agile development methodologies–the software I was writing and working on 15 years ago was harder to maintain. Maybe that’s not across the board and maybe that’s not for everyone, but that software, we could not ship features nearly as fast because the software didn’t have unit tests and it was more crafty–it was all these things. These days I believe the practices, they’ve gotten better. I think software these days is easier to work on assuming that you have knowledgeable people who are using the right engineering practices and aren’t just hackers throwing stuff at the wall on a weekend or something.
Mike: The next thing you look at is the company leadership and how that is structured. If they’re self-funded, the founders tend to be in those company leadership positions. If it’s angel or VC funded, the founders may be there still in the executive capacity or they may have put into more of a director role and they brought in professional CTOs or CEOs, for example. It depends on how far along they are.
If it’s a established business that’s been around for 10, 15, 20 years then who knows what that looks like but it also gives you an indication of what things are going to change in the future. They just brought in a new CEO or they just got a round of funding, for example, that dramatically changes what the future vision for the company is going to look like.
Those are just, again, just data points that you can look at but it helps you to understand how quickly is this company going to change direction and are they likely to change direction? If the company’s been doing their business exactly the same way for the past five years, chances are good they’re probably going to do that for at least the next year or two but there’s no guarantee.
Rob: You can go to Crunchbase for this. You can signup for Google alerts on the company names. I think that’s a good idea anyways. One thing I’ll caution as we’re talking through this is, I have been in environments where people were way too fixated on what are competitors are doing. “Oh, they just shipped this thing. Oh, they just raised this round of funding.” I was like, “This stuff is good to know but this is not make or break. You should be focusing way more on your customers than on your competitors.” With that said, everything we’re talking about here is still good to know, to have an idea of the landscape, and to revisit it every—I would say in a startup environment—probably every month to three months if you’re in the early stage. But this is not something that everyday you should just be thinking about and trying to look and watch competitors and watch what they do because it just matters so much less. Unless you’re in a neck and neck race with your competitor, it’s just not a good thing to be overly fixated on what other people are doing.
I think another thing to look at is red flags or exceptions. These indicate potential problems or major changes that could be good or bad that a competitor is doing. If you hear about layoffs they’re doing, if there’s a quick change of leadership where the CEO was perhaps, asked to leave–anytime there’s a change of leadership you always wonder what happened; if they raised funding recently, they have new product announcements, all kinds of stuff. This is where you can again, monitor the email list, there’s people talking about any industry. If you’re in marketing automation and then there’s three or four people who are kind of the industry experts that you can be on their list or you can like I said, subscribe to Crunchbase updates or do Google alerts just to hear about what your competitors are up to.
Mike: The last thing you can look at to dissect your business competitors is to pose as a customer and try and find out how they treat their customers. There’s obviously some ethical questions that you have to answer for yourself here in terms of how far you’re going to go. Obviously, you can sign-up for a competitor’s products, you could just get on their mailing list, you could call or email their support and directly ask questions.
Posing as a customer gets a little dicey of course in terms of ethics and how far you want to go with that but each person has their own, I’ll say, line in the sand for that. Personally, I don’t think that I would go too far with that. I might look at their email list. What I don’t know is I would sign-up for a trial if I wasn’t actually interested in it though. But all of these gives you an idea of how they treat their customers and whether or not there are ways that you can position yourself to customers that are unhappy with their product or their service in order to make yourself more attractive to those customers that are leaving.
Rob: To recap, we had eight way to dissect your business competitors.the first was, look at their revenue. Second was target customer type. Third was sales and acquisition channels. Fourth was software versus courses. Fifth was length of time in business. Next was company leadership, then red flags and exceptions. Eight one was posing as a customer.
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Episode 403 | Should You Love What You’re Working On?
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike ask the question: should you love what you’re working on? The guys talk about this topic in the idea of balancing interests and opportunity. They also ask themselves the question and how it pertains to their lives and businesses.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about whether you should love what you’re working on. This is Startups For The Rest Of Us episode 403.
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 built your first product or 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. Where this week, sir?
Mike: I started a local D&D meetup group.
Rob: That is so cool.
Mike: A friend of mine and I’ve played with our kids. I’ve got two sons and he has a son and two daughters. One of his daughters played a little bit with us. She was like, “Yeah, this isn’t for me. I hate this. I don’t want to deal with boys.” I think that’s certainly what is was. But the other three, him, and I play. We wanted to start up a group where we’re actually playing with adults because kids can be a little bit difficult to keep on track sometimes.
He knew a couple of people then I started a meetup.com group to try and find at least one more player. There’s five of us now and we’ve met for the first time earlier this week. Started up a game, we expect it to go for a couple of months, we’ll just meet up every week, and see how things go.
Rob: That’s fun. Did you say you just meetup.com?
Mike: Yup.
Rob: Awesome and you’re playing fifth edition?
Mike: Yeah, the latest version. I think two or three other people who we’re playing with haven’t played in 20 or 30 years. Then they went to college, had kids, and got out of bit for a while. Now they’re coming back and so far it’s been good. We only had one session, which was about three hours long, but we spent some time before that at a different time creating characters. It’s good so far.
Rob: Were they marveling at the ascending armor classes and there’s no THAC0. I don’t know if you played second edition, but did they have to read the player’s handbook or you just brought them up to speed verbally?
Mike: Yeah, I caught them up to speed. I was like, “Here’s the differences from when,” because I asked them which versions they played. So up to second edition they have the THAC0 and then in the third edition they switched over to the d20. I just explained those things.
Then one person, he still plays a lot of version 3.5. He’s never played 4 or 5 before. I looked it up and found a place—I think it’s Reddit—where they basically laid out, “Hey, here are the differences between version 3.5 and version 5.
Rob: There’s a lot more similarities than I thought. I know 5 is more stripped down. There’s less feats and there’s a bunch of stuff there. The prestige classes I think are maybe those are only in 4. I never played 3.5 or 4, but I’m pretty familiar with them at this point.
I know there’s always controversy around it, but I played basic, I played expert, then I played first edition. Then I just got familiar with second edition, which is where they introduced THAC0. Pretty sure first edition it was all table-based, is my memory, and then stopped, got into sports, music, and stuff, and then just came back into it as my son got old enough to play.
I remember my nostalgia is for basically probably first edition, maybe basic but the rules are so jenky there that I couldn’t go back to it, but I remember Googling, I’m coming back to D&D. Should I try fifth edition or should I go back to first edition?
There’s all these discussions about it and the general consensus was, especially for bringing new players who’ve never played anything before, bring them to fifth edition. It’s a pretty nice rule set. It’s honed and refined. It’s like a piece of software that’s gotten better. I think there was bloat, perhaps.
People could argue as you got 3.5 and 4. Mostly 4, I think people had some issues with, but then 5 was almost like a partial rewrite or something, or someone refactored a lot of code, added some unit test. It’s a terrible analogy, I don’t want to get into this, but I really get them. When I dove into 5, I was like, “This is a really fun game to play.” It’s so much less about the mechanics of the game, which was my memory of the first edition. All these tables I was looking up and all that stuff. It’s so much less about that. It’s more about getting into the characters, the combat, the adventure, and the fun of it. It was cool. I taught my son I think when he was seven or eight, and he picked up the mechanics pretty quickly.
Mike: I really liked what they did with the fifth edition as well. It’s just so much more streamlined and it’s simpler without being simplistic. That’s probably the best way I would describe it. And you’re right. There’s a lot less reliance on tables and the one thing that I really liked that I’ve read about, which is the difference between 3.5 and 5 is that in older editions, there was a lot of reliance on stacking things to get more powerful.
You’d stack your armor and various other things. In this, you don’t have really have to do that and for the most part it’s just like, “Oh, you have advantage and you get to roll 220 set of die and take the best one.” That’s great except when, as an example I was explaining to these guys like, “Hey, this is what it looks like,” and I rolled 220 and I rolled a one and a two.
Rob: For us, we’re recording a little bit in advance but if all goes well, we have closed on our new house in Minneapolis and frankly, all of our stuff will have been moved because the move is scheduled for just a couple of days after. We’ll be in the process of unpacking boxes and probably hanging things on walls. I’m really looking forward to having that process, the chaos ending because already, I’m sitting at our old house and there’s things off the walls and there’s a few things in boxes.
Everyone is a little bit disjointed. You get that feeling of like, “We’re in process, where was that one thing, I can’t find it,” or it’s even just a visual cue. There’s just some chaos around me and there’s this unsettled feeling I feel like with every family member being in a place that feels like our house but it’s a little different because there’s nothing on the walls as an example. I’m looking forward to feeling better about that.
Mike: Like an Airbnb where everybody moved out and you just walked in.
Rob: Yeah but even worse than that is, it’s our house that’s familiar. Everything’s packed up and stuff. It will be good, but it’s definitely move up for us in terms of the house is bigger and nicer, and we can do things. I’m already looking at what smart home things I’m going to install because we have several Amazon Echos and there’s all the controlling you can do.
Even starting simple stuff like light switches and getting more advanced with security stuff, operating garage door openers, and that stuff. So I’m kind of nerding out on that a little bit. Something I haven’t able to do because all that stuff, I’m not going to invest time in that in a rental, and it really hasn’t come big time into fruition. It’s been a couple of years since I’ve owned a house now, so I’m excited at the potential of geeking out with some of that.
Mike: On my end, the only other thing I have as today, I recently fixed a Javascript bug that would sometimes prevent people from logging into Bluetick. But not all the time and I could never replicate it which sucked.
Rob: Now that sucks.
Mike: It had to do with angular promises with the Javascript and one would trigger and it says, “Oh, go ahead and log in,” then it goes to grab all the data and it doesn’t have the local token saved. It was just a matter of it didn’t fully save it before it had actually tried to reach out and grab all the data that it literally just authorized itself to get.
Anyway, just because there was the race condition, like it worked fine for just about everybody and then there were, I think, it either certain browser combinations, or I couldn’t even nail it down to, say it was just this operating system and this particular situation. If the latency tended to be high enough, then it tended to not work.
Rob: That’s tough, Javascript stuff. Still, a client said Javascript is still so hard. I shouldn’t say so hard. It still has those edge case things where the browsers handle it differently and if can’t reproduce it, how do you fix that stuff? Every once in a while, that’s the thing. Again, if you have 10 users, it’s unlikely that someone happen but when you get 10,000, 30,000 people using your app, bizarre edge cases come up and you just some oftentimes are completely unable to reproduce it. If you can’t reproduce it, you pretty hard to fix it.
Mike: In this case, I went down the path of looking. In Chrome, there’s this ability to say, “Oh, use a different emulator if this was running on a 3G connection or something like that, or even slower.” Even though I still could not replicate it, I’m pretty sure that it had to do with certain types of browser combinations and what other plugins you have loaded. Based on those things, it would either trigger the race condition or it wouldn’t. Sometimes it would work. Actually, the vast, vast majority of the time, it would work fine and then just these little occasions where certain things would be screwed up and it just wouldn’t.
Rob: So cool. Today, we’re going to kind of, I don’t know if it’s a thought experiment as much as it’s a discussion of this topic that come up now and again. I’ll say, not even an inflection point but at a point where I’m thinking about, “Hey, what could happen next for me? What’s going to come next?” I know there are a lot of people are thinking at a given time length, “Hey, what project am I going to work on?” and, “What type of niche should I go after?”
There’s always this balance between balancing your interest in something and the opportunity that it has. I think the question we want to explore today is, do you need to love what it is you’re working on and what that looks like? You can take a business that sells beach towels online, and you could say, “Well, beach towels are awesome and I’m really into them and I collect them and I’m super interested in it.” Or you could say, “Well, I’m not interested in beach towels, but I am interested in ecommerce and ecommerce really excites me.” So you have that interest. Or you could say, “Well, I’m not that interested in ecommerce but I am interested in just running a business, and this is one that I can do in my spare time.” So you have interest there, or it’s kind of a continuum. Or further up, you could say, “I’m not even interested in running a business, but I just want the freedom that it provides.”
One of those four places on the continuum I think is what we’re going to look at today and balancing on one end, there is interest and then on the other end of that spectrum, there’s opportunity. I think potentially if you can get them to overlap, maybe it’s less about two ends of a spectrum and more about, it’s a Venn diagram where you have circles. The circle could be, these are all my interests and that includes role-playing games and it includes stock market investing and it includes Legos and I don’t know, other things that someone might like. Running a business might also be one of those.
