Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike define revenue expansion, talk about how it differs from revenue growth, why it’s important, and ways to increase it.
Items mentioned in this episode:
- Baremetric Article
- Price Intelligently Article
- Geckoboard.com article
- FemtoConf
- Mixpanel
- Kissmetrics
- Bluetick.io
Transcript
Mike: In this episode of Startups For The Rest Of Us, Rob and I are gonna be talking about revenue expansion opportunities. This is Startups For The Rest Of Us episode 365.
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 you’re just thinking about it. I’m Mike.
Rob: I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. For this week, Rob, tell me the two most recent non mainstream board games you’ve played.
Rob: I played The Legend of Drizzt board game which is this $65 behemoth massive thing with these figures in it. It’s set in the D&D world. Drizzt is a character who’s been in a bunch of books, fantasy books by R.A Salvatore. It is pretty cool. It’s a simplified version of D&D in essence, you don’t have all the rules and the mechanics but it’s a lot quicker because you can play around in an hour.
I back a lot of games on Kickstarter so I could probably name five that are super not mainstream. There’s one called Mint Mint Tin Apocalypse. It was $2 or $3. It is literally a mint tin and then a couple wooden meeples and then some six sided dice. It’s cool because it takes 10 to 15 minutes to play and it takes 5 or 10 minutes to learn. It’s a long term, you’re gonna play all the time. When I know we just have a few minutes, you sit down and you can just hammer it out. It’s fun and it’s super cheap.
Mike: Aside from the board games, what else is new?
Rob: From the time this podcast airs, I will be wheels up to MicroConf Europe two days later. I’m excited to get to Lisbon. We’re gonna have folks speaking like Peldi Guilizzoni from Balsamiq, Andrus Purde who is the former head of marketing for Pipedrive, now has his own company called Outfunnel, we have Craig Hewitt from Podcast Motor, Mike Taber from Bluetick, Mojca Mars, a Facebook ad expert. We have several other speakers. I’m excited to get there and see some folks that we maybe haven’t seen for years as well as meet the new attendees who are coming for the first time.
Mike: On my end, when this podcast comes out, there will be an announcement for the tickets that will be available. I will be speaking at FemtoConf over in Germany in the spring. I believe it is the first week of March, it’s March 2nd to 4th. It’s over the weekend, it’s Friday, Saturday and Sunday. The tickets are actually going live the day that this episode goes out. If you head over to femtoconf.com, I’m told that they should be available, if they’re not it’s not my fault.
Rob: Aside from the fact that we like Christoph and Benedikt, I really like that they have the Drift right on their homepage, femtoconf.com, ladies and gentlemen. What are we talking about today?
Mike: For today’s episode, we are going to be talking about revenue expansion opportunities. I’ve been thinking about this a little bit just because it’s been on my radar for Bluetick to look at different ways that I can either rework the pricing or find other things to expand the revenue opportunities for Bluetick. I started looking into some of the different ways that that could be done but it also gave me the idea for this particular episode. We’re gonna be talking about revenue expansion.
Revenue expansion is different from revenue growth which typically comes from new customers. Expansion revenue is any revenue that is generated in excess of whatever the initial purchase price that the customer agreed to pay. If they signed up for $30 and they’re paying $30 a month, that’s great, that’s considered a new customer. It becomes expansion revenue if they move from a $30 plan to a $50 plan or to a $100 plan or if they add more users or purchase other services or other products that you have.
There’s a bunch of different ways that those types of things factor into it. The bottom line is when you’re defining expansion revenue, it’s really additional revenue that comes from your existing customer base that you would not have gotten otherwise.
Rob: The holy grail of running a SaaS app is having enough expansion revenue that you have net negative churn. I talked about this a few episodes ago. In essence, you always think of churn as lost revenue because of people cancelling. You can get to the point where if people are naturally upgrading to higher tiers as they use your product.
A good example of this is being ESP where as you add more subscribers, you naturally bump up every few months if you’re having any kind of success, you start paying more, that can be more, that amount can be more than the amount of revenue you’re losing because of people cancelling. When you see that effect, it’s called net negative churn. I’ll say it’s rare, it’s becoming more popular, strong word.
I’m seeing and hearing about it more as people catch onto how incredible it can be as a flywheel for growth because having low churn means you can grow at a certain pace. Net negative is super charge, it’s a completely different trajectory. If you’re lucky enough or smart enough, or both, to stumble into a business where people automatically have expansion revenue like ESP, I think web hosting if you do it based on maybe traffic or the number of sites.
I’m trying to think of other areas, Wistia for me. We had a small plan and we just keep adding videos and we’ve gone up. It’s not super often, maybe once or twice a year, we wind up going up. Mixpanel and Kissmetrics, they go based on number of events. As your website ramps up, you naturally go up the scale. I guess Help Scout or any types of support software where it’s a per seat, that’s a big one.
Per seat expansion is a big one because as a company has more success with their product, they are likely to either bring more people in because it’s working. What if they already have employees, they’ll add more seats or they’re likely, if they’re a startup, we went from 2 employees to 8 in the span of about 18 months. We just needed to add more people to all of our systems.
There are opportunities for some natural ways to get expansion revenue and to try to get to that Holy Grail as I’ve said, net negative churn. I hope I didn’t steal your thunder, I was going off the top of my head. Did I totally decimate this outline with that diatribe?
Mike: No, just the first little piece of it. We’ll link up in the show notes a couple of different blog articles specifically about how new recurring revenue is different from expansion revenue which is different from churn revenue and how those can combine to create that negative churn effect. Those blog articles, some of them are from parametric or Price Intelligently and then there’s also another one from geckoboard.com.
You already talked a little bit about why it’s important because it relates to negative churn. The bottom line here with going after revenue expansion is that it helps to offset your existing churn because, as Rob just said, when you’re losing people just on a regular basis, you’re going to lose people on a monthly basis or quarterly basis, whatever it is, that your billing cycle tends to be on. That helps to offset that.
It’s easier to get more money from your existing customers because presumably you’re keeping them happy, than it is to acquire new customers, it’s typically a lot more expensive to acquire those new customers. We talked about these acronyms like CAC which is cost to acquire a customer, that number tends to be substantially higher for a new customer than it is to get expansion revenue from existing customer where you’re doing some cross sell or upsell or you’re asking them to opt into this other thing.
It’s a lot easier to do those things because you already built that trust. When they’ve never purchased anything from you before, they’re much more reluctant to take that first step because they’re pretty sure that it’s going to take up time. It’s not that it’s not valuable to them but they’ve got other things that they’re doing in addition to paying attention to your product and other things that it can do for them. There’s only so many hours in a day for them to focus on the things that they need to do. That adds one more thing to their plate.
Let’s dive into some of the different ways that you can increase revenue. The first one, Rob alluded to this where some of the examples he came out were Mixpanel or Kissmetrics or hosting providers where as the customer becomes more successful, they use more of your services and by virtue of that, they start paying you more because they’re using more of the resources that you offer. This is essentially increasing their consumption.
There’s another way to look at it, which is to decrease the friction that it requires to use whatever that is as well. Some examples that come to mind are Apple’s iPod or the Fire TV from Amazon. Those things make it a lot easier to download music or to purchase movies or rent movies. Those devices make it a lot easier for you to consume them and to consume them at a faster pace. Those are some examples of that.
If you go over into the physical products world, this occurred to me a while ago, I’m sure somebody has talked about it at some point, if you remember going to McDonalds back in the 90s for example, the straws were insanely small. If you ever went and got a milkshake, it took you forever to drink the milkshake because the straw was so small. You go to McDonalds now, the straws tend to be substantially larger. They’re probably six to eight times the size that they used to be and put through a lot more liquid in there and drink it faster.
That leads you to increasing the rate of consumption, it also leads to larger portion sizes as well. As a consumer, you have to be careful but as a producer of whether it’s content or digital assets or something along those lines, if you can increase the rate that somebody is using your product or services by decreasing the amount of friction, that’s almost the same thing as being able to deliver more.
Rob: Another example that McDonalds was I think a pioneer of, we’ll talk a little bit later but that is cross-sells. When you’d order a burger, what was the famous saying, “Do you want fries with that?” We’re trying to encourage you to do that, and then they had meals. I remember, I’m old enough to remember, when you go to McDonalds and there were no meals. You order a hamburger and then you order french-fries and then you order a drink if you want that.
They started packaging the meals to do exactly this, increase consumption of overall amount of food. You could also call it a cross-sell. This of course can backfire on you, it’s very unlikely to happen to one of us running this small business. Remember that movie Super Size Me, it was a look at how bad McDonalds’ food was. That was the name of it, it was a take on.
You used to pull up to McDonalds and you’d ask for the meal deal, big mac meal deal and they’d say, “Do you wanna supersize that for $0.99?” You’ll get an extra-large drink and an extra-large fries or something like that. That was another way to increase consumption, it was an upsell in essence. A lot of people did that. There were complaints of you’re encouraging people to eat bad food and blah, blah, blah, the politics of it or I guess the morality or ethics of doing that aside, odds are you’re not selling unhealthy food to folks.
You are probably doing something like selling software, selling info products or ebooks. If people use or consume more of them, you can encourage them to do so, then that’s gonna help you increase your bottom line.
Mike: The next one is the very issue on that which is increasing the number of seats that people are using. Not every product is going to have a pricing model that’s going to be able to support this but there are certain cases where a per user model makes a lot of sense. There are ways to incorporate other people unto the team in an environment where there’s your customer or consulting companies that they use, whether they have contractors. Those people may need user accounts.