An opportunity could be things that overlap with those, like, “Hey, there’s a real good opportunity starting at Lego RPG site that no one’s done and you can make much money at it.” That’s not true because you probably wouldn’t make any money. I know there’s a bunch of opportunities like selling dog food online or starting a business you have no interest in and you got to figure out and evaluate for yourself which of these are you going to go after? How are you going to balance those, I think is a better way to put it.
Mike: You mentioned Venn diagram in there. I think the one misleading thing about using the phrase Venn diagram is most people think of it as this mechanism for overlapping either two or three things, but when you start adding more than three things in, it’s almost like more of a three-dimensional model at that point. It’s still a Venn diagram, but it’s just really much more difficult to visualize because some of those things just don’t overlap at all or they only overlap with everything but it’s also difficult to put them in if it’s actually like a 3D model.
Rob: I think that’s a good point and a Venn diagram or a continuum, a single line, an axis was one thing on one end and one thing on another. These are just really abstractions. It’s ways that we can describe things and at certain points abstractions always break down. I think that is something to keep in mind as we talk this through.
There’s a lot of folks and there’s a lot of conversations that I’ve seen around this idea of should you follow your passion or should you just go after the opportunity. People try to make it binary and they say, “Well, if you just follow your passion, you’ll get there.” Or you purely have to go after opportunity and I believe the conclusion that we’re probably going to get to is that it’s a blend of those. It’s figuring out what you can be passionate or interested in, but also blend out with something that held some opportunity.
To start to think about it, there’s this question that I want to throw out, what drives you? You can answer that in the abstract or you can take a personality test. Have you ever taken the enneagram?
Mike: I don’t think I have, no.
Rob: We’ll link it up in the show notes. You can take it for free online and it’s like the, what is it the Myers-Briggs where psychologists like Sherry says, “You know there’s some value there, but it’s really not scientifically a research.” Perhaps as a psychologist, I would take it with a grain of salt versus a true psychologist-administered test. But there is still some value to these things. I even think StrengthsFinder 2.0 I think is good. It gave me some insight and a little more insight into who I am even if that’s not the most academically rigorous test of anyone.
The reason I bring up the enneagram is you basically take this test online. I think it takes about 20 minutes and then it gives you a couple of numbers, it’s one through nine, and each number corresponds to a personality type. Number three is an example, a lot of folks that I have met in business wind up with this and this is the achiever. There’s always pros and cons and it says the success-oriented pragmatic type, adaptive, excelling, driven, and image-conscious.
I think some startup founders are driven by the achievement. They just want to achieve whether they’re trying to fight this voice in their head. It’s the voice of their father, or the voice of someone who told them they can never succeed, or maybe it’s just a drive they have to make money, maybe it’s just a drive to show everyone or show themselves that they can do it.
But there’s something about just doing it for the achievement’s sake. They don’t necessarily, in my experience, care about the process of getting there, about what they create along the way, or about they could achieve in a business that sells cell phones, or is a GPS startup, or is selling whatever, beach towels online, but if they built an eight-figure business in any of those, they would feel they have achieved something and they’d be happy.
Versus, I believe it’s number six, and I think that’s me. It’s the loyalist. It says the committed, security-oriented type, engaging, responsive, anxious, and suspicious. A big part of the loyalist, when you read through the description is, there’s this sense of creating and needing to create something, put it into the world, to own this creation, to advance it, and to make it interesting.
What was funny is interacting with some folks once Drip was acquired, interacting at leadpages. Several of us took this test and it was pretty obvious there were folks who, it didn’t matter to them what business we were in. They just wanted to go big. Going big for the sake of going big was awesome to them.
For me, it was like, “No, I’m actually here to build stuff.” I’m a banker and I am the guy who writes books, I’m the guy who creates podcast, and create software, and builds interesting things, and hopefully, that’s why I want the money is so that is can go work on these interesting things. It’s to have the freedom to go do interesting things. Not just achieving for the sake of achievement.
Mike: You definitely fit that loyalist. You’re definitely a suspicious and shady-looking guy.
Rob: Hey it is, huh? That’s the thing. When you read any of these, there’s always some negative and it’s like, “Oh, am I really?” And it’s like, “Yeah, I probably am.” I’m probably am all those things. But engaging and responsible certainly fits as well.
The reason I bring the enneagram up is that you can take any number of test, but it’s interesting to spend 20 minutes and get some insight, to read the descriptions and think, “Am I here to achieve?” Because if you are, then your need to love the business or the specific niche, or whatever it is that you’re working on, is probably going to be a lot less than someone who needs to love what it is that they’re working on, and to be enthusiastic about it.
Number seven is an enthusiast. There’s others of these numbers that really point more towards like, “Yeah, you need to love what you do or else you’re going to bail on it.” I think it’s interesting whether you take this or you just think about it to yourself. Certain people know that there’s no chance that they’re not going to be happy working on something that they’re not super interested in everyday.
Mike: I think in general when you take a look at these types of personality tests or things that will help to describe or categorize you, it’s easy to write-off the 20 minutes that it takes to do any one of these and as you said, I think that if it’s not something that it is rigorously given or tested, like if it’s a 15 or 20-minute test, it’s not going to be rigorous.
If you spent an hour answering questions and you’re answering 60, 100, 200 questions or something like that, it’s a little bit more. Those you probably have to take with less of a grain of salt, but regardless which one you take, I think you’re better served by looking at the results of it as in how far you skew in a particular direction, regardless of what direction that actually is.
As you said, every single one of these has pros and cons associated with it. People who exhibit different traits are going to have different interests and they’re going to dislike different things. But when you’re going through those, it’s important to not just take a cursory look at those, like the different personalities or different categories that they could potentially lump you in, and then not even take the test, because taking the test itself is going to tell you how far you skew in one direction or the other.
I can look through these nine or right here for the enneagram and I can probably say, “Oh, well I associate with four or five of them, or even six or seven,” but it doesn’t tell you how strongly you associate with them, and that is even more important than being able to put yourself in one of those categories.
Rob: Yeah, I would agree and I didn’t mean to downplay this from the start. When I say I take it with a grain of salt, I mean, don’t base every life choice on your enneagram result. The enneagram is given to tens of thousands, hundreds of thousands of people. It is research-based and it is like a viable test. But as you said, when it’s only asking so many questions and it’s 20 minutes, there is less rigor there than a test that is. A lot of the psychological battery tests that are given, you’ll sit there for two, three hours for them to get a full picture of stuff. It’s just a nice taste and a nice direction.
I do think I like these things because I always learn something about myself and it’s typically something that’s a little bit of a blind side for me. Typically, I’m like, “Yup. That’s me, that’s me, that’s me,” and then they’ll throw something else in this, it’s like, “Oh, that’s true, but I hadn’t realize that.” It’s one, the anxious or suspicious thing. It’s like, “Yeah, that’s a good point.” I do tend to not trust people until I known them for a while and how is that a plus for me and how is that something that maybe I need to work around.
But I think the interesting thing and a question that’s framed is like, “Are you the type of person who can work on things that they don’t love?” That maybe the question to ask yourself. Certain people just doesn’t know this. I remember Jason Roberts on TechZing used to always say, “I know I’ve got to love it or I’m just not going to do it.” He’s very much a passion player. He would only start ideas that were super exciting to him and he could never go into a niche that was selling beach towels or he would have completely peered out.
Whereas for me, my goal of financial independence was more important to me than needing to love that I was selling the duck boat plans and the bonsai tree ebook, in the early days, the beach towels and stuff. Those are high probability of success things for me based on my tool belt and I was able to build those collectively into six-figure income and replace everything. I bought my own freedom. Then I moved more into things that I enjoyed. That’s when I started doing HitTail, and Drip, and even during that time I was seen doing MicroConf and this podcast. The stuff was part of that.
Again, I hope it’s a spectrum or if it’s a line or whatever, but I always think about this one example of, to optimize for opportunity, you could sell coffins online. To optimize for interest, if you love watching movies, you could review movies online, or if you role-playing games, you could review role-playing games online. Those two are massively in tension. The role playing games and the movie reviews is going to be so hard to make a full-time living at that. Yes, there’s a handful of people who do it, but it’s really, really hard and it’s a ton of work.
Compared to selling something that’s really boring like accounting software or coffins online. I see it partially as a joke, but I remember a venture capitalist using this an example of them wanting founders who are really into what they’re doing. This venture capitalist said, “You know during the dot com boom when everything was going online pets.com, grocery delivery and all that, there were entrepreneurs who were pitching them like a really inefficient market is the coffin market.” It’s a cottage industry, the markup is outrageous, people don’t haggle, it’s just this weird time. The guy was like, “There’s a huge opportunity here and we can make a ton of money and save money for consumers.”
I believe that mattresses are like this, too. Mattresses, the markup is always huge and then Casper has come along and I really think there’s ton of opportunity there. The VC said, “I kept asking the guys, ‘Why do you want to do this coffin startup? A funeral startup?’” They’re like, “Well, because there’s opportunity there.” The VC didn’t fund them because he believes that you need to really be into the whole space, love the space, and this and that. That’s fine. That’s his belief. That’s his thesis of funding people.
But I think when you ask yourself, you can have the continuum. You may not love mattresses or care anything about them, but if you’re really interested in building a big business, running Casper would probably be an interesting slush fund thing for you to do if you’re an achiever. If you just want to achieve, you can build that eight, nine-figure business, and really not care much about the product you sell.
Mike: I can think of any number of businesses that I would think it would be interesting to start and go for but that doesn’t necessarily mean that there’s a business opportunity there as well. I think that’s what always bugged me about the do-what-you-love advice. Just because you love it doesn’t mean it can actually make a business. That advice kind of glosses over the fact there may just not be a business there for it. I don’t know. I think there is a difference between doing it because you love it versus doing it because you want to, also making an income from it.
That goes back to the Venn diagrams that you’re talking about. There has to be a clear intersection of multiple things in order for it to work for you based on whatever your goal is. If you just want to do it to have fun, go for it. You don’t also have to make money. But if the Venn diagram includes making a full-time living from it, then the business opportunity has to support that. If it doesn’t, then it’s not going to work.
Rob: Right and some luck if few get to do both. Gary Vaynerchuk loved wine and he turned that into a business. It does happen. It’s just how many other people try to do the exact same thing and it didn’t work versus if there really is opportunity there that the odds of you, even getting a base hit and I think that’s the thing, it’s like are you willing to have a higher chance of success but perhaps enjoy things a little less along the way because you’re not doing everything that you love. Maybe you’re just going for that single or that double, but if it brings you financial freedom that you can then work on stuff you love later, but you’ve got to do a few years of not terrible drudgery. It’s not like you’re working on 9-5 for someone else, but it’s weighing those two things.
I think that leads me to a question of, “Tell me what do you love about Bluetick? Do you love the idea of warm outbound email? Or is it you love building software and want to find a way to make money from it and sustain yourself full time? Is it you love building businesses?” There’s got to be something in there that drives you day to day but I don’t get the feeling that you woke up two years ago and said, “Oh man, all I want to think all the time is email deliverability and how to hook into the Gmail API.”
Mike: Yeah, I definitely did not think of that and of course I don’t hook into the Gmail API because it doesn’t work very well. I think the thing I keep coming back to is that it actually solves a genuine business problem, first of all, and second, I like the people that I work with. Like the customers that come to me and they’re like, “Oh I have this problem and I need to be able to fix it.”
I’ve taken various personality tests in the past and one of the things that tends to come out at or very close to the top of the list almost every time is that I’m a people person. I care very deeply about a much smaller number of relationships, but people is a main focus for me. If I were to sell a business for $20 million and I was the sole stockholder, for example, I wouldn’t just keep it all. My inclination would be to share that the people who have helped get me there.
There’s certainly people who would take the opposite approach and say, “Well, I took all the risk, I did everything, I own 100% of it so I should get everything.” There’s nothing inherently wrong with that, it’s just not my personality.
There’s that side of it that I like helping other people, which partly why I do the podcast, partly why we’ve run Founder Café together and why we run MicroConf. That’s important to me and running Bluetick, I get to work hand-in-hand with a lot of different people and a lot of different businesses, and yes, it ultimately benefits me financially as well, but at the same time I know that deep down I’m actually solving a problem for them and it does help their business.
Rob: I think that’s an important thing to know. You look around at different examples. Think of Dan and Ian with Tropical MBA. I’m pretty sure they weren’t that excited about cat furniture and valet podiums, but they were excited about the prospect of freedom, about the prospect of starting your own business. Ian’s certainly a maker. He’s the designer of the stuff in the early days, and I think they’re excited just about building businesses and such. That’s that balance of they’re excited about enough things about those spaces and they saw tremendous opportunity there that they’re willing to dive in.
I felt the same way about HitTail and Drip. I have always liked SEO, I’ve done a lot of it, and I’ve always done a lot of email marketing, and use many ESPs. But I’m not as passionate about those things as I am, say, some of the hobbies that I do, such as playing guitar, or playing tabletop games, or even personal financing, and stock investing. Those hobby things are just so much harder to turn to real businesses. I kind of combined that opportunity with SEO and email marketing with the interest that I have in those topics, and then build businesses out of them.
I think that that’s probably the conclusion that I leave folks with. You may not be super excited about being on online classified ads, or about selling beach towels, or whatever. But there are other things that you can do and it’s about knowing yourself. You have Jason Roberts, again, coming back to him or someone like him. There are people out there who are just really need to love what they’re working on.
A lot of those folks become indie game developers or they build software for guitar effects. I used to work with a guy who built that on the side because he was so into the music, and that’s all he wanted to do is be around music and that’s cool. But for him, if ever he achieves financial freedom, it’s going to take decades and it’s just a lot more risk there, and a lot less chance of success because you’re stacking the cards against you in exchange for being able to be really passionate about what it is you’re working on. That’s the trade-off that you will have to make.
I think each of us as individuals has to think through that and think about how much it is you desire to work on something you love versus perhaps having more of a chance of that success.
Mike: I’m wondering how much of the decisions that people who are listening to this podcast make or just entrepreneurs in general, I wonder how much of those decisions are influenced more by what they see as a potential business opportunity versus what their interest are because I talked to a lot of people, like, “Oh, I need an idea for my app. I don’t have any ideas.” That’s a very common thing that people will say and most of the time I think it’s because they don’t want to build something that somebody else has built or build a business that is very much like another business.
But at the same time, those things can be very successful and if you have your own take on it, your own ideas about how to take that to fruition, then you can certainly make it work. But if they just don’t have those ideas or they think that they don’t have those ideas, then they’re not going to move forward with them.
Rob: Right, and if you work on a business you hate every day, then obviously, that’s not a good solution either. Honestly, when I look, I think there’s a lot of approaches. We’ve gone through them here. The approach I took was in the early days my interest was financial freedom. I just kind of slogged it away, a bunch of businesses that I didn’t have a ton of interest in, but I was learning and learning is exciting to me. I think a lot of folks in our audience probably feel the same way. Just the act of learning new things could potentially keep their interest. Then as I built more and more of those up, then I was able to go into things that I was more interested in like, let’s say HitTail and Drip, with SEO and email.
Now, I’m at the point where I have the luxury of more time to invest in something I’m working on and it doesn’t need to be that big hit. I may even sway further into, “I’m only going to do stuff that I really, really enjoy.” Maybe it is. Maybe my next thing is nothing like anything I’ve done in the past and it’s truly like, I mentioned it a little bit, “I’m going to build an authority website in this topic that I just think is super interesting, and see what happens.” Maybe I’ll spend two years on it and I enjoy it because it’s a hobby and it never does anything. So what?
Personally, I would have hated doing that 10 years ago because I would have been hating my day job while I did this and I didn’t want to have that pole. I wanted to achieve that freedom first. I do think that there can be steps along the way of shifting and that it’s not this one-size-fits-all or even this permanent approach for each individual.
Mike: I think that’s all an interesting thought experiment. If you have any thoughts of your own, just feel free to head over to the website at startupsfortherestofus.com. Leave a couple of your thoughts in your comments. With that, we leave you for today. If you have a question for us, you can call it in to 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 Out of 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 built your first product or 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. Where this week, sir?
Mike: I started a local D&D meetup group.
Rob: That is so cool.
Mike: A friend of mine and I’ve played with our kids. I’ve got two sons and he has a son and two daughters. One of his daughters played a little bit with us. She was like, “Yeah, this isn’t for me. I hate this. I don’t want to deal with boys.” I think that’s certainly what is was. But the other three, him, and I play. We wanted to start up a group where we’re actually playing with adults because kids can be a little bit difficult to keep on track sometimes.
He knew a couple of people then I started a meetup.com group to try and find at least one more player. There’s five of us now and we’ve met for the first time earlier this week. Started up a game, we expect it to go for a couple of months, we’ll just meet up every week, and see how things go.
Rob: That’s fun. Did you say you just meetup.com?
Mike: Yup.
Rob: Awesome and you’re playing fifth edition?
Mike: Yeah, the latest version. I think two or three other people who we’re playing with haven’t played in 20 or 30 years. Then they went to college, had kids, and got out of bit for a while. Now they’re coming back and so far it’s been good. We only had one session, which was about three hours long, but we spent some time before that at a different time creating characters. It’s good so far.
Rob: Were they marveling at the ascending armor classes and there’s no THAC0. I don’t know if you played second edition, but did they have to read the player’s handbook or you just brought them up to speed verbally?
Mike: Yeah, I caught them up to speed. I was like, “Here’s the differences from when,” because I asked them which versions they played. So up to second edition they have the THAC0 and then in the third edition they switched over to the d20. I just explained those things.
Then one person, he still plays a lot of version 3.5. He’s never played 4 or 5 before. I looked it up and found a place—I think it’s Reddit—where they basically laid out, “Hey, here are the differences between version 3.5 and version 5.
Rob: There’s a lot more similarities than I thought. I know 5 is more stripped down. There’s less feats and there’s a bunch of stuff there. The prestige classes I think are maybe those are only in 4. I never played 3.5 or 4, but I’m pretty familiar with them at this point.
I know there’s always controversy around it, but I played basic, I played expert, then I played first edition. Then I just got familiar with second edition, which is where they introduced THAC0. Pretty sure first edition it was all table-based, is my memory, and then stopped, got into sports, music, and stuff, and then just came back into it as my son got old enough to play.
I remember my nostalgia is for basically probably first edition, maybe basic but the rules are so jenky there that I couldn’t go back to it, but I remember Googling, I’m coming back to D&D. Should I try fifth edition or should I go back to first edition?
There’s all these discussions about it and the general consensus was, especially for bringing new players who’ve never played anything before, bring them to fifth edition. It’s a pretty nice rule set. It’s honed and refined. It’s like a piece of software that’s gotten better. I think there was bloat, perhaps.
People could argue as you got 3.5 and 4. Mostly 4, I think people had some issues with, but then 5 was almost like a partial rewrite or something, or someone refactored a lot of code, added some unit test. It’s a terrible analogy, I don’t want to get into this, but I really get them. When I dove into 5, I was like, “This is a really fun game to play.” It’s so much less about the mechanics of the game, which was my memory of the first edition. All these tables I was looking up and all that stuff. It’s so much less about that. It’s more about getting into the characters, the combat, the adventure, and the fun of it. It was cool. I taught my son I think when he was seven or eight, and he picked up the mechanics pretty quickly.
Mike: I really liked what they did with the fifth edition as well. It’s just so much more streamlined and it’s simpler without being simplistic. That’s probably the best way I would describe it. And you’re right. There’s a lot less reliance on tables and the one thing that I really liked that I’ve read about, which is the difference between 3.5 and 5 is that in older editions, there was a lot of reliance on stacking things to get more powerful.
You’d stack your armor and various other things. In this, you don’t have really have to do that and for the most part it’s just like, “Oh, you have advantage and you get to roll 220 set of die and take the best one.” That’s great except when, as an example I was explaining to these guys like, “Hey, this is what it looks like,” and I rolled 220 and I rolled a one and a two.
Rob: For us, we’re recording a little bit in advance but if all goes well, we have closed on our new house in Minneapolis and frankly, all of our stuff will have been moved because the move is scheduled for just a couple of days after. We’ll be in the process of unpacking boxes and probably hanging things on walls. I’m really looking forward to having that process, the chaos ending because already, I’m sitting at our old house and there’s things off the walls and there’s a few things in boxes.
Everyone is a little bit disjointed. You get that feeling of like, “We’re in process, where was that one thing, I can’t find it,” or it’s even just a visual cue. There’s just some chaos around me and there’s this unsettled feeling I feel like with every family member being in a place that feels like our house but it’s a little different because there’s nothing on the walls as an example. I’m looking forward to feeling better about that.
Mike: Like an Airbnb where everybody moved out and you just walked in.
Rob: Yeah but even worse than that is, it’s our house that’s familiar. Everything’s packed up and stuff. It will be good, but it’s definitely move up for us in terms of the house is bigger and nicer, and we can do things. I’m already looking at what smart home things I’m going to install because we have several Amazon Echos and there’s all the controlling you can do.
Even starting simple stuff like light switches and getting more advanced with security stuff, operating garage door openers, and that stuff. So I’m kind of nerding out on that a little bit. Something I haven’t able to do because all that stuff, I’m not going to invest time in that in a rental, and it really hasn’t come big time into fruition. It’s been a couple of years since I’ve owned a house now, so I’m excited at the potential of geeking out with some of that.
Mike: On my end, the only other thing I have as today, I recently fixed a Javascript bug that would sometimes prevent people from logging into Bluetick. But not all the time and I could never replicate it which sucked.
Rob: Now that sucks.
Mike: It had to do with angular promises with the Javascript and one would trigger and it says, “Oh, go ahead and log in,” then it goes to grab all the data and it doesn’t have the local token saved. It was just a matter of it didn’t fully save it before it had actually tried to reach out and grab all the data that it literally just authorized itself to get.
Anyway, just because there was the race condition, like it worked fine for just about everybody and then there were, I think, it either certain browser combinations, or I couldn’t even nail it down to, say it was just this operating system and this particular situation. If the latency tended to be high enough, then it tended to not work.
Rob: That’s tough, Javascript stuff. Still, a client said Javascript is still so hard. I shouldn’t say so hard. It still has those edge case things where the browsers handle it differently and if can’t reproduce it, how do you fix that stuff? Every once in a while, that’s the thing. Again, if you have 10 users, it’s unlikely that someone happen but when you get 10,000, 30,000 people using your app, bizarre edge cases come up and you just some oftentimes are completely unable to reproduce it. If you can’t reproduce it, you pretty hard to fix it.
Mike: In this case, I went down the path of looking. In Chrome, there’s this ability to say, “Oh, use a different emulator if this was running on a 3G connection or something like that, or even slower.” Even though I still could not replicate it, I’m pretty sure that it had to do with certain types of browser combinations and what other plugins you have loaded. Based on those things, it would either trigger the race condition or it wouldn’t. Sometimes it would work. Actually, the vast, vast majority of the time, it would work fine and then just these little occasions where certain things would be screwed up and it just wouldn’t.
Rob: So cool. Today, we’re going to kind of, I don’t know if it’s a thought experiment as much as it’s a discussion of this topic that come up now and again. I’ll say, not even an inflection point but at a point where I’m thinking about, “Hey, what could happen next for me? What’s going to come next?” I know there are a lot of people are thinking at a given time length, “Hey, what project am I going to work on?” and, “What type of niche should I go after?”
There’s always this balance between balancing your interest in something and the opportunity that it has. I think the question we want to explore today is, do you need to love what it is you’re working on and what that looks like? You can take a business that sells beach towels online, and you could say, “Well, beach towels are awesome and I’m really into them and I collect them and I’m super interested in it.” Or you could say, “Well, I’m not interested in beach towels, but I am interested in ecommerce and ecommerce really excites me.” So you have that interest. Or you could say, “Well, I’m not that interested in ecommerce but I am interested in just running a business, and this is one that I can do in my spare time.” So you have interest there, or it’s kind of a continuum. Or further up, you could say, “I’m not even interested in running a business, but I just want the freedom that it provides.”