You do have to be a little careful with this because, as I said, the type of product that you have, you can easily end up in situations where people are just sharing an account and you’re trying to sell a single account for $50 and two accounts for $100 or maybe a slightly reduced price of $90. They won’t go for it because they’ll just decide, “We don’t need that, we’ll just share the account between these people. It’s not that big a deal.”
Just be aware that sometimes it’s an option, sometimes it’s not but there are opportunities to put people into a software package and other ways, other roles inside of it or other responsibilities which give them maybe different options or different features.
Rob: There is actually a really good rule for this on how to decide if your product should be seat based. This is hard and fast, I know lot of time we say, “This is a guideline.” I actually believe that you should not break this one either way. If someone logs into your software with their login, do they see something different than if they login as someone else? A good example of that is Mailchimp or Drip and ESP.
If you and I share an account and we both login with our own logins, we see the same thing, there really isn’t anything different. The only difference is if I were to login as you and do an export, you’ll get notified, you know any exports done but the minimal stuff. If I login to a CRM system or into Bluetick as me versus you, it’s a completely different inbox, completely different list of customers, completely different list of tasks.
The CRM always charges by seat because that’s their upsell and that is the differentiator. It is a minority of products that can charge by seat. Just ask yourself the question, “Does someone/should someone see something different if they login as a different person?” Trello is another example. If I look at my Trello account versus yours, they’re totally different. If we had a business account with seats, you should absolutely charge by seat.
I do see people make the mistake, you mentioned this, of trying to charge by seat when they don’t have the differentiator and then you just get one seat and then save it with everybody because there’s no difference, it doesn’t make sense. It feels to people like you’re being disingenuous if you did do that. I can’t imagine an ESP charging by seat.
There are some marketing automation platforms that charge by seat because they have CRM built into them. Infusionsoft, ActiveCampaign are examples of that. they do have per seat pricing. I’m almost positive if it did not have that CRM view, they would not do per seat stuff.
Mike: The next option for increasing your revenue is to have different upsells. These could either be a higher tier of an existing product or it could be add-ons, it could be additional integrations to give people access to, it could be plugins. There’s a variety of different options that you could give somebody that provide additional functionality on the base level package that you could use as an upsell opportunity.
If you’re using these, you can either have bundle deals on your website where you’ll just say, “Here’s a package deal. It’s $100 for these X things.” Or you can say, “Ala carte, you can get each of these if you want, each of these five but it’s gonna cost you $30 per piece if you’ll buy them individually. Buy them as a bundle, you can get them for $100.” That bundling is also an option for an upsell.
It doesn’t seem like it is but when you start looking at who the types of people are that are buying those things, chances are good that they’re not gonna use all five of them in that particular example. They’re gonna use maybe three or four but the package deal is appealing to them because they have in their head that, “I might use these things down the road.” Even if they don’t use them now, they may have an intent to use them later.
Whether they do or not is immaterial but you can get them to purchase that package deal whether or not they’re gonna use it especially if you position it as a good deal for them.
Rob: This is very different, there’s upsells. It’s different between info products and software. Upsells are very natural and tend to make a lot of sense with information. If someone’s gonna buy a book from you then you upsell them to the videos or you upsell them to a 30-minute console or some interviews you did, that’s pretty natural.
Software can be more of a challenge, it can take more effort. You can always upsell training, really hardcore training. You don’t just want documentation to be upsold, you want that to be free. Something that actually gives someone a mindset view or an architectural overview that they would normally have to pay for, there is that line of you look at pricing of segment.com, their tiers are less based on usage and much more based on the integrations that you use.
I’m sure they know that someone integration with Salesforce tends to have bigger budgets and a lot more value out of segment than someone not doing that. Zapier, I think it’s the same way. There are certain things that are locked behind higher priced paywalls. Drip tends to be that in these apps that integrate with a lot of things because they know if someone is using Drip, they’re probably a more sophisticated marketer, they probably have a larger list, they probably have a bigger budget, that type of stuff and they’re gonna get a lot of value out of these tools.
This takes a lot of thought. The hard part about this is knowing what to lock behind these feature gates and doing it incorrectly is pretty easy. I’ve seen it swing both ways and I do think that if you find one of these other paths where your expansion revenue can be based on number of seats or it can be based on number of subscribers or contacts or it can be based on number of events, there are certain things to fit in, storage size, if your Amazon has three, then go with those.
Probably stay away from trying the feature gate right now, feature gating meaning you can’t get this feature unless you go up a tier, you pass through this gate by paying more money. If you don’t have an obvious way to use one of those obvious numbers that everyone else is using or makes sense for your product, then yes, you do need to seriously start thinking about ways, how do you build tiers when you don’t really have an easy one number like seats or subscribers or contacts to look at?
Mike: That’s actually a really interesting discussion topic just because I think that people look at those features and say, “What should I put in here as a feature gate to create these different pricing tiers?” I remember when Segment used to feature gate based on which integrations you were doing because presumably if you were using Salesforce, you had the money to pay for Salesforce. Clearly, you had money to pay more for a segment license. I think that they’ve shifted their pricing model and you don’t have to do that anymore. When you sign up, they have three tiers.
Rob: I was just saying that they did, I was mistaken. Zapier still does that, Segment used to.
Mike: They used to do that, they don’t do that anymore. I think it’s partially because they got to a point where they were far enough down the road that they had the ability to dedicate somebody to take a hard look at those things and see whether or not they mattered. Having the conversation with the customers to try and find out what the more optimal pricing model was for them.
Rob: They do it now on monthly track users, empty use they call it. It can be dicey, although with Segment that makes sense. How many users are you gonna track in a given month? That’s actually pretty easy to get an idea, you can think of how many either customers or how many website visitors unique in a month. Other times you’ll see like Amazon has pricing like this where it’s number of elastic compute units. What does that even mean? It’s something that is not defined anywhere.
I’ve seen things based on events and it’s like, “I don’t know how many events I’m gonna have in a month. How am I gonna know that?” Kissmetrics and Mixpanel have that problem of trying to define what these things are.
Mike: Even Segment has that problem because the empty use that they advertise, that is for the number of tract users coming to your site, not necessarily the people logging in. It’s not your team. If your website suddenly gets a ton of traffic from Reddit or Slashdot or something like that, you could easily blow through that very quickly depending on the company. You could either end up in a world of trouble with a giant bill or they could say, “We’re gonna turn this off, we’re not gonna allow you access to the rest of this data unless you pay for it.”
Rob: Something that Segment is – I’m looking at not the pricing grid at the top but they have a breakdown of what the differences are between the plan limit levels. Without knowing what their internal data looks like, they both have empty use, that’s monthly tract users, plus they have seats, the lower end only has 1 seat, and the team one has 10 seats. I’ll go back to my question, if I log into Segment as you versus me, do I see something different because as far as I know, you don’t. I actually think that’s probably not a good idea.
They have sources which is how many sources are you going to connect to Segment. The developer panel has two and then all the others have unlimited. Maybe that one is harder to say right or wrong. When you’re first starting out, you don’t have the trust of the market, you don’t have a brand name, you look at people like Segment or Intercom or MailChimp or Drip, we have the luxury of having a brand name and people are actually seeking us out.
We can raise our prices and we can do more complex pricing schemes because people are willing to come and use a tool that they trust and a lot of people are talking about. In the early days, this was with Drip as well as Intercom as well as your tool today, I’m speaking to a listener there, you don’t have the luxury of being able to have super complex pricing because no one’s gonna wanna bother with it because you’re probably struggling to try to get people to come and try it out and try to use it.
I would go extremely simple and I would go for one of these numbers, per seat, per subscriber, per contact or something else that’s very noticeable and easy to figure out until you get to that critical mass. You’re gonna know it by the fact that people are gonna start telling you, “Boy, you should raise your prices, you’re too cheap.” Or you’re gonna look around and say, “I haven’t raised my prices in a year, I need to rethink this.” You should have pretty good flywheel growth by the time you get to that.
Drip is now on its fourth version. We have versioning for pricing. We’re on our fourth version of it in four years. We haven’t done it every year on the dot but we actually did it three times in the first probably year and a half or something and then we really haven’t done any restructuring of pricing since then. Do try to keep it simple in the early days and don’t try to copy companies that are way further along because they have the momentum and the flywheel and the brand and you don’t have that yet. You don’t wanna make this mistake of confusing people.
Mike: Everything that we just talked about is really adjusting your licensing model in order to create more opportunities for upsells using those pricing tiers. Another option that you have that’s available to you is offering some annual plan, whether you offer upfront or you offer it a couple amounts down the road after somebody has started using your product and he’s getting comfortable with it.
Maybe there are certain trigger points where you say, “Let’s offer them an annual plan or a special discount upgrade for three month upgrade. Try this out, the platinum tier for free for 30 days or 90 days.” There are different ways that you can position that and pitch it to people. What you’re trying to do is you’re trying to increase that overall revenue from them so that it decreases the number of times that they’re gonna have to sit down and think about, “Do I really wanna continue paying for this?”
I think Leadpages used to do that really well with their webinars, if you attended a webinar, you could signup for Leadpages account and they would pitch you on a two-year plan. For two years, you are probably not going to go look for another landing page provider because you have this account. Unless it’s not doing what you needed to do, you’re not gonna go look for something else because you’ve already purchased it.