One of those four places on the continuum I think is what we’re going to look at today and balancing on one end, there is interest and then on the other end of that spectrum, there’s opportunity. I think potentially if you can get them to overlap, maybe it’s less about two ends of a spectrum and more about, it’s a Venn diagram where you have circles. The circle could be, these are all my interests and that includes role-playing games and it includes stock market investing and it includes Legos and I don’t know, other things that someone might like. Running a business might also be one of those.
An opportunity could be things that overlap with those, like, “Hey, there’s a real good opportunity starting at Lego RPG site that no one’s done and you can make much money at it.” That’s not true because you probably wouldn’t make any money. I know there’s a bunch of opportunities like selling dog food online or starting a business you have no interest in and you got to figure out and evaluate for yourself which of these are you going to go after? How are you going to balance those, I think is a better way to put it.
Mike: You mentioned Venn diagram in there. I think the one misleading thing about using the phrase Venn diagram is most people think of it as this mechanism for overlapping either two or three things, but when you start adding more than three things in, it’s almost like more of a three-dimensional model at that point. It’s still a Venn diagram, but it’s just really much more difficult to visualize because some of those things just don’t overlap at all or they only overlap with everything but it’s also difficult to put them in if it’s actually like a 3D model.
Rob: I think that’s a good point and a Venn diagram or a continuum, a single line, an axis was one thing on one end and one thing on another. These are just really abstractions. It’s ways that we can describe things and at certain points abstractions always break down. I think that is something to keep in mind as we talk this through.
There’s a lot of folks and there’s a lot of conversations that I’ve seen around this idea of should you follow your passion or should you just go after the opportunity. People try to make it binary and they say, “Well, if you just follow your passion, you’ll get there.” Or you purely have to go after opportunity and I believe the conclusion that we’re probably going to get to is that it’s a blend of those. It’s figuring out what you can be passionate or interested in, but also blend out with something that held some opportunity.
To start to think about it, there’s this question that I want to throw out, what drives you? You can answer that in the abstract or you can take a personality test. Have you ever taken the enneagram?
Mike: I don’t think I have, no.
Rob: We’ll link it up in the show notes. You can take it for free online and it’s like the, what is it the Myers-Briggs where psychologists like Sherry says, “You know there’s some value there, but it’s really not scientifically a research.” Perhaps as a psychologist, I would take it with a grain of salt versus a true psychologist-administered test. But there is still some value to these things. I even think StrengthsFinder 2.0 I think is good. It gave me some insight and a little more insight into who I am even if that’s not the most academically rigorous test of anyone.
The reason I bring up the enneagram is you basically take this test online. I think it takes about 20 minutes and then it gives you a couple of numbers, it’s one through nine, and each number corresponds to a personality type. Number three is an example, a lot of folks that I have met in business wind up with this and this is the achiever. There’s always pros and cons and it says the success-oriented pragmatic type, adaptive, excelling, driven, and image-conscious.
I think some startup founders are driven by the achievement. They just want to achieve whether they’re trying to fight this voice in their head. It’s the voice of their father, or the voice of someone who told them they can never succeed, or maybe it’s just a drive they have to make money, maybe it’s just a drive to show everyone or show themselves that they can do it.
But there’s something about just doing it for the achievement’s sake. They don’t necessarily, in my experience, care about the process of getting there, about what they create along the way, or about they could achieve in a business that sells cell phones, or is a GPS startup, or is selling whatever, beach towels online, but if they built an eight-figure business in any of those, they would feel they have achieved something and they’d be happy.
Versus, I believe it’s number six, and I think that’s me. It’s the loyalist. It says the committed, security-oriented type, engaging, responsive, anxious, and suspicious. A big part of the loyalist, when you read through the description is, there’s this sense of creating and needing to create something, put it into the world, to own this creation, to advance it, and to make it interesting.
What was funny is interacting with some folks once Drip was acquired, interacting at leadpages. Several of us took this test and it was pretty obvious there were folks who, it didn’t matter to them what business we were in. They just wanted to go big. Going big for the sake of going big was awesome to them.
For me, it was like, “No, I’m actually here to build stuff.” I’m a banker and I am the guy who writes books, I’m the guy who creates podcast, and create software, and builds interesting things, and hopefully, that’s why I want the money is so that is can go work on these interesting things. It’s to have the freedom to go do interesting things. Not just achieving for the sake of achievement.
Mike: You definitely fit that loyalist. You’re definitely a suspicious and shady-looking guy.
Rob: Hey it is, huh? That’s the thing. When you read any of these, there’s always some negative and it’s like, “Oh, am I really?” And it’s like, “Yeah, I probably am.” I’m probably am all those things. But engaging and responsible certainly fits as well.
The reason I bring the enneagram up is that you can take any number of test, but it’s interesting to spend 20 minutes and get some insight, to read the descriptions and think, “Am I here to achieve?” Because if you are, then your need to love the business or the specific niche, or whatever it is that you’re working on, is probably going to be a lot less than someone who needs to love what it is that they’re working on, and to be enthusiastic about it.
Number seven is an enthusiast. There’s others of these numbers that really point more towards like, “Yeah, you need to love what you do or else you’re going to bail on it.” I think it’s interesting whether you take this or you just think about it to yourself. Certain people know that there’s no chance that they’re not going to be happy working on something that they’re not super interested in everyday.
Mike: I think in general when you take a look at these types of personality tests or things that will help to describe or categorize you, it’s easy to write-off the 20 minutes that it takes to do any one of these and as you said, I think that if it’s not something that it is rigorously given or tested, like if it’s a 15 or 20-minute test, it’s not going to be rigorous.
If you spent an hour answering questions and you’re answering 60, 100, 200 questions or something like that, it’s a little bit more. Those you probably have to take with less of a grain of salt, but regardless which one you take, I think you’re better served by looking at the results of it as in how far you skew in a particular direction, regardless of what direction that actually is.
As you said, every single one of these has pros and cons associated with it. People who exhibit different traits are going to have different interests and they’re going to dislike different things. But when you’re going through those, it’s important to not just take a cursory look at those, like the different personalities or different categories that they could potentially lump you in, and then not even take the test, because taking the test itself is going to tell you how far you skew in one direction or the other.
I can look through these nine or right here for the enneagram and I can probably say, “Oh, well I associate with four or five of them, or even six or seven,” but it doesn’t tell you how strongly you associate with them, and that is even more important than being able to put yourself in one of those categories.
Rob: Yeah, I would agree and I didn’t mean to downplay this from the start. When I say I take it with a grain of salt, I mean, don’t base every life choice on your enneagram result. The enneagram is given to tens of thousands, hundreds of thousands of people. It is research-based and it is like a viable test. But as you said, when it’s only asking so many questions and it’s 20 minutes, there is less rigor there than a test that is. A lot of the psychological battery tests that are given, you’ll sit there for two, three hours for them to get a full picture of stuff. It’s just a nice taste and a nice direction.
I do think I like these things because I always learn something about myself and it’s typically something that’s a little bit of a blind side for me. Typically, I’m like, “Yup. That’s me, that’s me, that’s me,” and then they’ll throw something else in this, it’s like, “Oh, that’s true, but I hadn’t realize that.” It’s one, the anxious or suspicious thing. It’s like, “Yeah, that’s a good point.” I do tend to not trust people until I known them for a while and how is that a plus for me and how is that something that maybe I need to work around.
But I think the interesting thing and a question that’s framed is like, “Are you the type of person who can work on things that they don’t love?” That maybe the question to ask yourself. Certain people just doesn’t know this. I remember Jason Roberts on TechZing used to always say, “I know I’ve got to love it or I’m just not going to do it.” He’s very much a passion player. He would only start ideas that were super exciting to him and he could never go into a niche that was selling beach towels or he would have completely peered out.
Whereas for me, my goal of financial independence was more important to me than needing to love that I was selling the duck boat plans and the bonsai tree ebook, in the early days, the beach towels and stuff. Those are high probability of success things for me based on my tool belt and I was able to build those collectively into six-figure income and replace everything. I bought my own freedom. Then I moved more into things that I enjoyed. That’s when I started doing HitTail, and Drip, and even during that time I was seen doing MicroConf and this podcast. The stuff was part of that.
Again, I hope it’s a spectrum or if it’s a line or whatever, but I always think about this one example of, to optimize for opportunity, you could sell coffins online. To optimize for interest, if you love watching movies, you could review movies online, or if you role-playing games, you could review role-playing games online. Those two are massively in tension. The role playing games and the movie reviews is going to be so hard to make a full-time living at that. Yes, there’s a handful of people who do it, but it’s really, really hard and it’s a ton of work.
Compared to selling something that’s really boring like accounting software or coffins online. I see it partially as a joke, but I remember a venture capitalist using this an example of them wanting founders who are really into what they’re doing. This venture capitalist said, “You know during the dot com boom when everything was going online pets.com, grocery delivery and all that, there were entrepreneurs who were pitching them like a really inefficient market is the coffin market.” It’s a cottage industry, the markup is outrageous, people don’t haggle, it’s just this weird time. The guy was like, “There’s a huge opportunity here and we can make a ton of money and save money for consumers.”
I believe that mattresses are like this, too. Mattresses, the markup is always huge and then Casper has come along and I really think there’s ton of opportunity there. The VC said, “I kept asking the guys, ‘Why do you want to do this coffin startup? A funeral startup?’” They’re like, “Well, because there’s opportunity there.” The VC didn’t fund them because he believes that you need to really be into the whole space, love the space, and this and that. That’s fine. That’s his belief. That’s his thesis of funding people.
But I think when you ask yourself, you can have the continuum. You may not love mattresses or care anything about them, but if you’re really interested in building a big business, running Casper would probably be an interesting slush fund thing for you to do if you’re an achiever. If you just want to achieve, you can build that eight, nine-figure business, and really not care much about the product you sell.
Mike: I can think of any number of businesses that I would think it would be interesting to start and go for but that doesn’t necessarily mean that there’s a business opportunity there as well. I think that’s what always bugged me about the do-what-you-love advice. Just because you love it doesn’t mean it can actually make a business. That advice kind of glosses over the fact there may just not be a business there for it. I don’t know. I think there is a difference between doing it because you love it versus doing it because you want to, also making an income from it.
That goes back to the Venn diagrams that you’re talking about. There has to be a clear intersection of multiple things in order for it to work for you based on whatever your goal is. If you just want to do it to have fun, go for it. You don’t also have to make money. But if the Venn diagram includes making a full-time living from it, then the business opportunity has to support that. If it doesn’t, then it’s not going to work.
Rob: Right and some luck if few get to do both. Gary Vaynerchuk loved wine and he turned that into a business. It does happen. It’s just how many other people try to do the exact same thing and it didn’t work versus if there really is opportunity there that the odds of you, even getting a base hit and I think that’s the thing, it’s like are you willing to have a higher chance of success but perhaps enjoy things a little less along the way because you’re not doing everything that you love. Maybe you’re just going for that single or that double, but if it brings you financial freedom that you can then work on stuff you love later, but you’ve got to do a few years of not terrible drudgery. It’s not like you’re working on 9-5 for someone else, but it’s weighing those two things.
I think that leads me to a question of, “Tell me what do you love about Bluetick? Do you love the idea of warm outbound email? Or is it you love building software and want to find a way to make money from it and sustain yourself full time? Is it you love building businesses?” There’s got to be something in there that drives you day to day but I don’t get the feeling that you woke up two years ago and said, “Oh man, all I want to think all the time is email deliverability and how to hook into the Gmail API.”
Mike: Yeah, I definitely did not think of that and of course I don’t hook into the Gmail API because it doesn’t work very well. I think the thing I keep coming back to is that it actually solves a genuine business problem, first of all, and second, I like the people that I work with. Like the customers that come to me and they’re like, “Oh I have this problem and I need to be able to fix it.”
I’ve taken various personality tests in the past and one of the things that tends to come out at or very close to the top of the list almost every time is that I’m a people person. I care very deeply about a much smaller number of relationships, but people is a main focus for me. If I were to sell a business for $20 million and I was the sole stockholder, for example, I wouldn’t just keep it all. My inclination would be to share that the people who have helped get me there.
There’s certainly people who would take the opposite approach and say, “Well, I took all the risk, I did everything, I own 100% of it so I should get everything.” There’s nothing inherently wrong with that, it’s just not my personality.