Rob: One of the big benefits of annual plans, especially when you’re starting out is you’re tight on cash. To get someone to pay for 12 months of service in advance, even with a discount, that cash is invaluable. If you can figure out a way to get someone to pay you for that full amount of service and you’re doing any type of paid acquisition, you are gonna be in a great spot. Basically spend a dollar, get $3 or $4 right away. It is a flywheel, it allows you to then acquire more people faster.
It’s pretty incredible, the power of being able to get annual. That’s why you’ll see pretty hefty discounts, 20%, 30%, 40% on annual plans because the cash is just so important to startups in their early days.
Mike: We mentioned this next one several times throughout the episode, it would be cross-sells. If you have other products that you have to offer, cross selling them after somebody has purchased the first product if there’s another one that relates to it or integrates with it, if there are signatures that you can identify with the customer that would indicate that they would probably be a good fit for this other product that you have, then there’s obviously ways that you would wanna interject yourself into a conversation with them to put them in an email campaign or have somebody call them and say, “Would you possibly be interested in taking a look at this over here because we think that this would help your business as well based on what you’re doing and what we’ve seen other customers get in terms of benefits and the similarities between the customers.” That’s another one.
I’m gonna move on from that. The next one is services and customizations. I think this one is a key piece that most software people overlook because we’re trying to build software companies. Our natural inclination is to build a software and sell people software, but the reality is sometimes people need a little extra help, whether that’s onboarding assistance or they need you to do something for them whether it’s a productized service.
There’s lots of different pieces to your application, it’s not just signing up for and plugging in a credit card. There’s usually a lot of other things that the customer is gonna have to do in order to get the value out of that particular product. Because you have all the insights and the backend knowledge and the main expertise for that particular product, you can do those things a lot more efficiently than the customer can.
You can create a service that is going to use your product on their behalf to achieve whatever the goal is and now you’re able to do a lot more because you can dig into the guts of it. If something is not gonna work the way it’s written, you can find ways around it, you can import things directly into the database if you need to and then make the software do it so that you can deliver on that service that you’ve promised them.
They’re more likely to purchase those services because it provides a lot more value to them by having it as more of a done for you service rather than they signup and it’s self-service because that’s most of what SaaS applications are, most of them are self-service versus a productized service where you’re hiring somebody to do something or deliver some sort of value or output. That’s what you’re paying them for, you’re paying them for the output. With SaaS, you’re paying them for the license to use that tool for the duration of them paying for it but they still have to do the work.
Rob: I think there are two aspects to this. You said services, it’s like the productized service. There’s a second aspect which is customization. It’s going to be like if someone came to us, actually we’ve used this with DotNetInvoice all the time. It was downloadable software you run into your own server, it was like self-hosted Fresh Books, a simpler version of that. People would buy it and say, “I don’t want this this thing added,” more like yeah, we’re not gonna build that feature, we’ll pay you to add it.
At first it was like, we’ll charge you $150 an hour and then we moved up to $200 an hour because we just really didn’t wanna them. It made some money but it was a hassle. Consulting, if you wanna be in that business, go do it, it’s lucrative in the short term but if you wanna build something long term, it’s hard to mix those kinds of businesses because they’re two different businesses, serving clients, offering deadlines, doing the contracts.
What if they’re not happy with it, what if they request changes, that’s a type of business. Building your own software product is another type. You’re not gonna move forward full steam on your software product if you’re busy doing a bunch of consulting gigs. The problem is the consulting gigs are like the quick hit, it’s like the crack cocaine where you get the $5000 or the $10,000 because someone wants you to do something.
Of course you’re gonna run off and do that but that revenue isn’t worth nearly as much because it’s dollars for hours. You’re not spending that time marketing your product and building features that other people will use. Even the market itself speaks, if you were to go raise venture funding or you were to try to sell your company even through a broker or you were to go public or whatever, any type of valuation, software recurring revenue is gonna be 3X to 7X your revenue multiple.
Consulting revenue tends to be in the 1X, maybe 2X if you’re lucky. It is a third to a fourth as valuable on the open market because it’s just how these things work. I think you have to be really careful about taking the quick hit or the quick dollar because it is gonna slow you down. If you’re super desperate and you really need the cash, there’s times when it’s not an absolute rule, there’s times when you might need to do this but I advise founders against doing this if it all possible.
Mike: The last item on our list for revenue expansion opportunities is to have an affiliate offer. This could be in the form of a direct product that you are offering that is a third party product that you are getting a commission from or it could be a referral. If you have a good relationship with a provider and there’s a subset of customers that you know need something that you’re probably not going to do it but you have a good relationship with somebody who does provide that service or that type of product, then you could setup an affiliate relationship with them where you will refer customers over to them where you’ll get some commission or kickback or finder fees, something along those lines for referring them over.
You could also do this for free, I know that there are people out there who like those types of things and they’ll just say, “Here’s some free business because I know that you’re gonna take care of them and I don’t really want anything from it.” Those opportunities are available as well, you can probably find people who will do the same thing for you. I think it’s much more common to have some sort of an affiliate relationship setup so that there is a specific dollar amount tied to it or percentage. It makes it easier for you to quantify how much work and effort it’s going to take you.
Rob: If you have other ideas for revenue expansion that you feel like we missed in today’s episode, feel free to come to startupsfortherestofus.com, Episode 365. Post a comment or email us at questions@startupsfortherestofus.com. That wraps us up for the day. You can also call our voicemail at 888-801-9690. Our theme music is an excerpt from We’re Outta Control, it’s by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 364 | Plateauing at $1k MRR, When to Spend on SaaS apps, and More Listener Questions
Show Notes
In this episode of Startsup For The Rest Of Us, Rob and Mike take a number of listener questions. They give their insight on a some topics including when to spend money on helpdesk software, what to do when you’ve plateaued MRR at $1k, and how to promote a blog post.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about plateauing at 1k MRR, when to spend on SaaS apps and more listener questions. I also asked Mike a question right at the start that I haven’t prepped him for.
Mike: Damn you.
Rob: Mike, what is the most interesting book you’ve read lately?
Mike: The one that I read recently was one that you talked about on the podcast, it was Masters of Doom.
Rob: What do you think?
Mike: I thought it was really interesting. The story and the dynamics between the two Johns was very personal between them, obviously. The implosion of the John Romero’s company afterwards, after they blew all that money that had come in and basically bankrupted the company. That was interesting but not necessarily unsurprising.
Rob: They were kids, essentially, starting a company and making millions of dollars. They bought Lamborghinis and Ferraris, just the total stereotypical, 20 something with too much money.
Mike: But that was with their money that they got from Doom. John Romero had spent ungodly amounts of money on building the company and an office space in downtown, I think Dallas or Austin, or something like that.
Rob: Where he raised $10 or $20 million to start the new gaming company after they split.
Mike: What was it? $20 or $30, $40 million or something like that and then $100 million of guaranteed money coming if they actually just published the games. That’s my most interesting book recently.
Rob: 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: I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we made. What’s the word this week, sir?
Mike: I decided to let you back on the podcast after the date fiasco. Did you hear that?
Rob: No, I haven’t heard it yet. The MicroConf saved the date that I sent three weeks ago was wrong but did you tell anyone what I was reading? I was reading stuff you typed in the doc.
Mike: I didn’t.
Rob: You typed it.
Mike: I know. I absolutely did not say that to anybody.
Rob: That’s where it comes out now, I said the wrong date. I did hear you say that at the beginning of the next episode. I was like, “That sucks, how do we do that?”
Mike: It was totally my calendar but you’re the one who said it, not me.
Rob: I know, it will forever go down. I wonder if I can get Josh to go back and edit that episode.
Mike: He probably could but people have already listened to it.
Rob: I know. The correct date for MicroConf in Vegas next year, Growth will be April 29th through May 1st, Starter Edition will be at May 1st through 3rd. Mark your calendars, tickets will be coming out in the next couple weeks.
Mike: I corrected my calendar already.
Rob: What else is going on?
Mike: My wife, Ali, who I’ve talked about a little bit before, she took over another fitness studio here in town. It’s been about six months or so. There is an article that literally came out today where she was voted the best athletic club in the annual reader’s choice survey that went out maybe last month but it came in and she was selected. I just wanna say congratulations to her.
Rob: That’s super cool. You have a little article, you’re gonna link it up in the show notes?
Mike: Sure.
Rob: Awesome. For me, two random things. One is have you heard of the eero routers?
Mike: I think I’ve seen something about them but I haven’t really looked at them at all.
Rob: If you have the first world problem of having a house so big that you can’t get Wifi in your kitchen, then these eero can get it at any part of your house. These eero routers are ridiculous. You buy them in a three pack, they’re not cheap, I think it was $300 to $400 on Amazon. They basically mesh network with one another. They don’t use Wifi to go through the walls, they use mesh network at a different frequency that can go through walls a lot easier and you put them around your house.
This house at Minneapolis has a basement and then two stories and the house is wide, it’s longer than a lot of houses. When we first setup just the NETGEAR router, you couldn’t get Wifi, you can get in that one room and then it was blocked everywhere else. With these three eero routers, it is ridiculously fast even way, way down on the basement which is three layers and layers of concrete and all the stuff. It’s crazy how good these things works.
Again, not cheap. NETGEAR router that I was using was $80 and this was, like I said, $300 or $400 but it permanently solved this problem. I used to have extenders, they underscore EXT network, it’s just junk. They’ve had these for years, obviously, for commercial use like in office spaces and such, college campuses. The first consumer ones came out within the last one to two years.