There’s that side of it that I like helping other people, which partly why I do the podcast, partly why we’ve run Founder Café together and why we run MicroConf. That’s important to me and running Bluetick, I get to work hand-in-hand with a lot of different people and a lot of different businesses, and yes, it ultimately benefits me financially as well, but at the same time I know that deep down I’m actually solving a problem for them and it does help their business.
Rob: I think that’s an important thing to know. You look around at different examples. Think of Dan and Ian with Tropical MBA. I’m pretty sure they weren’t that excited about cat furniture and valet podiums, but they were excited about the prospect of freedom, about the prospect of starting your own business. Ian’s certainly a maker. He’s the designer of the stuff in the early days, and I think they’re excited just about building businesses and such. That’s that balance of they’re excited about enough things about those spaces and they saw tremendous opportunity there that they’re willing to dive in.
I felt the same way about HitTail and Drip. I have always liked SEO, I’ve done a lot of it, and I’ve always done a lot of email marketing, and use many ESPs. But I’m not as passionate about those things as I am, say, some of the hobbies that I do, such as playing guitar, or playing tabletop games, or even personal financing, and stock investing. Those hobby things are just so much harder to turn to real businesses. I kind of combined that opportunity with SEO and email marketing with the interest that I have in those topics, and then build businesses out of them.
I think that that’s probably the conclusion that I leave folks with. You may not be super excited about being on online classified ads, or about selling beach towels, or whatever. But there are other things that you can do and it’s about knowing yourself. You have Jason Roberts, again, coming back to him or someone like him. There are people out there who are just really need to love what they’re working on.
A lot of those folks become indie game developers or they build software for guitar effects. I used to work with a guy who built that on the side because he was so into the music, and that’s all he wanted to do is be around music and that’s cool. But for him, if ever he achieves financial freedom, it’s going to take decades and it’s just a lot more risk there, and a lot less chance of success because you’re stacking the cards against you in exchange for being able to be really passionate about what it is you’re working on. That’s the trade-off that you will have to make.
I think each of us as individuals has to think through that and think about how much it is you desire to work on something you love versus perhaps having more of a chance of that success.
Mike: I’m wondering how much of the decisions that people who are listening to this podcast make or just entrepreneurs in general, I wonder how much of those decisions are influenced more by what they see as a potential business opportunity versus what their interest are because I talked to a lot of people, like, “Oh, I need an idea for my app. I don’t have any ideas.” That’s a very common thing that people will say and most of the time I think it’s because they don’t want to build something that somebody else has built or build a business that is very much like another business.
But at the same time, those things can be very successful and if you have your own take on it, your own ideas about how to take that to fruition, then you can certainly make it work. But if they just don’t have those ideas or they think that they don’t have those ideas, then they’re not going to move forward with them.
Rob: Right, and if you work on a business you hate every day, then obviously, that’s not a good solution either. Honestly, when I look, I think there’s a lot of approaches. We’ve gone through them here. The approach I took was in the early days my interest was financial freedom. I just kind of slogged it away, a bunch of businesses that I didn’t have a ton of interest in, but I was learning and learning is exciting to me. I think a lot of folks in our audience probably feel the same way. Just the act of learning new things could potentially keep their interest. Then as I built more and more of those up, then I was able to go into things that I was more interested in like, let’s say HitTail and Drip, with SEO and email.
Now, I’m at the point where I have the luxury of more time to invest in something I’m working on and it doesn’t need to be that big hit. I may even sway further into, “I’m only going to do stuff that I really, really enjoy.” Maybe it is. Maybe my next thing is nothing like anything I’ve done in the past and it’s truly like, I mentioned it a little bit, “I’m going to build an authority website in this topic that I just think is super interesting, and see what happens.” Maybe I’ll spend two years on it and I enjoy it because it’s a hobby and it never does anything. So what?
Personally, I would have hated doing that 10 years ago because I would have been hating my day job while I did this and I didn’t want to have that pole. I wanted to achieve that freedom first. I do think that there can be steps along the way of shifting and that it’s not this one-size-fits-all or even this permanent approach for each individual.
Mike: I think that’s all an interesting thought experiment. If you have any thoughts of your own, just feel free to head over to the website at startupsfortherestofus.com. Leave a couple of your thoughts in your comments. With that, we leave you for today. If you have a question for us, you can call it in to 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 Out of 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 402 | Tactics for Minimizing Disruptions to Your Vacation
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about some tactics for minimizing disruptions to your vacation. Sometimes, it’s really tough to feel like you can unplug as an entrepreneur, especially if you’re running a SaaS. The guys breakdown some things you should do for your next vacation.
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 tactics for minimizing disruptions to your vacation. This is Startups For The Rest Of Us episode 402.
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. How are you doing this week, Rob?
Rob: I’m doing okay. I’m a little tired. We landed back from California. Landed in Minneapolis last night around midnight, hopped a lift with the kids, and got home, and in bed around 1:00 AM. I’m on Pacific time so I had a couple of hour times change this morning trying to get up. It’s a little slow getting going but overall, really enjoyed our time in California.
I had talked about previously that we’re going to spend some time with my family in the Bay Area. Our kids had a music camp in San Francisco and then we went and saw Sherry’s folks up in far north California.
Overall, it was good vacation; some vacation, some kind of work stuff. The camp isn’t exactly vacation because it’s pretty intense music practice for the boys. Each day we have to be present and stuff. It wasn’t like we could just kick back and sip martinis or whatever.
Mike: You don’t get to send them for the day?
Rob: No. That would have been ideal. It’s less at camp. It’s actually called an institute, the Suzuki institute. You go and it’s five or six hours a day of them playing instruments, and the parents have to be involved to a certain extent, so you’re sitting in there with them. That’s where I was like, it’s some vacation and it’s some not-vacation. It’s fun in the afternoons and evenings when we took the boys and did stuff but otherwise, got there and back unscathe, which is good when five people are traveling and we lug a cello with us on the airplane. In true chaotic fashion we were back, like I said, landed last night at midnight and then we close on our new house tomorrow in Minneapolis. We show up and sign papers in the morning.
Mike: Stick around for a while then, huh?
Rob: I know, yeah. That was the decision. We really evaluated it after I left the Drip a couple of months ago. It was a decision point like, “Okay, we’ve been in Minneapolis a little less than two years and we can move anywhere. That always sounds great in theory but when you have no real ties anywhere for work—we have family in California—but there’s no reason for us to live in any particular city. I shouldn’t say no reason. There’s no requirement that we live in any particular city; becomes a very difficult thing to tackle. It’s a paradox of choice, it’s almost too much choice.
We evaluated going overseas, and then we evaluated all these cities on them, basically the west coast, even Austin, Denver, Colorado Springs, and Sherry threw Hawaii or Maui. Actually, all these sound great but then you look at what it’s actually like to live there. You look at the days of sun per year, you look at the cost of living, you look what the traffic is like, and you read on Quora. You say, “What’s it like to live in insert city?” You can start to get a feel for what it might actually be like and certain ones just right off the bat are just removed from the list. There are just deal breakers that come up.
I love the Bay Area, I grew up there, and it’s the tech hub of the world, so to speak. But the cost of living there is outrageous. It always has been but it’s catastrophic, basically, and the traffic, I couldn’t deal with them. I would like to live in parts of LA but the traffic there is–you know, it’s just on and on and on there. There’s just things that knock it off.
It was a long and detailed conversation but eventually we got to the point where we decided that staying here was the best option of all of them. But it was a good exercise to go through, to arrive at a decision, and feel good about it, and then be like, “We’re going to buy a house.” We figured that this is a 10-year decision. We have kids that are basically 7, 8, and 10. In 10 years, they’ll pretty much all be gone from the house. At that point we will very likely either keep the house and get a second one somewhere sunny or we’ll sell the house and completely relocate.
Mike: I would have completely lost the pool on any bets that might have been placed about where you’re going to live after your time at Drip is over. There’s no way I would have picked you sticking around in Minneapolis, like there is no chance.
Rob: I think a lot of people wouldn’t have thought that and told us that, and frankly, I probably would have lost the pool as well. I would have imagined we would probably move back somewhere in California but there, at a certain point, quality of life and other things factor in. We lived in a lot of places. We visited a ton and we’ve lived in a lot.
Every once in awhile, you find a place where it’s like, “Wow, this is a world class city with world class amenities, but without so many of the problems of other cities that we’ve lived in,” including location, cost of living, crime, good schools, you just go on a list of all the things, access to airport, delta hub, all the stuff. As we looked at all the other cities, it was just so hard to even think about giving up each of the things that we have here. I wouldn’t have called it from the start, either. I think Sherry might have. She knew it was a pretty cool city here. I had no idea before we moved here.
That is the story. We close tomorrow and then we basically move over the weekend. The nice part is the house, it’s only a block away so it’s an easy move. I can move my own guitars and expensive stuff without worrying about movers trucking a dent truck.
Mike: Yeah, I think that would have been the deciding factor for me, it was that I wouldn’t have had to move my stuff. That’s why I would have just stayed there.
Rob: Totally. No, I know. I’ll admit that we used to play factor but at this point, we’ve done it enough that’s it’s like, “You know what, it’s a temporary pain. If I want to make it a 10-year decision, I’m going to make the right 10-year decision. Even if stuff gets broken or even if I have to pay more money to have someone move it. Let’s make the right decision for long term.” How about you? What’s going on?
Mike: I have some potentially good news here. The contract is finally signed for MicroConf Europe. That took forever. I saw it in an announcement a couple of weeks ago and I talked about it on the podcast. We hadn’t had signed paperwork in place yet and the problem that we ran into is we actually had to switch hotels in the meantime. It really sucked to have to start this process completely over which is why things stall for so long. We do have the signed paperwork, was sent over this morning, everything should be good to go. MicroConf Europe will be in Dubrovnik, Croatia this year and it will be from the 21st to the 23rd. That’s Sunday, Monday, Tuesday of October.
Rob: Looking forward to it. It’s going to be fun. Buy your tickets now. Oh wait, tickets aren’t even on sale yet. When do tickets go on sale?
Mike: Within the next week or two. I’m probably going to be sending an announcement over the next couple of days and then give people a little bit of time just to make sure that they can check their plans or whatever. I don’t want to drop it on people say, “Hey, here’s the date. By the way, here’s the link to buy tickets.” So give people at least a little heads-up.
Rob: Cool, that’s exciting. Glad to have that locked in. Looking forward to seeing folks there in a few months.
Mike: You had asked for an update on the local meetup that I did?
Rob: That’s right.
Mike: I think there were five of us who showed up? There were a dozen people or so that I invited. Some of them just couldn’t make it because either the day of the week or it was just a little bit too far based on the location. I try to picked something that was central to everybody but obviously, it’s going to be farther for some people than others. For some of them, it will end up being a two-hour drive and it wasn’t going to happen.
But like I said, five or six of us got together and it was a good time. Everybody was just chatting about what was going on in their business, how they were doing things, and what sort of markets they were going after. I think two of them were there who had previously purchased my book and then the other two had come in. They were both at MicroConf. It was nice to see a little mix of those guys and both of the guys who bought my book, I think were also in FounderCafe as well.
Rob: Oh, cool. That’s always fun, man. Glad to hear it went well. What’s going on today?
Mike: Today, we’re going to be talking about tactics for minimizing disruptions to your vacation. The idea for this topic came up because there was a thread inside FounderCafe that was posted for somebody who was asking, “How does everybody else take vacation because I’m worried about things like DDoS attacks or servers going down and this and that.” I thought what we do is we spend an episode looking at different ways that you can mitigate the risks to any of the things that could go on that could just end up disrupting your vacation and make it more stressful to go on vacation than to actually be on vacation.
Rob: That makes sense. I think this is obviously a concern of a lot of founders and I think in the early days it’s hard to even know how to approach it. I do hear this question now and again. This is from a FounderCafe thread that someone posted in and there was some pretty end-up discussion about it. I think we’ve talked about this before in like a Q&A episode, probably 100-200 episodes ago and I think this warrants rethinking and refreshing everyone’s mind about how to pull this off every so often.
Mike: To dive right in, we’ve broken this up into several different areas of what your business is. I think the first place to start with is the place where you probably get a lot of headaches that come out of it which is support request from either your existing customers or from prospective customers. Because you don’t want those things to go unanswered for too long and you just want to make sure that you’re responsive to people so that they don’t say, “Hey, what’s going on? Why is this business that I’ve trusted for so long with my data and my application, why are they not responding to me?”
Ideally, what you would do is you outsource and then empower your support people to do things for you. The problem is that not everybody is in the position where they even have support people and that’s, I think, is the most common situation. If you’re one person and you got your business running, it’s a SaaS application or something like that, how do you respond to those support request while you’re on vacation? You don’t want to be on a ferris wheel or something like that or just about to get on a roller-coaster and suddenly, you check your email and there’s these support requests that seem like they’re emergencies, and you got to deal with them.
Ideally, you outsource that stuff, but at the same time, you can also just do some time boxing here. If you block off a little bit of time in the morning and then again in the evening to handle some of those support cases, you can prioritize them. If it’s something that’s pressing or an emergency of some kind—obviously, there’s varying degrees of that—but if it’s something where it’s a feature request or some data that needs to be added, you can stall for time a little bit, say, “Oh, I can get to that tomorrow or the day after, or give me a couple of days. That’s probably the most common phrase that I use if I’m on vacations. “Give me a couple of days and I’ll get to that.” And then if it stretches from a couple of days to four or five, it’s not usually a big deal especially if it’s early on in your vacation.
Rob: The first piece of advice that I give a lot of folks once they get a business to the point where it’s making any kind of money is outsource your support. This is relevant to vacationing but it’s more so relevant to the other 45 weeks of the year. That depends on how much vacation you take. This is one of the biggest stumbling blocks I see is, founders hanging onto frontline support for too long. It’s always the, “Well, it’s only half hour a day or it’s an hour a day and no one can do it because my product’s really technical.”
It’s the same objections every time and every time once that exact person—I’ve seen this over and over and over—finds the right support person, doesn’t mean you just can hire anybody off the street, you may need to hire someone with a little bit of specialization, you may need to hire someone with prior WordPress knowledge, you may need to hire someone who, I don’t know, is an audio engineer on the side, and then knows audio stuff on the side if you have audio plugins. There are ways to troubleshoot this.
Entrepreneurs don’t say can’t as much as other people, and there are always objections and there are always hurdles, but once I see founders outsourcing this, it’s always the same realization at the end of, “Oh my gosh, I’ve should’ve done that six months sooner. I’ve should’ve done that a year ago.” If you get nothing else from this episode, if you’re still doing support, find someone to do it and then that, of course, will carry over into times like this when you go on vacation. It will be so much easier for you to do it.
Mike: The next one isn’t so much as a full-blown section. It’s just a word of advice and caution, which is learn from wisdom of having done this exact same thing. Do not push new code within a week or two of going on vacation. Just do not do it. It almost doesn’t matter what the code is because I’ve seen code that I push live a couple of weeks before going on vacation. This happened this past year with Big Snow Tiny Conf where I pushed it out, everything looked fine, waited a week, everything was still good, went on vacation, and the very first day of vacation something came up. It wasn’t actually that code. It was code that was even further back from that and the situation did not come up where that bug ended up surfacing to the point where something bad happened and I had to deal with it. The longer you wait between the time you go on vacation and the time where you’ve pushed that new code, the more likely you are identifying any problems with it and be able to fix them.
Rob: You mean I shouldn’t push new code and then hop on a 12-hour plane flight with no internet?
Mike: If you have no customers it’s probably not a big deal. You can get away with it with certain apps. If they’re not logging in very often, if it’s something where it sends them a weekly report or it’s batched, that stuff’s not as big a deal. But if it’s something they’re logging into and they rely on it for their business, depending on how critical it is in their business, it can be a really big deal and you don’t want to screw with other people’s business.
Rob: That’s the thing. If you have a team that is able to monitor and fix things, then you can, I’ll say, break this rule or bend this rule. You can push code a couple of days before you head off for vacation.
We had an informal rule at Drip almost from the start where we would not push code after—it got earlier and earlier in the day—but I would say, it was around 2:00 PM, so we’d really try to push stuff right around lunch or right after lunch. We had several hours to really see them in production. That was after it was fully tested, heavily unit tested, and all that stuff. Then we really tried not to push stuff on Friday. If we’re going to push it on Friday, we would push it in the morning like it was a 10:00 AM stop.
It always varies. If it’s s typo fix or it’s one little Javascript thing on one screen that could potentially break some minor feature, we’re obviously more loose with it. But if it was some major thing about rerouting the email sending through this different pipeline or if it was modifications to the scheduling, email scheduler, like really big, big deals that could really impact someone’s business. Those things we took with a lot of caution.
It wasn’t again, it wasn’t just about vacation but it was just about having sanity check on. If you have a team that can fix it, you have a little more leeway. But especially if you’re a single founder operating on your own, you need to be very cognizant of not breaking your app.
Mike: With BlueTick, most of the activity and usage is during the week and on the weekends it really drops down quite a bit. Like any major changes, I’m typically pushing them on a weekend because it’s going to impact a much lower number of people. During the week, it’s a bigger deal. I can push something over the weekend and monitor it.
As long as I’m not seeing anything major go wrong with like the smaller number of emails are being sent, it’s not as big a deal. But otherwise, other major changes will go live 8:00, 10:00 o’clock at night, and then I just watch it a couple of hours to make sure that nothing major is going on and check it first thing in the morning to make sure nothing else happened. But everyone’s app is different, so you have to take that into account.
The next category to look at is sales and presales. If you are doing demos of any kind—typically you have some sort of a way for people to schedule those—the first thing you should do is just block off your calendar so that people can’t book sales demos with you while you’re on vacation. There’s times where that’s absolutely necessary or where you may need to do a demo for somebody.
I actually have on my calendar, there are certain unlisted links that you can use that will essentially ignore everything and it doesn’t matter. I use those specifically for situations where I really want to talk to somebody or it’s a high-profile customer, I think that it’s going to be a good fit or I’ve been working on for a long time—those I want to give a little bit more priority to. I’m more lenient with those especially in terms of the time of day and things like that. But you don’t want to just let anybody sign up for your sales demos if you’re not going to be around because then you’re still subjecting yourself to the mercy of whoever is putting themselves on your calendar.
Another thing is using an out-of-office responder. Now, I think this is a judgment call. I’ve gone on vacations without putting those in there just because I didn’t want to having sending out messages that says, “Hey, I’m on vacation,” but at the same time, you may want to do that so that it does set expectations. It depends on how much email you get and what types of people you’re getting that email from.
The next thing you can do to help minimize some of the disruptions to your vacation is to hire somebody who is technical to be on-call. This could probably be a lot less expensive than you might think because you’re not actually paying them if they’re not working. You may say, “Hey look, I’ll give you a couple of hundred dollars to be on-call and if there’s issues I’ll send them your way.”
If you’re going to do something like this, obviously you want it to be somebody you can trust. Either a friend, a colleague, a mastermind group member. Those are all great people to turn to. Or if you have a DBA who’s been helping you manage your database, those are all people who are probably going to be at least somewhat familiar with you and the technologies you use. But you can provide them with at least minimal documentation and training on how things are architected, and what would need to be done or what things impact other things in the environment that they may need to look at if there is a problem. Obviously, you need to give them credentials to be able to login and get access to stuff.
Another thing you can look at is having any sort of a hosted infrastructure can be really helpful in this. If you’re using AWS, a lot of those things are generally taken cared of for you. But if you have your own virtual machines, maybe hosted on Rackspace or something like that, those types of companies do have their own support people where you can say, “Hey, let me turn this over to them,” and then they may require an on-going support contract but that might also be something you look at for a much longer period of time and on an ongoing basis.
Rob: This one’s tough. I think if there’s network connectivity issues or if there’s server issues, and you’re on AWS—some of them assume most people are probably on some type of PaaS, Platform as a Service, like AWS or Azure—then you can hand that over to them. But so much of this stuff winds up being application code. That’s a thing that’s changing constantly. That’s a thing that is vulnerable.
I think getting someone up to speed just for a two-week vacation is going to be really, really tough, even if you provide docs and all that stuff. You know how it is. It is such a jungle when you haven’t been working on an app for at least a couple of months and have some exposure. I can imagine if you had a junior developer who you’d ramp up a couple of months. He or she could handle 20% or 30% of the stuff that came up and then escalate to you as needed.
But try to get someone up to speed, just drop them into an app and be like, “Alright, if these things go wrong, try to do this and try to troubleshoot that,” I think this is a really tough approach. I haven’t heard of anyone doing this, I guess, successfully that hasn’t already have that developer doing it on an ongoing basis, whether it’s a contractor who’s worked on the code from now and again.
I like your idea of the DBA. The Drip DBA who worked with us for years and is still the DBA there. He’s a contractor but he would have been able to dip into the application code a little bit because he had enough knowledge of the app just digging around in there.
Mike: I think there’s a difference between having somebody who is technical enough, is the sysadmin, at the sysadmin level versus somebody who, like, “Hey, I need you to go look into this bug,” stuff like that. I’m thinking probably be pushed off to the side for the most part, especially if you’ve done the due diligence to say, “Okay, we’re not going to push any new application code for a week or two.”
Those things should have ironed themselves out for the most part, but then when you get into things like network connectivity issues or the database isn’t responding, things like that, most technical people, I think, should be able to handle that stuff. If you have somebody who’s a DBA or a systems engineer, they can look at that stuff and start troubleshooting them. They’re not so much looking at the application itself. They’re looking at how do all these moving parts touch each other and why are they not working well together. It’s being able to at least identify that type of stuff.
That leads us into the next section which is using third-party monitoring services. Most of us, I think, have our own logging mechanisms of some kind that are either built into the application or are taking those logs and putting them off onto a third-party service. But there’s lots of other third-party monitoring tools that you can use like Pingdom and uptime.com. Rob, you had a […] in here I’d never used or heard of that one, but—
Rob: That’s Laura Roeders’ new startup.
Mike: Ah, okay. Cool. There’s also PagerDuty and Uptime Robot. There’s another service that I use called Datadog, which allows you to essentially constantly monitor what’s going on your servers and get detailed information about performance metrics of the system’s various aspects of it, whether it’s the database, or the application, or just different processes that are running. I use just that because there’s lots of different things that need to be monitored but conjunction of all these things is that, you can use those to figure out what needs to be escalated. If there’s certain things that cross a certain threshold for you to actually pay attention to it, then those are the things that you would need to escalate to either the technical person that you have, or a support person, or even maybe ends up going to you at some point.
Rob: Our next tactic is to turn off your phone and email during the day. Basically, automate any major escalations to SMS and ignore everything else so, ignore your email. Essentially ignore your support queues based on what we’re saying above is to try to get to the point where you can vacation, enjoy, and be present with yourself, or with your family, or whoever you’re on vacation with, and not feel the need to be checking inboxes all day, and not feel like something’s going to slip through and you’re going to miss it, or not to get a ping, a notification on your phone every time an email arrives.
Because of that, it’s catastrophic for enjoying your vacation. I think it’s a big thing. I’m someone who does not get notifications when emails arrive anyways. I think that’s a pretty bad idea for your productivity but if you do that when you’re not vacationing, then you need to turn that off when you are.
Mike: I turn pretty much all notifications on my phone off. The only one that would end up coming up and surfacing for the most part is certain things coming from the server logs, they pop-up on my phone, and then text messages. That’s basically it. Obviously, phone calls will come through but other than that, nothing is pushed to me in an interruptive way.
The last thing to take a look at is do some technical preparation, create a checklist, and use that checklist to look for potential upcoming issues. On this check list you would want to put things like, “Are my SSL certificates going to expire anytime soon? Does the system have enough space? Does it look like it might run out sometime in the near future? What is the CPU usage look like? Do I need to do any sort of upgrades, or give it additional disk space, or plan for more resource capacity in the meantime that would help me get through that and help mitigate any potential problems that would result from, maybe you get an influx of traffic, you get a bunch of sign-ups and your server gets bogged down?” If you upgrade the infrastructure a little bit, then that would help take care of it.
The other thing you have to look at is things that are completely beyond your control. For example, a DDoS attack. What happens if your application or your website suffers a DDoS attack? There’s other things out there, there’s services like Cloudflare that can help you out with that. You can also build redundancy into the application or into the website itself. But again, these are types of things that could come up but they’re also typically lower risk, unless you have a large enough footprint. Early on, these aren’t the things that you probably going to have to worry about too much but even in the case of a DDoS attack, your customers are probably going to be pretty understanding. It’s not like you did something wrong.