Eero, they keep updating their operating system and I have nothing but good things to say about these guys, they’re not sponsoring the podcast although they probably should. That’s the deal. Do you have any dead spots in your house or does your NETGEAR capture everything?
Mike: No. I cheated and I have a power drill. I drill holes through walls and run Cat 6 cable.
Rob: It seems like something you would do, Mike. I think you would build your own servers and run Cat6 cable through things. We’re on a rental. Who knows how long we’ll be here.
Mike: That’s what the security deposit is for.
Rob: I’m gonna run cable. Even at our house in Fresno, it was a super single story but super long and I could never get Wifi in the living room because the router was over in the office. They would’ve fixed it there as well. I guess that’s it.
Mike: I do have Wifi here. I think I have three different Wifi routers in my house in each general area, there is either wired or wireless depending on where you’re at. Of course, to screw my neighbors who ask if they could borrow my Wifi, create one called FBI van 42 or something like that.
Rob: If they could borrow your Wifi, wow.
Mike: I know, I was like, “No.”
Rob: There’s no chance that’s happening. My other tidbit is I wanna run through a couple of books that I’ve listened to recently and really enjoyed. I still think I keep coming back to my top three, these are not ones I’ve listened recently but I think my top two or three audiobooks of all time are Masters of Doom, like I said and you listened to that, and then Hatching Twitter is another one and then The Snowball with Warren Buffett. Those are all good.
Some other ones I’ve listened to recently that I hold in high regard, one called American Kingpin by Nick Bilton who’s the same guy who did Hatching Twitter. It’s about Silk Road, the bitcoin marketplace that sold drugs. It’s about the guy who started it and it’s very, very well-written, very compelling just like Hatching Twitter. I didn’t really have much interest in the story, to be honest, I really didn’t care about Silk Road, I didn’t think I was going to care but he makes you care by the time you read two chapters, very interesting.
I listened to Angel by Jason Calacanis. Whether you’re an angel investor or not, it’s pretty fascinating to hear inside his world. It’s a good balance of boots on the ground stories, advice for angels, advice for founders who may someday raise money, how to run a good company. Calacanis is such a smart dude and has so much experience with the stuff that he almost can’t help but learn something from this even if you’re not gonna be an angel investor or seek angel investment.
Another one is Tom Petty, The Biography. Oddly enough I was listening to this couple months ago and then Tom Petty just passed away within the last month, that was coincidental. I have always been a fan of Tom Petty, I didn’t know his story. To be honest, the first at least third of the book is really boring and I almost skipped out of it but I started skipping chapters and I got to the point where they did start taking off and it was fascinating from there, the actual rise of them instead of all the years of him growing and stuff. That part didn’t resonate.
Lastly, there’s a new book called From a Certain Point of View, that’s new on audible. It is basically Star Wars episode four, it’s the story of all the surrounding characters. They got 40 different writers and then 40 different voice actors to do these little short stories about. It might be about a stormtrooper who is off camera or it’s about a jawa who sabotaged something. It’s about when R2 tries to sabotage the red droid. It’s noncanon but it’s cool if you’re a geeky Star Wars fan and I enjoyed listening to it.
My 11-year old listens to and I’m listening to it and then we compare notes. It’s like, “Did you understand that one?” We talk about it. That’s been fun. Have you listened to any of those or read them?
Mike: I saw the From a Certain Point of View had come out and I keep seeing it in different places but I hadn’t read it or really looked into it, I didn’t know the story behind it.
Rob: It’s interesting if you’re a Star Wars geek because they make references to things. Unless you’ve seen Star Wars several times, you’re not gonna get it, it’s not gonna be interesting.
Mike: Cool.
Rob: Today we’re answering listener questions, we still have good a number coming in. I wanna keep up with that. The first question is about plateauing at 1k MRR. It’s a follow up to a question that Matt [00:09:05] had asked a few months ago. It was regarding portfoliolounge.com. He said, “Thanks for your reply in an earlier episode. I’ve since listened to most of your past podcasts and realized that funding is not necessarily what I should be looking for. I wanted to clarify and say that portfoliolounge.com has had about 30,000 free members and upgraded subscription options average about $10 per month, sadly the site has plateaued at around 1k MRR. I’d love to get your advice, see what you think about the site and potentially how to grow it.”
What I wanted to talk about today, I wanna bat a few ideas around. A lot of sites, a lot of people find themselves in this situation. You launch an app, it grows to 1k MRR and then it plateaus. It’s like what do you do at that point? How do you attack the plateau? We could also separately maybe talk about the free plan. Whether we think you should do that moving forward, whether we think perhaps it was a mistake or that kind of stuff. You have initial thoughts to kick this off?
Mike: Average of $10 per month, it sounds to me like that’s really targeted at the consumer side of the market. I would love to see if maybe there’s a possibility of going after businesses who needs some sort of an online portfolio, like a photographer. There’s a photographer that we use every year here in Lister who takes pictures with Santa Clause, for example. He has this whole website where you can go out and you can pick the photos and things like that.
I wonder if targeting photographers like that or running a small business would be a better proposition than targeting end users or the consumer market because obviously those people are not gonna be willing to pay very much money on a monthly basis for very long.
Rob: I think this does target more photographers, to be honest. If you think of photographers, they’re really prosumers, if you wanna know the truth, they’re not even SMBs like Beta SMBs. A lot of them do it as a hobby and a lot of them do it on weekends and they make a few hundred bucks a weekend or something. I think they’re that in between.
There are so many portfolio sites, that’s what this site does, pretty basic. The headline is create a portfolio website quickly and beautifully. You think of it as a core space for just portfolio sites and it’s highly focused on that but a lot of other sites do exactly this functionality.
Mike: It’s really more a matter of overcoming the competition especially if those other sites are offering it for free.
Rob: Yeah. I don’t know if they offer the exact same thing for free. Certainly he has a free plan and then has the $10 month upsell which probably gets you to something else. I think the questions to think about is, is your offering pretty much exactly what a bunch of other places have like SmugMug or whatever. If it is, you either need to be differentiated as a product in a way that people care about or you need to have, essentially, a traffic or a lead source that no one else really has access to or that you are at the top of like Google Search Result or you’re way better at paid ads and you’re really getting a better traffic for that, this won’t work for the paid ads with the free plan and the $10 a month.
If you don’t have one of those two in this type of business, you’re done, you’re never gonna get above a grand plateau or two grand. There’s gonna be some very small number of people who just picked you because they found you first but other than that, you either have to be differentiated or have to really own that traffic source like that number one Google Search Result.
Mike: I wonder if there’s another option here which would be to use this as your traffic source and then have something else that you’re upselling. If hosting the portfolio is very much a commodity and there are other sites out there that are doing it for free and you’re trying to charge for it, that’s gonna be a tough road obviously with $1000 MRR, that’s the position that he’s in.
If you have something else that is something that you could sell whether it’s an ebook or some upsell on top of what you have now, I’m not saying go back and retract the pricing and everything but if there are other products that you’re upselling people to, you build your portfolio and then we can educate you on how to grow the traffic or advertising or things like that.
There are other things, I think, that you can do here other than charging directly for posting the portfolio especially if that’s the commodity. Is there some other product that you can have that you can put in there?
Rob: I think that’s a totally reasonable idea. I think another thing to think about is 30,000 free people have checked it out, I’m sure they’re not active, I’m sure it’s a small percentage. You have, essentially, 100 paying customers at $10 a month to your thousand, that’s a third of a percent of all of your free users have ever paid you any money or at least your current customers, I guess I should say.
That’s a problem because that number is too low, the number should be between 1% and 3%. I would look at that and think, “Is there a way that I can get more free users to upgrade or is the free plan just a mistake or a failed experiment.” I would consider if you’re not already sending emails to get people to upgrade, if you’re not already helping them get whatever it is to get them to the paid tier or convince them that it’s worth their value, then obviously that would be where I would start because that number is too low.
It either means that you’re not taking the right steps to get them to upgrade or they’re just never gonna upgrade and the free plan is a waste of time. You need to figure that out. If the free plan is a waste of time, then I would shut it down immediately and I would grandfather people for now and then I would start a free trial instead and do it basically the same way where you have maybe 14 days or 7 days or whatever.
You have time pressure for people to get in and get setup. That helps them actually get value for the product. I think you’ll convert potentially more people in the short term. When I acquired HitTail, there was a free plan and there were some users using a lot of resources that were on this free plan. I did wind up shooting that down. It was a hard decision but the site was bleeding money because of that.
I did get some people to convert from the free plan, it was not a huge number but it did really have a lot of resources from the app and it allowed me to get some revenue, it was 500 or 1000 of MRR in the early days of that, actually maybe a little more than 1000 which sounds like chump change at this point but it was actually a move that I think was worth that I got some pushback. I did grandfather some people in who had been fans of the site and really good JV partners or that one guy who had taught an SEO class in Italy and he’d always mentioned HitTail in the class.
If someone complains and they’re not disrespectful and they have a good reason, yes, you can keep them in but to have 30,000 open free accounts on your platform, if you are gonna shut that thing down long term, it just doesn’t make a ton of sense.
Mike: To add onto that a little bit, go back to the point that you said, what does it take to upgrade people. You can look at the number of images that people are uploading and the pieces of content and try and see how many people are above that threshold and what the average number of images that people upload is. I look at the subscription options and says upload as many as a thousand items, how many do people upload on average? Is it 50, 100, 500, could you tweak that number and drop it down?
As Rob said, are there trigger points that you can use to say, “You’re getting close to this, would you like to upgrade?” Look at those and see if you can play with those numbers a little bit to try and get people more towards that edge where they have to make a decision one way or the other.
Rob: I think that’s a good point. Lastly, I’ll reiterate, if you don’t have some type of feature or positioning differentiation from other platforms on the market, or you don’t have some marketing advantage where you’re getting leads that aren’t comparing you to other people, example, you are the number one search result in Google for some nice term, then long term, this business is not gonna grow, it’s gonna plateau somewhere, it’s probably gonna plateau very low. That’s something that I would keep in mind.
Our next question is about when to spend money on helpdesk softwares specifically. Actually, I think it opens up almost a thought of when do you start spending money on external SaaS apps when you’re starting your own business. This is from Saphia, she says, “I discovered the show a few weeks ago and I cannot stop binging. It’s such a good resource for first time founder like me. What is your take on helpdesk software cost and how early we should put them in place? We’ve launched our SaaS MVP a few weeks ago as a free trial and our prospects are rightly providing feedback and feature request by email which makes me crazy as the only developer in our company. I wanna subscribe to Intercom or Zendesk or Groove but my co-founder disagrees because of the cost and things, we should just do with email for now. What is the right way to do with feature request at an early stage?”
I will throw one other support software in there and that’s Help Scout. We use them at Drip. They work really well for us and they’re quite cheap. I think all these things are $10 or $15 a seat. With that couched Mike, it sounds like he has a couple questions. One is been on helpdesk and then there’s how do you handle feature requests at an early stage.
Mike: These are three different things that you can dive into. In terms of looking specifically at a helpdesk, one other thing that I’d throw out there is an option is Teamwork Desk. If you go over to teamwork.com/startups, they have a startup program where you can get everything that they have for free for an entire year. It’s not that their product is all that expensive anyway, you can get on the ground floor at $5 a month but you can get it for free if you’re just getting off the ground. That’s an option as well.
In terms of when you should start putting things in place, I think that’s more of a general question. I would say that when it becomes painful, if you get to a point where whatever problem you’re trying to solve is taking too much of your time and effort and it’s cutting into your time and resources to do other things, then you really need to bite the bullet and start paying for it.
Rob: I think handling support in the early, early days via a single shared Gmail account is not out of the question, it’s not terrible. I think you’re gonna wanna get out of it quickly but I think it’s feasible if you’re super cash strapped. However, look at a product like FogBugz that is $20 a month for I think four or five seats. In my opinion, it’s not the caliber of Help Scout or of Groove. Zendesk, to be honest, I’m not a huge fan of but it’s just the conversion tool. Those are about $15 a seat so they are a little more expensive.
It depends on how big your team is. If there are five of you and it’s $75 a month, and you really are cash strapped, there’s a point where that money could be used for something else. I think that handling feature requests specifically, handling them via email but then you need an issue tracker. Even if you are handling it in a Gmail thing, you should still be using GitHub issues or you should be using Jira, just anything like that. You can move stuff from email into those trackers as you move them around. You don’t have to manage them in email, that’s crazy.
Mike: I definitely wouldn’t manage them. I use Teamwork Desk for my frontend support. Whenever something comes in where I’m gonna essentially decide to promote it to something on the road map or if it’s a bug, I tend to close them out and them move them over into FogBugz which is what I use for bug tracking for Bluetick because you don’t wanna leave those tickets open for an extended period of time because it’s not helpful to them and it’s not helpful to you.
They’re basically sitting there and it’s not about the cost of the space, it’s about the fact that they are sitting there as another line item that later on you’re gonna have to go in and close out. Just tell them, “We’ve logged this, it’s in our bug tracker. We’ll get it fixed.” Then close it out and move on because you don’t wanna have to track in two places really what the issue is.
Rob: To give everyone context, DotNetInvoice, I did all support straight out at Gmail. When I get a business partner with that, we shared the Gmail account for a few months and then it became a pain in the butt so we moved to FogBugz. I was in FogBugz for years and then when we launched Drip, I believe, we moved everything into Help Scout which I liked a lot. When we got acquired, Leadpages was already using Zendesk and eventually we consolidated in Zendesk.
Like I said, I’m not a big fan of Zendesk, it’s pretty clunky and hard to use but that’s the progression I’ve made. Again, some of those are less expensive than others. I do think that if it’s working and you can manage and you guys are super cash strapped, then you can make things work but that would be an early bootstrap situation that I would look to get out of as quickly as possible. Thanks for your question, Saphia. I hope that was helpful.
The next question is about EU legislation insanity is the subject line of the email, it’s from Juka from close2design.com. He says, “Hi guys, are you aware of this?” It’s a link to a Business Insider article, the title is 75% of Cloud Apps Are Not Ready For New EU Data Protection Rules. Juka continues, he says, “It seems they’re threatening businesses with Megacorp level fines for some vague “noncompliance” but they’re imposing their rules on small companies too, of course. Does that seem like they’re trying to kill small businesses? That seems like potentially an anti-business move. What is your take?”
Mike: This is interesting because Juka sent over a link to the Business Insider story that was talking about this. I looked into it a little bit, you can make all arguments or judgments you want about politicians and their ability to interpret how things are going to impact small businesses especially when it comes to anything that’s technology related.
The bottomline on this particular article is that if you look at the study that came out for this, it’s by a company called Netscope. If you go over to Netscope’s website, they are trying to sell people on a solution to this particular problem. It’s almost like they self-commissioned this study so that when a CEO of a company, they’re having a discussion with this person and saying, “You need to pay attention to this law.” He’s like, “Why do I need to pay attention to this?” “Here’s the study that you can look at as a reference and here are all the problems that you could possibly run into.”
It’s basically this giant marketing collateral piece that they put together solely to scare those CEOs and executives into purchasing their products and services. I don’t see this much different than some of the security vendors, they’re really trying to sell based on this position of making people fear what is going on or what can potentially happen and saying, “We have a solution to this particular problem.”
I don’t know is it something that most small businesses are probably going to need to pay too much attention to and the whole thing is trying to consolidate different laws from all of different member states of the EU and they’re trying to consolidate it. Instead of having to follow 28 different sets of rules, you only follow one. I do understand that there’s the contention about the level of the fines but you have to go back to them and see how serious are they about enforcing those things and what is their stance and why is it?
Sometimes, government entities will really look the other way when you show that you’re trying to do the right thing and you just screw it up. There are times where they’ll nail you to the wall and you have to interpret, is this the type of entity that will nail you to the wall or they’re just gonna let things go because you’re a certain size and you just didn’t know any better.
Rob: I wonder if the category that it’s in Business Insider called BI Intelligence, all of them are these reports from companies. I can’t find any evidence that they’re sponsored, they’re sponsoring the BI articles themselves, the Business Insider articles but I would not be surprised if that were the case. As we talked about a few episodes ago, there used to be safe harbor and then you changed it years ago, two and a half years ago, and then they’re now changing it again. This thing is such a fiasco and very hard to keep up with for someone that’s not just mired in it.
Having spent myself several thousand dollars on legal fees just to have contracts drawn up, I think it’s just a big pain in the butt. It’s not something that I have personally, beyond just having just that contract written up spent a ton of time dealing with or investigating.
Our next question is about how to promote a blog post. She says, “Dear Rob and Mike, how did you promote your blog post in the early days of your SaaS? I’m interested in channels and methods.”
I think I would almost caution something. There is value in having a blog for SaaS app but these days, given how noisy so many spaces are, unless you’re speaking out from the blog in a way that is unique or that you’re saying something different. It’s probably not the first marketing approach you have to do these days because so many people have followed the content marketing playbook, the playbooks of Kissmetrics or Bidsketch or Groove. There’s been people who’ve executed it really well and to great effect. Because of that, it just gotten harder and harder.
If you’re just cranking out thousand word blog post on some topics, it’s really probably wasted effort. I think you could get more customers elsewhere. With that said, if you have really unique content and you understand the game as it stands today and if you notice now what Kissmetrics is doing or if you notice now what Groove or Intercom, there are several that do content marketing really well. It’s these very, very long authority posts.
Instead of doing a post everyday or three posts a week, it’s one every week, one every two weeks but they’re really long and in depth and they’re trying to be an authoritative or definitive view. Sometimes they’re broken up into multiple pages, sometimes it’s all in one page. It’s almost like an ebook that’s published as a blog post. Google has the tides of turn and Google seems to like this thing more. As you build up equity more overtime, that’s how you’re gonna do it.
With that in mind, it’s a lower volume but higher quality play. There are number of channels to try to get traction, it’s depending on your topic. You look at something like you get on Hacker News, if you write something really interesting that everybody is gonna be interested there, then of course you can promote it. Product Hunt, there’s a section for this kind of stuff. Medium is still a decent source.
We experimented on Drip with going Medium first or Medium was the source and then we republished on our blog post and then we did the other way, we tried a bunch of different stuff. That works also, we never got enough of a following on Medium to justify it. I really wanted the SEOJuice over on our blog but Medium and Twitter, obviously places where people are talking about things and those are ways that you can get some eyeballs to come.
Facebook, unfortunately, as I roll my eyes, Facebook and LinkedIn, both of those have obviously ways to get stories out and then you can promote them for a small amount of money. This is stuff you have to experiment with, you’re gonna know your niche. If you’re at least a little bit B2C or B to prosumer. I’ve seen people use this to great effect on Facebook, seen people use it to great effect on LinkedIn when they’re more of the B to enterprise or B to midmarket.