Rob: Yeah and these are things that you want to do anyways. This is stuff that helps if you have it during your vacation but any of these things can happen at any time. I’ve had SSL certs expire on me. I think it’s only been once and it was when I acquired an app, and of course, the contact email for the SSL cert expiring went to the old owner, like their personal email, so I didn’t get any emails. Suddenly, boom on a Sunday afternoon—it was HitTail—the Sunday afternoon, the site isn’t SSL anymore, isn’t secure, and Google Chrome has a conniption when that happen.
I remember calling GoDaddy on the phone, Sunday afternoon at 3:00, I’m thinking, “There’s just no chance. This is going to be a 24 hours or something and man, […] help me right away.” I’m assuming this happens to a lot of people because I think it was within 30 minutes they issued a new cert and I was able to get it.
That would be terrible to happen on your vacation. Like you said, you’re out on, what was the example that you used earlier?
Mike: Like on a roller coaster or like on a Ferris wheel.
Rob: Yeah, or I’m thinking we were snorkeling a few weeks ago in Florida, or you’re out on some safari, or you’re doing something where either you have almost no cell service or you just don’t have the headspace or connectivity to handle this well. It’ll be a stressor and kind of ruin that part of your vacation.
These are the kinds of things to have that check list that you’re probably thinking about on an ongoing basis but really revisit before you head off the grid.
Mike: One thing I found a little bit helpful for things like expiring SSL certificates or even domain name renewals is I actually add them into my calendar and create it as a recurring task that needs to be addressed at some point. That way, I actually use Teamwork for that piece of it but all of them are in there, so that I know that even if I don’t get a notification from whoever that is, I still see it as a task that needs to be taken cared of. If I renew for two years, it’s not a big deal. I can just mark them off. But at least that way, I have my own internal notification that serves as something of a backup.
Rob: That’s a nice way to do it.
Mike: Helps you avoid lost domain names, too, because I’ve had that happen which is why I have that system in place now.
Rob: Totally. Email is mostly reliable and that non-mostly part, the part that is outside of them, the most mostly circle can be pretty bad for domain names, SSL certs, and all that. I think that about wraps it up for today.
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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: And I’m Rob.
Mike: 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 okay. I’m a little tired. We landed back from California. Landed in Minneapolis last night around midnight, hopped a lift with the kids, and got home, and in bed around 1:00 AM. I’m on Pacific time so I had a couple of hour times change this morning trying to get up. It’s a little slow getting going but overall, really enjoyed our time in California.
I had talked about previously that we’re going to spend some time with my family in the Bay Area. Our kids had a music camp in San Francisco and then we went and saw Sherry’s folks up in far north California.
Overall, it was good vacation; some vacation, some kind of work stuff. The camp isn’t exactly vacation because it’s pretty intense music practice for the boys. Each day we have to be present and stuff. It wasn’t like we could just kick back and sip martinis or whatever.
Mike: You don’t get to send them for the day?
Rob: No. That would have been ideal. It’s less at camp. It’s actually called an institute, the Suzuki institute. You go and it’s five or six hours a day of them playing instruments, and the parents have to be involved to a certain extent, so you’re sitting in there with them. That’s where I was like, it’s some vacation and it’s some not-vacation. It’s fun in the afternoons and evenings when we took the boys and did stuff but otherwise, got there and back unscathe, which is good when five people are traveling and we lug a cello with us on the airplane. In true chaotic fashion we were back, like I said, landed last night at midnight and then we close on our new house tomorrow in Minneapolis. We show up and sign papers in the morning.
Mike: Stick around for a while then, huh?
Rob: I know, yeah. That was the decision. We really evaluated it after I left the Drip a couple of months ago. It was a decision point like, “Okay, we’ve been in Minneapolis a little less than two years and we can move anywhere. That always sounds great in theory but when you have no real ties anywhere for work—we have family in California—but there’s no reason for us to live in any particular city. I shouldn’t say no reason. There’s no requirement that we live in any particular city; becomes a very difficult thing to tackle. It’s a paradox of choice, it’s almost too much choice.
We evaluated going overseas, and then we evaluated all these cities on them, basically the west coast, even Austin, Denver, Colorado Springs, and Sherry threw Hawaii or Maui. Actually, all these sound great but then you look at what it’s actually like to live there. You look at the days of sun per year, you look at the cost of living, you look what the traffic is like, and you read on Quora. You say, “What’s it like to live in insert city?” You can start to get a feel for what it might actually be like and certain ones just right off the bat are just removed from the list. There are just deal breakers that come up.
I love the Bay Area, I grew up there, and it’s the tech hub of the world, so to speak. But the cost of living there is outrageous. It always has been but it’s catastrophic, basically, and the traffic, I couldn’t deal with them. I would like to live in parts of LA but the traffic there is–you know, it’s just on and on and on there. There’s just things that knock it off.
It was a long and detailed conversation but eventually we got to the point where we decided that staying here was the best option of all of them. But it was a good exercise to go through, to arrive at a decision, and feel good about it, and then be like, “We’re going to buy a house.” We figured that this is a 10-year decision. We have kids that are basically 7, 8, and 10. In 10 years, they’ll pretty much all be gone from the house. At that point we will very likely either keep the house and get a second one somewhere sunny or we’ll sell the house and completely relocate.
Mike: I would have completely lost the pool on any bets that might have been placed about where you’re going to live after your time at Drip is over. There’s no way I would have picked you sticking around in Minneapolis, like there is no chance.
Rob: I think a lot of people wouldn’t have thought that and told us that, and frankly, I probably would have lost the pool as well. I would have imagined we would probably move back somewhere in California but there, at a certain point, quality of life and other things factor in. We lived in a lot of places. We visited a ton and we’ve lived in a lot.
Every once in awhile, you find a place where it’s like, “Wow, this is a world class city with world class amenities, but without so many of the problems of other cities that we’ve lived in,” including location, cost of living, crime, good schools, you just go on a list of all the things, access to airport, delta hub, all the stuff. As we looked at all the other cities, it was just so hard to even think about giving up each of the things that we have here. I wouldn’t have called it from the start, either. I think Sherry might have. She knew it was a pretty cool city here. I had no idea before we moved here.
That is the story. We close tomorrow and then we basically move over the weekend. The nice part is the house, it’s only a block away so it’s an easy move. I can move my own guitars and expensive stuff without worrying about movers trucking a dent truck.
Mike: Yeah, I think that would have been the deciding factor for me, it was that I wouldn’t have had to move my stuff. That’s why I would have just stayed there.
Rob: Totally. No, I know. I’ll admit that we used to play factor but at this point, we’ve done it enough that’s it’s like, “You know what, it’s a temporary pain. If I want to make it a 10-year decision, I’m going to make the right 10-year decision. Even if stuff gets broken or even if I have to pay more money to have someone move it. Let’s make the right decision for long term.” How about you? What’s going on?
Mike: I have some potentially good news here. The contract is finally signed for MicroConf Europe. That took forever. I saw it in an announcement a couple of weeks ago and I talked about it on the podcast. We hadn’t had signed paperwork in place yet and the problem that we ran into is we actually had to switch hotels in the meantime. It really sucked to have to start this process completely over which is why things stall for so long. We do have the signed paperwork, was sent over this morning, everything should be good to go. MicroConf Europe will be in Dubrovnik, Croatia this year and it will be from the 21st to the 23rd. That’s Sunday, Monday, Tuesday of October.
Rob: Looking forward to it. It’s going to be fun. Buy your tickets now. Oh wait, tickets aren’t even on sale yet. When do tickets go on sale?
Mike: Within the next week or two. I’m probably going to be sending an announcement over the next couple of days and then give people a little bit of time just to make sure that they can check their plans or whatever. I don’t want to drop it on people say, “Hey, here’s the date. By the way, here’s the link to buy tickets.” So give people at least a little heads-up.
Rob: Cool, that’s exciting. Glad to have that locked in. Looking forward to seeing folks there in a few months.
Mike: You had asked for an update on the local meetup that I did?
Rob: That’s right.
Mike: I think there were five of us who showed up? There were a dozen people or so that I invited. Some of them just couldn’t make it because either the day of the week or it was just a little bit too far based on the location. I try to picked something that was central to everybody but obviously, it’s going to be farther for some people than others. For some of them, it will end up being a two-hour drive and it wasn’t going to happen.
But like I said, five or six of us got together and it was a good time. Everybody was just chatting about what was going on in their business, how they were doing things, and what sort of markets they were going after. I think two of them were there who had previously purchased my book and then the other two had come in. They were both at MicroConf. It was nice to see a little mix of those guys and both of the guys who bought my book, I think were also in FounderCafe as well.
Rob: Oh, cool. That’s always fun, man. Glad to hear it went well. What’s going on today?
Mike: Today, we’re going to be talking about tactics for minimizing disruptions to your vacation. The idea for this topic came up because there was a thread inside FounderCafe that was posted for somebody who was asking, “How does everybody else take vacation because I’m worried about things like DDoS attacks or servers going down and this and that.” I thought what we do is we spend an episode looking at different ways that you can mitigate the risks to any of the things that could go on that could just end up disrupting your vacation and make it more stressful to go on vacation than to actually be on vacation.
Rob: That makes sense. I think this is obviously a concern of a lot of founders and I think in the early days it’s hard to even know how to approach it. I do hear this question now and again. This is from a FounderCafe thread that someone posted in and there was some pretty end-up discussion about it. I think we’ve talked about this before in like a Q&A episode, probably 100-200 episodes ago and I think this warrants rethinking and refreshing everyone’s mind about how to pull this off every so often.
Mike: To dive right in, we’ve broken this up into several different areas of what your business is. I think the first place to start with is the place where you probably get a lot of headaches that come out of it which is support request from either your existing customers or from prospective customers. Because you don’t want those things to go unanswered for too long and you just want to make sure that you’re responsive to people so that they don’t say, “Hey, what’s going on? Why is this business that I’ve trusted for so long with my data and my application, why are they not responding to me?”
Ideally, what you would do is you outsource and then empower your support people to do things for you. The problem is that not everybody is in the position where they even have support people and that’s, I think, is the most common situation. If you’re one person and you got your business running, it’s a SaaS application or something like that, how do you respond to those support request while you’re on vacation? You don’t want to be on a ferris wheel or something like that or just about to get on a roller-coaster and suddenly, you check your email and there’s these support requests that seem like they’re emergencies, and you got to deal with them.
Ideally, you outsource that stuff, but at the same time, you can also just do some time boxing here. If you block off a little bit of time in the morning and then again in the evening to handle some of those support cases, you can prioritize them. If it’s something that’s pressing or an emergency of some kind—obviously, there’s varying degrees of that—but if it’s something where it’s a feature request or some data that needs to be added, you can stall for time a little bit, say, “Oh, I can get to that tomorrow or the day after, or give me a couple of days. That’s probably the most common phrase that I use if I’m on vacations. “Give me a couple of days and I’ll get to that.” And then if it stretches from a couple of days to four or five, it’s not usually a big deal especially if it’s early on in your vacation.
Rob: The first piece of advice that I give a lot of folks once they get a business to the point where it’s making any kind of money is outsource your support. This is relevant to vacationing but it’s more so relevant to the other 45 weeks of the year. That depends on how much vacation you take. This is one of the biggest stumbling blocks I see is, founders hanging onto frontline support for too long. It’s always the, “Well, it’s only half hour a day or it’s an hour a day and no one can do it because my product’s really technical.”
It’s the same objections every time and every time once that exact person—I’ve seen this over and over and over—finds the right support person, doesn’t mean you just can hire anybody off the street, you may need to hire someone with a little bit of specialization, you may need to hire someone with prior WordPress knowledge, you may need to hire someone who, I don’t know, is an audio engineer on the side, and then knows audio stuff on the side if you have audio plugins. There are ways to troubleshoot this.
Entrepreneurs don’t say can’t as much as other people, and there are always objections and there are always hurdles, but once I see founders outsourcing this, it’s always the same realization at the end of, “Oh my gosh, I’ve should’ve done that six months sooner. I’ve should’ve done that a year ago.” If you get nothing else from this episode, if you’re still doing support, find someone to do it and then that, of course, will carry over into times like this when you go on vacation. It will be so much easier for you to do it.