There’s a couple things, it’s not about just having this cookie cutter thing where every time you publish, you’re gonna submit to 26 different things and hope one of them catches. That’s not gonna work very well because you’re either gonna get banned, you’re just not gonna get tractions, it’s gonna be a waste of time. You really have to sit down and think about a unique piece of content and think about it as a one off project.
Think about what are the best things of all the potential promotional areas I just mentioned as well as there are certainly more, I bet, if you search Google for how to promote a blog post in 2017, there are gonna be more ideas that I did not just throw out. It’s applying the few that you think are really gonna work but really digging into them. If you think it’s gonna be Product Hunt, for example, then I would spend two or three hours figuring out how do you do this on Product Hunt.
I wouldn’t just submit it and hope for the best. There are ways to improve your chances of that being successful and I don’t know them off the top of my head. We had some success with Product Hunt when I was still running marketing for Drip but I’m not an expert but someone out there is. That’s, I think, how you have to think about it these days, really being more focused, just spending more time than you would like probably.
I’m not so sure that blogging is necessarily the way I would go if I had a SaaS app these days and I was just getting started but it does certainly depend on your niche and where you’re going.
Mike: I think I would ask why you’re trying to use blogging because you talked about this a lot, Rob. What’s the purpose of that? Are you actually going to be getting customers from that? Are you going to be heard over the noise? Are you gonna be able to sustain the effort that it takes to continue publishing that new content? I get that there’s this weird relationship between the number of web pages that you have and your search engine rankings and your ability to draw traffic to your site but is that going to be what’s going to do it for your business? Is that the channel that you need or are there other ways to get people to your website, whether it’s speaking towards and getting backlinks from those or publishing on other people’s blogs, for example. That’s a great one.
If you can get published on somebody else’s blog and they’ve already got a built in audience, then you don’t have to build your audience and you can get the back links from them. It’s more sporadic but at the same time you don’t have to do all that upfront work to build your own audience immediately.
Rob: I think that’s a really good point. I think guest posting, JV partnerships, podcast tours, I think these are all things that will likely have more of an impact than just starting your own blog.
Mike: I think that wraps us up for today. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 363 | Building Outbound Sales Processes
Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Justin Gilchrist, co-founder of Optimum Feedback, about building outbound sales processes. He gives some tactics, talks about how to get started and challenges you’ll face with outbound sales.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups For The Rest Of Us, I’m going to be talking to Justin Gilchrist about building outbound sales processes. This is Startups For The Rest Of Us episode 363.
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 of it. I’m Mike.
Justin: And I’m Justin.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Justin?
Justin: I am pretty good, apart from a minor injury in the middle of the night last night. But, yeah, I’m good other ways. Thanks, Mike. Thanks for having me on.
Mike: Ah, I’m glad you can make it. Part of the reason I’m having you here is because a couple of weeks ago, Rob made this announcement for MicroConf’s Save The Date. Unfortunately it was wrong so I kicked him off for the week. That’s his punishment. He’s actually at Convert this week so he couldn’t make it. But the Save The Date correction is that MicroConf is actually April 29th to May 1st and then May 1st to 3rd for the Growth Addition and then Startups For The Rest Of Us. It’s not April 23rd to 26th. Scratch that from a couple of weeks ago.
We’re back to you, Justin. If you’re not familiar with Justin, Justin’s a UK based co-founder of Optimum Feedback, it’s a platform designed to help us increase the number of customers that they have and increase customer loyalty. He was also a former co-founder of a company called Centurica. It was acquired in 2015 and he’s also the author of Digitally Wed, which is a handbook to help you come to terms with buying online businesses and what to look for, what to avoid. He also invests in some companies, and one of the reasons that I’m having Justin on today is because one of the companies that he had invested in previously had a sales process problem. That’s really the focus of today’s episode. I wanted to walk through that process that you came up with and talk to the listeners through what you did to solve those problems and how you came to that. That sounds like an accurate assessment of what we’re doing today and any details that I left out?
Justin: Yeah, that was pretty accurate, Mike. That’s pretty bang on.
Mike: Okay. I guess lay out the scenario for us. What problem were you trying to solve in this business? Obviously it was a sales related problem but why was it important and what was the goal of the processes that you were trying to implement?
Justin: Sure. To give you some background first on why we’re trying to do that, this is a company which I bought 12 years ago now. It started out as a relatively small company and grew quite organically with no external funding over the years. It’s a company, I don’t know if any of the guys listening out there have read the book Small Giants, but one of the companies I really like to think of as a Small Giant is a really good culture here. The people who work here love working here and it’s a great team and we really put out a market beating, market leading service. This is a company that’s now at around 30 employees, it’s a company involved in B2B services around food and the logistics of food. Helping mostly blue chip companies organize how their people get fit, we’re providing a lot of the back end services for that.
In this industry, it’s a very mature industry, and in this industry things have always been done a very traditional way, including sales. The typical way you’re selling B2B is you hire a bunch of tele canvassers or telemarketing people, which now everyone’s calling them SDRs, which sounds a hell of a lot sexier. It’s telemarketing when we started. You got them basically just to dial a cold list until someone said, “Yes, I’ll be interested.” They would then book an appointment for sales rep, the sales rep would go and close or maybe not close and that would affect you to be as sophisticated as your sales cycle would get.
The problem was that we started with that as a strategy, as we started to grow and add more outbound telemarketing reps. This strategy started to mean that we were churning through leads really quickly because they weren’t getting multiple touches, it also didn’t work well with where technology has gone now, where everything is multi channel, where you’ll have a lead that you’ll maybe initially speak to via the phone, you’ll send them an email, they will go into your website, a retargeting cue will be set, they’ll visit you again, they’ll get remarketed in social media or in Facebook for example, they may get an SMS, and the old way of doing things, it doesn’t bring all of these things into holistic strategy for converting that lead into clients. Those were the problems that we’re really trying to solve.
Mike: To frame that for the listeners a little bit, the initial problem that you had was trying to reach out to these people and really establish a repeatable sales channel for the business, but the problem that you are running into was that overtime the way of getting people through your sales funnel was really changing and you had to modify your sales process to meet those changes in the way that people had modified their business and the way that they expected to be treated and marketed to, I guess. Is that an accurate way of rephrasing that?
Justin: Yes, pretty accurate. As I’ve said, things have changed. Over the last 10 years, things have changed drastically in the amount ways to market to a person in B2B. Social was around 10 years ago, but it wasn’t great for doing B2B, now what Facebook is doing makes it almost as essential as Google PPC was 5 or 10 years ago if you want to do B2B. Really the problem we had is we had these independent silos marketing to people but no real cohesion between them, and part of the problem with that is we were not converting at the rates we should have been converting, we were often losing leads in that process who would maybe be called once and never called again. We just needed a way to really bring that all together, but ultimately just get a better ROI on outbound.
Mike: Got it. Really, things had worked for a while and then, obviously, the world changed around you and then the existing process that you had in place was no longer working and it needed to be tweaked or improved and given this overhaul. I guess to dig into that piece, what was the process that you ultimately came up with? You initially talked about how you were really just going through these leads that you had and phone numbers people call and then if they were interested, great, schedule a meeting, take them into the next step, if not, then they got dumped on the floor. How did that change into what you ultimately came up with? How did you come up with that and what sorts of things did you try to reach whatever that conclusion was?
Justin: One thing I have to say is I’m from both sides of the track in my passion and what I work on day in day out is SaaS, but I also understand sort of dodgy, all the old school offline businesses as well. It sounds ridiculous saying that this is the way things were done. But still, to this day, in the majority of more mature conventional business, the sales process really is telemarketers working in their own silo. If you’re from the world of SaaS, if you’re familiar with things like predictable revenue and how outbound SaaS efforts are usually set up, then it seems like it’s a really obvious thing, but it wasn’t that obvious to us because we’ve been doing things for so long the same way of doing them.
The process that we ultimately came out with really was solving the problem that we’d have leads that we would either purchase or cold leads that would come in. These leads would get contacted or they would get targeted one way or the other, but if that wasn’t a yes straight away, a lot of these leads would be lost in the system and I’m sure most people know that you need to have multiple touches with people over time in order for them to convert. By our estimation, we were converting probably 25% to 30% of all the people we could have possibly converted but a lot of these leads were being forgotten about because there wasn’t a scalable or repeatable system for maintaining contact with these leads and grading them over time. The process that we ultimately came up with was more of a campaign approach. It was a campaign that included multiple phone calls, multiple emails, but also other things like direct mail or retargeting through Facebook, or in some cases, SMS.
Mike: What was it that ultimately led you to incorporating all of these different things? I think if you’re running your business in a certain way for a long time, you get out of touch with a lot of these other marketing channels happen to be and in this particular case, you’re really combining a bunch of different channels together. You talked a little bit about the cold calling aspects, the direct mail outreach, SMS messages, what was it that lead you to believe that this particular combination of things was going to make a difference for you or was it just you did a couple of tests or were you talking to other people about some of the different sales processes for related businesses. What lead you to this approach?
Justin: It was SaaS. We don’t realize how fortunate we are working in an industry that is always trying out and testing things this whole idea of the lean or the agile way of doing things is not necessarily the standard way of doing things in other companies. We get used to or almost desensitized from the fact that we are often bleeding edge with marketing practices and with the technology that we use. When you take those same marketing practices and those same technologies and apply them to companies and industries where it’s not so common, it really does give you an edge.
Mike: I know a SaaS company that does exactly this. They have physical books that they send out, and they also have postcards that they will send to people as physical mailers and it’s a SaaS application but, because their audience likes things offline, they’re kind of older, more engrained in their ways and not likely to change how they typically do business, by using those techniques and getting in front of them, I mean, that’s really all you’re doing with email marketing, or Facebook ads or anything like that, you’re just trying to get in front of people, using those physical mailers is another way to get in front people. It’s really not any different except for the fact that it costs more money to send a postcard or giant envelope in the mail and your iteration cycle is a lot lower, it’s harder to do that, you can’t run those tests in a week. You have to take a couple of months in order to do it. How did you go about dealing with some of those challenges?
Justin: A lot of this was prompted by the fact that we needed to grow, we needed to scale, so we’re going from 6 outbound reps to 15, but that’s where we want to be. The first decision was in that we have to find the way of making the process a lot more stable and a lot more sustainable in order to grow. I think you ultimately have two decisions when you have an existing process, you can either make the existing process a lot more efficient, so we could have looked at how much are we losing from initial confirmation call to meeting from people, maybe sling or rearranging the meetings, how much we’re losing in the meeting stage, what things could we do there to tighten up those numbers in that funnel, or we could just look at adding more volume. If we throw more volume in, then we’re going to get more out at the end even if the efficiency stays the same or the conversion rate stays the same.
To this day, I can’t say I know what the right answer was, but for us, we had a lot of leads and a lot of leads that were becoming old that we needed to get through. The priority first really was increasing that volume of leads going through. That meant hiring more outbound SDRs, but it also meant having a better process which I can get into the nuts and bolts about what the actual process is but it meant having a better process for each leads that we call and having a clear strategy and knowing what the outcome for that lead in particular was.
Mike: I think what I find really interesting is kind of a side step here to talking to how it is that you’ve mapped that out, because I’ve looked at a bunch of different tools mapping these things out and what you tend to find is that there are different parts of that process that tend to run in parallel to some extent. For example, if you send out postcards or something to mail, that may take a couple of weeks to get there and you don’t know whether or not it got though. At least with email marketing, a lot of times you can see whether or not somebody opened it or there’s a campaign and there is multiple touch points along that entire way. But when there’s hand off, like somebody get something in the mail, and they are expected to call you, for example, or just because there’s a phone number on it. How do you tie those different pieces together and that’s more of a technical challenge, but the other side of it is how do you map these out? Do you get a giant sheet of graph paper and draw things out or do it with a bunch of notecards, or is there a software tool that you can use? Because I think this is where people start to get confused about how do I put this stuff together and how do I create this, for lack of a better way to put it, like a workflow that I can translate into having software that fulfils all these different needs.
Justin: It’s pretty cool that you mentioned mapping out because the mapping out part really was the part that was the most important for us because it’s wider than just mapping things out for an operational side but it actually goes back to recruiting and cost saving. To give you an example, we have different campaigns, and one campaign might be a lapse lead campaign, for leads that have been in the database for six months, we previously got somewhere with them but not all the way that technically then allows leads. We may have a lapse client campaign, we may have a cold lead campaign, we map put every one of these campaigns up front and by mapping out, I mean we look at what actions do we want to take first of all.
To give you an example with the lapse leads, we’ll schedule a call for days era, so the minute one of our prospectors goes in, sees this, decides this is going to be good fit for that campaign, they will manually hit the button to our campaign software. The first thing we do is we schedule a call, two days after that call we’ll have an email, and that email will go out from a different person, it’s our system but it obviously comes out as person and that generally tries to achieve the same objective of the call, which is touching base, finding out if their details are correct and if they’re still in the market for whatever the services that we’re offering are.
We’ll then have another email pre scheduled for three or four days after that, but bear in mind these emails get cancelled if the call gets completed first, but this whole idea of mapping things out is not just mapping out what goes out, it’s mapping out every outcome from a call. Whenever our SDRs get on the phone and they make a call, our system will show them a list of options when they come off that call based on what happened.
It can be as simple as, “Did you speak to the contact?” Yes or no. If they didn’t speak to the contact, they’ll ask them if they left a voicemail, if they didn’t leave a voicemail, it’ll schedule that call to come back for 30 minutes later. If they did leave a voicemail, it’ll schedule it to come back for the next day. If they did speak to a person, and the person is maybe not ready yet, or there’s another decision maker that wasn’t there, it will make different decisions based on that too. The idea is that we’re trying to cut down the amount of thinking reps have to do, one to reduce human error but two, and most importantly, to make the job a lot more systematized so we can get the same results or the same good results from every rep we hire without having to hire specific kinds of people who just know how to do that. That has the ripple effect of making our recruitment a lot easier because we don’t have to necessarily recruit people who are superstar SDRs in their own rights, but it makes trainees easier because we’ve got less situations or circumstances that we have to role play with people and indicate people about that long term it means we’re saving money because we’re hiring less, we’ve got less churn and these guys are going out and they’re doing a better job from day one.
Mike: The way you phrase it is it makes it sound like it’s somebody coming from the world of technology or developer background would have an advantage in putting this together because really, it’s just a series of if else statements where you’re checking for certain conditions and if the SDR actually talks to somebody, then do this, and if they didn’t, talk to them, or if they left a message, do these other things. That seems the way that it plays out, but how do you go about mapping these things out so you know what to do, because there’s a difference between planning and designing it versus implementing it because the implementation, I feel like that’s once you know what needs to be done, implementing is, I’ll say, much more trivial because then you can just go out and find the tools or plug things into it, but figuring out what needs to be done and where and what the decision points, to me, seems like the hard part.
Again, it goes back to how did you do that piece. I would default to graph paper, but I don’t have graph paper that’s large enough for stuff like that. It just seems like then you’re almost going to like tools, like Lucidchart is one that I’ve come across that allows you to put things on a screen and lay out like a decision tree. I think Gliffy does it as well. Did you look at any things like that? Or was it just you working on this, did you have a team working on it? I have like a billion questions here.
Justin: No. I’m laughing because we started out using Balsamiq, which is like a markup tool we use for wireframing. There was three of us working on it. The reason we were using Balsamiq is it’s easier to collaborate. Balsamiq is a brilliant product but what worked better for us in the end is we bought three white boards and set them up in each of our offices and literally just spent time mapping out one process at a time, mapping out on this giant white board. I think the white board is about 4 meters wide and so we could get everything on there. Once we had it on the whiteboard, we then probably add post it notes for things that needed to be done at the various stages. For example, if we had day one call scheduled, email scheduled, we’ll have a post it note on the call and email and then someone would then write the script for the call and the script or the email. Within all of those, we then take the post it notes off when those items were done.
I’m giving you the most low tech solution to this as possible. But there’s something about pen and paper when I’m planning out. If I don’t know the answers, I always prefer to do things on pen and paper. When I do know the answers, that’s when I like to use software because it’s easier for me to put it in and share it with the world. But I think sometimes, just having a whiteboard or pen and paper because you’re going to cross out a lot of things or you’re going to look at a lot of things and think, actually this doesn’t makes sense or we can tighten this process up. I think I’m pretty tool agnostic and I don’t think the tool is the most important part, I think getting it documented and getting it down is the most important thing. That advice goes for any kind of marketing automation. If you’re about to use InfusionSoft or Ontraport, before you’ve even considered buying the software, you really should have your marketing process mapped out at least on paper to begin with. We started using a combination of different tools like those on the call side, we used Woodpecker for emails and SalesLoft for the calls. They’re both great tools for getting a call cadence going in there. But in the end, we ended up building our own solution in house because it was just easier to bring everything on the one roof and have all the information in one system.
Mike: The reason I dived into that piece of it, how you mapped it out and how you designed it and what things to try, you said initially Balsamiq and then you switched over and just used these massive white boards. That scenario where I’ve run into challenges in the past and talking to other people, and that tends to be a big hang up. I’ve tried using Balsamiq before as well. I love Balsamiq but for that particular thing, it doesn’t work well and I haven’t really found a good tool that does work well for that. Really, you change things so often that most of the time, when you’re using those tools to lay out a workflow, it’s more challenging to make the changes than it would be if you just had some graph paper or whiteboard and just erase things, move things around. That’s the part that is a challenge to deal with, but I think once you get past the point where you’ve got everything, then it makes sense to take that and implement it in something like Lucidchart or Balsamiq where you can lay it out and then print it and say this what our process looks like because this is more a finalized version of it. When you’re just prototyping, I’ll say, the software actually tends to get in the way, I think.
Justin: Sure. I think the most important thing is getting started. The problem with softwares is – I always get this wrong when I say it – analysis paralysis or paralysis analysis. It creates this fear because people trying to get to the optimum solution, they’re trying to have everything in place before they take on this big overwhelming task. But actually we found that the day we started mapping things out is the day we are able to consistently get people to do the right actions rather than leaving it up to their discretion. Because when you leave things up to people’s discretion, it doesn’t always go the way that you want it to go.
Mike: I couldn’t agree more. That’s a fantastic point. The software just getting in the way and then try to make sure that people are all on the same page. Something else that jumped out at me was try a couple of different tools and ultimately, you would’ve ended up building your own. What was it that made you make that decision because building software, especially since this is not really a tech company, that’s not your core function is to write software for a company that serves lunches and dinners to other companies, that’s not what you do. But what made you make that decision because that is a big leap from, okay, we’re doing our services business over here and that’s how we’re making money to, okay, let’s build this piece of software as an in house tool to help us reach more customers and sell more into our channel. To me, that seems like a huge leap. What went into that decision making process?