Mike: The next one isn’t so much as a full-blown section. It’s just a word of advice and caution, which is learn from wisdom of having done this exact same thing. Do not push new code within a week or two of going on vacation. Just do not do it. It almost doesn’t matter what the code is because I’ve seen code that I push live a couple of weeks before going on vacation. This happened this past year with Big Snow Tiny Conf where I pushed it out, everything looked fine, waited a week, everything was still good, went on vacation, and the very first day of vacation something came up. It wasn’t actually that code. It was code that was even further back from that and the situation did not come up where that bug ended up surfacing to the point where something bad happened and I had to deal with it. The longer you wait between the time you go on vacation and the time where you’ve pushed that new code, the more likely you are identifying any problems with it and be able to fix them.
Rob: You mean I shouldn’t push new code and then hop on a 12-hour plane flight with no internet?
Mike: If you have no customers it’s probably not a big deal. You can get away with it with certain apps. If they’re not logging in very often, if it’s something where it sends them a weekly report or it’s batched, that stuff’s not as big a deal. But if it’s something they’re logging into and they rely on it for their business, depending on how critical it is in their business, it can be a really big deal and you don’t want to screw with other people’s business.
Rob: That’s the thing. If you have a team that is able to monitor and fix things, then you can, I’ll say, break this rule or bend this rule. You can push code a couple of days before you head off for vacation.
We had an informal rule at Drip almost from the start where we would not push code after—it got earlier and earlier in the day—but I would say, it was around 2:00 PM, so we’d really try to push stuff right around lunch or right after lunch. We had several hours to really see them in production. That was after it was fully tested, heavily unit tested, and all that stuff. Then we really tried not to push stuff on Friday. If we’re going to push it on Friday, we would push it in the morning like it was a 10:00 AM stop.
It always varies. If it’s s typo fix or it’s one little Javascript thing on one screen that could potentially break some minor feature, we’re obviously more loose with it. But if it was some major thing about rerouting the email sending through this different pipeline or if it was modifications to the scheduling, email scheduler, like really big, big deals that could really impact someone’s business. Those things we took with a lot of caution.
It wasn’t again, it wasn’t just about vacation but it was just about having sanity check on. If you have a team that can fix it, you have a little more leeway. But especially if you’re a single founder operating on your own, you need to be very cognizant of not breaking your app.
Mike: With BlueTick, most of the activity and usage is during the week and on the weekends it really drops down quite a bit. Like any major changes, I’m typically pushing them on a weekend because it’s going to impact a much lower number of people. During the week, it’s a bigger deal. I can push something over the weekend and monitor it.
As long as I’m not seeing anything major go wrong with like the smaller number of emails are being sent, it’s not as big a deal. But otherwise, other major changes will go live 8:00, 10:00 o’clock at night, and then I just watch it a couple of hours to make sure that nothing major is going on and check it first thing in the morning to make sure nothing else happened. But everyone’s app is different, so you have to take that into account.
The next category to look at is sales and presales. If you are doing demos of any kind—typically you have some sort of a way for people to schedule those—the first thing you should do is just block off your calendar so that people can’t book sales demos with you while you’re on vacation. There’s times where that’s absolutely necessary or where you may need to do a demo for somebody.
I actually have on my calendar, there are certain unlisted links that you can use that will essentially ignore everything and it doesn’t matter. I use those specifically for situations where I really want to talk to somebody or it’s a high-profile customer, I think that it’s going to be a good fit or I’ve been working on for a long time—those I want to give a little bit more priority to. I’m more lenient with those especially in terms of the time of day and things like that. But you don’t want to just let anybody sign up for your sales demos if you’re not going to be around because then you’re still subjecting yourself to the mercy of whoever is putting themselves on your calendar.
Another thing is using an out-of-office responder. Now, I think this is a judgment call. I’ve gone on vacations without putting those in there just because I didn’t want to having sending out messages that says, “Hey, I’m on vacation,” but at the same time, you may want to do that so that it does set expectations. It depends on how much email you get and what types of people you’re getting that email from.
The next thing you can do to help minimize some of the disruptions to your vacation is to hire somebody who is technical to be on-call. This could probably be a lot less expensive than you might think because you’re not actually paying them if they’re not working. You may say, “Hey look, I’ll give you a couple of hundred dollars to be on-call and if there’s issues I’ll send them your way.”
If you’re going to do something like this, obviously you want it to be somebody you can trust. Either a friend, a colleague, a mastermind group member. Those are all great people to turn to. Or if you have a DBA who’s been helping you manage your database, those are all people who are probably going to be at least somewhat familiar with you and the technologies you use. But you can provide them with at least minimal documentation and training on how things are architected, and what would need to be done or what things impact other things in the environment that they may need to look at if there is a problem. Obviously, you need to give them credentials to be able to login and get access to stuff.
Another thing you can look at is having any sort of a hosted infrastructure can be really helpful in this. If you’re using AWS, a lot of those things are generally taken cared of for you. But if you have your own virtual machines, maybe hosted on Rackspace or something like that, those types of companies do have their own support people where you can say, “Hey, let me turn this over to them,” and then they may require an on-going support contract but that might also be something you look at for a much longer period of time and on an ongoing basis.
Rob: This one’s tough. I think if there’s network connectivity issues or if there’s server issues, and you’re on AWS—some of them assume most people are probably on some type of PaaS, Platform as a Service, like AWS or Azure—then you can hand that over to them. But so much of this stuff winds up being application code. That’s a thing that’s changing constantly. That’s a thing that is vulnerable.
I think getting someone up to speed just for a two-week vacation is going to be really, really tough, even if you provide docs and all that stuff. You know how it is. It is such a jungle when you haven’t been working on an app for at least a couple of months and have some exposure. I can imagine if you had a junior developer who you’d ramp up a couple of months. He or she could handle 20% or 30% of the stuff that came up and then escalate to you as needed.
But try to get someone up to speed, just drop them into an app and be like, “Alright, if these things go wrong, try to do this and try to troubleshoot that,” I think this is a really tough approach. I haven’t heard of anyone doing this, I guess, successfully that hasn’t already have that developer doing it on an ongoing basis, whether it’s a contractor who’s worked on the code from now and again.
I like your idea of the DBA. The Drip DBA who worked with us for years and is still the DBA there. He’s a contractor but he would have been able to dip into the application code a little bit because he had enough knowledge of the app just digging around in there.
Mike: I think there’s a difference between having somebody who is technical enough, is the sysadmin, at the sysadmin level versus somebody who, like, “Hey, I need you to go look into this bug,” stuff like that. I’m thinking probably be pushed off to the side for the most part, especially if you’ve done the due diligence to say, “Okay, we’re not going to push any new application code for a week or two.”
Those things should have ironed themselves out for the most part, but then when you get into things like network connectivity issues or the database isn’t responding, things like that, most technical people, I think, should be able to handle that stuff. If you have somebody who’s a DBA or a systems engineer, they can look at that stuff and start troubleshooting them. They’re not so much looking at the application itself. They’re looking at how do all these moving parts touch each other and why are they not working well together. It’s being able to at least identify that type of stuff.
That leads us into the next section which is using third-party monitoring services. Most of us, I think, have our own logging mechanisms of some kind that are either built into the application or are taking those logs and putting them off onto a third-party service. But there’s lots of other third-party monitoring tools that you can use like Pingdom and uptime.com. Rob, you had a […] in here I’d never used or heard of that one, but—
Rob: That’s Laura Roeders’ new startup.
Mike: Ah, okay. Cool. There’s also PagerDuty and Uptime Robot. There’s another service that I use called Datadog, which allows you to essentially constantly monitor what’s going on your servers and get detailed information about performance metrics of the system’s various aspects of it, whether it’s the database, or the application, or just different processes that are running. I use just that because there’s lots of different things that need to be monitored but conjunction of all these things is that, you can use those to figure out what needs to be escalated. If there’s certain things that cross a certain threshold for you to actually pay attention to it, then those are the things that you would need to escalate to either the technical person that you have, or a support person, or even maybe ends up going to you at some point.
Rob: Our next tactic is to turn off your phone and email during the day. Basically, automate any major escalations to SMS and ignore everything else so, ignore your email. Essentially ignore your support queues based on what we’re saying above is to try to get to the point where you can vacation, enjoy, and be present with yourself, or with your family, or whoever you’re on vacation with, and not feel the need to be checking inboxes all day, and not feel like something’s going to slip through and you’re going to miss it, or not to get a ping, a notification on your phone every time an email arrives.
Because of that, it’s catastrophic for enjoying your vacation. I think it’s a big thing. I’m someone who does not get notifications when emails arrive anyways. I think that’s a pretty bad idea for your productivity but if you do that when you’re not vacationing, then you need to turn that off when you are.
Mike: I turn pretty much all notifications on my phone off. The only one that would end up coming up and surfacing for the most part is certain things coming from the server logs, they pop-up on my phone, and then text messages. That’s basically it. Obviously, phone calls will come through but other than that, nothing is pushed to me in an interruptive way.
The last thing to take a look at is do some technical preparation, create a checklist, and use that checklist to look for potential upcoming issues. On this check list you would want to put things like, “Are my SSL certificates going to expire anytime soon? Does the system have enough space? Does it look like it might run out sometime in the near future? What is the CPU usage look like? Do I need to do any sort of upgrades, or give it additional disk space, or plan for more resource capacity in the meantime that would help me get through that and help mitigate any potential problems that would result from, maybe you get an influx of traffic, you get a bunch of sign-ups and your server gets bogged down?” If you upgrade the infrastructure a little bit, then that would help take care of it.
The other thing you have to look at is things that are completely beyond your control. For example, a DDoS attack. What happens if your application or your website suffers a DDoS attack? There’s other things out there, there’s services like Cloudflare that can help you out with that. You can also build redundancy into the application or into the website itself. But again, these are types of things that could come up but they’re also typically lower risk, unless you have a large enough footprint. Early on, these aren’t the things that you probably going to have to worry about too much but even in the case of a DDoS attack, your customers are probably going to be pretty understanding. It’s not like you did something wrong.
Rob: Yeah and these are things that you want to do anyways. This is stuff that helps if you have it during your vacation but any of these things can happen at any time. I’ve had SSL certs expire on me. I think it’s only been once and it was when I acquired an app, and of course, the contact email for the SSL cert expiring went to the old owner, like their personal email, so I didn’t get any emails. Suddenly, boom on a Sunday afternoon—it was HitTail—the Sunday afternoon, the site isn’t SSL anymore, isn’t secure, and Google Chrome has a conniption when that happen.
I remember calling GoDaddy on the phone, Sunday afternoon at 3:00, I’m thinking, “There’s just no chance. This is going to be a 24 hours or something and man, […] help me right away.” I’m assuming this happens to a lot of people because I think it was within 30 minutes they issued a new cert and I was able to get it.
That would be terrible to happen on your vacation. Like you said, you’re out on, what was the example that you used earlier?
Mike: Like on a roller coaster or like on a Ferris wheel.
Rob: Yeah, or I’m thinking we were snorkeling a few weeks ago in Florida, or you’re out on some safari, or you’re doing something where either you have almost no cell service or you just don’t have the headspace or connectivity to handle this well. It’ll be a stressor and kind of ruin that part of your vacation.
These are the kinds of things to have that check list that you’re probably thinking about on an ongoing basis but really revisit before you head off the grid.
Mike: One thing I found a little bit helpful for things like expiring SSL certificates or even domain name renewals is I actually add them into my calendar and create it as a recurring task that needs to be addressed at some point. That way, I actually use Teamwork for that piece of it but all of them are in there, so that I know that even if I don’t get a notification from whoever that is, I still see it as a task that needs to be taken cared of. If I renew for two years, it’s not a big deal. I can just mark them off. But at least that way, I have my own internal notification that serves as something of a backup.
Rob: That’s a nice way to do it.
Mike: Helps you avoid lost domain names, too, because I’ve had that happen which is why I have that system in place now.
Rob: Totally. Email is mostly reliable and that non-mostly part, the part that is outside of them, the most mostly circle can be pretty bad for domain names, SSL certs, and all that. I think that about wraps it up for today.
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