Justin: Yeah, it is. In hindsight, if you ask me would I have done it again, I would have but only just. It was marginal whether it was wise to build this out ourselves. Now I’m a fan of using everything off the shelf but I’m also a fan of using technology. As a company, we won Online Business of the Year last year, which is ironic because no one here sees this company as an online business. But from day one, partly because of my influence and my background, we’ve always invested heavily in technology and that has been one of our USBs, that has been one of our main advantages. We’re probably one of the only smallest services company doing what we do that use things like Slack and GitHub for non-coding things and intercom on a regular basis because that’s just what we’re used to using these in SaaS or technology startups.
I think sometimes being a developer is a bit of a gift and a curse because you tend to build things when you shouldn’t because you can. I think knowing when not to build and when just to get something off the shelf is equally as important as building the perfect piece of software, but in this case because we’ve started from day one with our own custom management system, we almost have everything under one roof with the exception of maybe the accounting package, everything that we have is in this system. There’s actually a huge advantage for us in being able to have everything new in terms of campaigns and marketing and all the information on these leads in one place rather than having to use APIs to cobble something together and then have to have a dashboard to see what’s going on.
Mike: All that you just said makes a lot of sense. It’s sometimes cobbling tools together is actually harder than having just one tool that does everything. Even if it’s not a best of breed technology where it does everything at the top level. Sometimes, just having one thing that does everything that you need adequately is more than enough and it’s actually more helpful than trying to deal with data being passed between one tool and another or hey, why didn’t this get there or was this delayed or is there an error of some kind. Sometimes those web hooks just don’t work.
Justin: Sorry to cut in, Mike. Just to add one thing which I think’s pretty important as well is the whole kind of buy and build. I’d say. In hindsight, it always makes sense to build if what you’re doing or what you’re building for is what you’re defining is one of you core expertise or central to your business. That’s why it’s really important to know what business you’re in. We worked out we are in the service business as opposed to product business or specific services that we deliver, and part of that is technology. It’s about facilitating what we do through technology and that is something that’s really central to this particular business. That’s why we’ll invest probably heavier in technology than other businesses of our size. That’s because that’s our business model. I think if you’re a SaaS company and you are all about the product then it doesn’t make sense to build third party tools to help you sell that product and it sounds ridiculous because you’d think every SaaS company’s about the product but they’re not.
Someone like HubSpot. In the early days, I see them more being about the distribution of the product, they were a very, very efficient sales machine. If sales is what you do, or sales is what you want to do and you need things that you can’t easily get off the shelf, then I think it makes sense to build because that’s your core expertise and then you can really develop a specialism in there that allows you to recruit quicker, train quicker and ultimately get the products out to market quicker than you can using off the shelf stuff.
Mike: You touched on this very briefly but do you also have included in the software that you built entire life cycle management for the customers? Do you have order processes and stuff in there? Or is it really just managing your sales process and then at that point it cuts off and then there’s some other system that you built or something off the shelf that you’re using to do the day to day servicing of the customers?
Justin: No. We have everything under one roof. I think that’s been one of our main competitive advantages for a while. Everything is connected into the same system, the system that customers see on the front end of the mobile apps that even dispatch people, drivers use, everything is connected into the same system. That helps massively. It’s a huge investment that you have to make because the time investment and a maintenance investment but it just gives you that little edge over your competition when they’re using off the shelf software and there are things that they can’t do but you can that are really specific to the customers that you serve but make a difference that add to that overall customer experience.
Mike: That makes a lot of sense. I guess for the listener who is thinking about this, what is it that you would recommend to get started, if you’re a solo founder running a business, where would you start looking either for resources or in a way to implement this in your own business to do some sort of an outbound sales process? Because I think that most people running, for example, a SaaS business, when you’re starting out, I’ve done this with Bluetick for example, a lot of it has to do without reaching those very early days because you need to reach out to people because I have no idea who you are, you don’t really have the time for tweaking marketing campaigns and it takes too long to get one, just get them started up, but it also takes a while to optimize them to the point that you can make any sort of return on your investment. In the early days, you’re really just trying to get in front of people who you think are going to be a good fit, so you do a lot of outbound stuff. What is it that you would recommend for people to get started with that?
Justin: Especially if you’re a solo founder, or there’s only one or two of you, in the early days, the outbounds that you do isn’t sales, it’s customer development. The first probably 50 clients that you get on board. If you see it as sales, it’s going to be a wholly inefficient process because your customer acquisition is going to be through the roof because of all the time that you put into getting those clients and then making the little tweaks or changes, or even having meetings to decide whether you should change your product roadmap based on what all these clients are telling you. But I think in the early days, it’s more about customer development because it doesn’t need to be as efficient, it doesn’t need to scale as much because you’re actually getting something from all the people you speak to, whether they sign up or not and it’s crucially what helps you shape the products and make the products a little bit better than your competition. I think when we initially started doing this, we originally outsourced. Those reps we get from telemarketing agencies here in the UK and we generally paid a day rate of around £120 £150 a day which is about $170, and that would get us a full day of calling that gets around 80, 90 dials, 34 connects and then we’d know from that we’d usually get 3 or 4 appointments. That was pretty scalable because we could keep scaling up.
I’d probably recommend that anyone who is thinking of doing this but doesn’t know what their numbers are yet, try that out first of all. Find a small agency that can do this just so you can get up and going, just you can get an idea of what you’re numbers are and should be.
Personally, I agree with the common advice that it should always be the founder that does the first set of calls and you should do in order to get an idea of what your script is and what objections people are coming up with, and where you want to go. But at some point, you have to face the reality that you’re probably not going to have time to do this as much as you should do to get those over next 10 or the next 20 customers on board and that’s the point where it’s probably a good idea to outsource one, just to get data, but two, just to get the ball rolling. I think sometimes, doing something, although it’s not you, and although it’s never going to be done as well as if you were doing it, it’s better than not doing anything at all because you’re busy with the million and one other product related things or customer support related things because there’s just one or there’s just two of you.
Mike: One thing to point out there in what you said is there’s a distinction between customer development and sales. I think in this particular context, I’m using them interchangeably because you’re right, those early days really are about customer development and you’re spending way more time on any given customer than you would otherwise, especially in the future because it’s not worth the time to spend with them. But, at the same time, you need those early people and it’s almost like a lost leader, you have to spend that time in order to learn so it’s not that you are getting a negative ROI on those customers, it’s really you’re spending the time and money to learn what needs to be done in the future, not how do I make this a repeatable process that is going to scale to infinity and optimize it. Your goal is not optimization, your goal is just have those conversations and learn from it, and that’s what you’re paying for. That’s the time and money investment. The money that you get from them is almost meaningless. Obviously, any sort of revenue helps but you need to know the stuff that goes into it in order to be able to do anything with that information. You can’t operate in a black box.
Justin: I think the pretty important thing to realize as well is that the [00:30:44] book comes into play where 80% of your results are going to come from 20% of all of the things that you try. With us in the past, we found that something new comes along, we will give it a try. Sometimes our execution is poor, sometimes our execution is great and I’m sure that affects the end result, but time after time we found that outbound for B2B is what works out. Outbound as in outbound dials, outbound getting sales people out to that person, that’s what works. We’re seeing better results with things like Facebook marketing, we’ve always had results from PPC, but you’ll generally try a lot of things and a few of them will work. I think it’s a case of from the early days, if you’re just getting started, be prepared to try maybe three or four things in the first instance but then instantly double down on the first thing where you get a little glimmer of hope where you see that working, because it’s all too easy to spread your time and your budget and your attention across multiple channels. But the chances are one of those is going to work for you better than the others, and it’s best that when you experiment, you really double down and put the time and attention into that one that does work.
Mike: You’d also mentioned the possibility of outsourcing this. What sorts of things should you avoid or at least be cautious of or mindful of when you are trying to outsource this? I think there’s the two different buckets that you pointed out. Like if you’re very early on, the founder should really be doing this. But at some point, the founder really needs to take a step back because there are other areas of the business that you need to pay attention to, you can’t always be focused on that customer development because there’s engineering or support or various other things that need to happen. But in terms of the sales processes itself or the outbound process and outsourcing it, what sorts of things should people be cognizant of when they’re looking specifically at that?
Justin: I think one of the key things to realize is there’s a difference between knowing that you should be doing something and actually doing it. I’ve fallen into this trap plenty of times where I know I set myself a goal of maybe 20 or 30 calls a day, either for customer development or for sales. But if you’re not getting around to doing that one because you maybe procrastinating because you hate the idea of telemarketing. Telemarketing is for the wrong person, it can be so destroying. You get a lot of rejection, you feel like this is a waste of my time, I should be coding, or I should be designing. If you’re not getting the job done, I think at some point, you have to be realistic and face the fact that this thing is terrifying, it does need to be done by someone. I think in that case, even if it’s not you, it’s better to have someone doing this but you do really need to have a grip on the process from the really, really early days because you need to be able to tweak that script on the fly. You need to know what are the pain points that you are trying to get people or hook people with in order to get a response from them, you need to have an idea of what your script looks like.
Before we start telemarketing, we always send them our self telemarketing guide which is one, it’s kind of our script but more importantly it’s an explanation of each point in that script and why we’ve put that in there and it’s simply for that fact that everybody has their own different style of sales and we don’t want people to read from a sheet of paper, but they do need a script because there are certain pieces of information we need to get from each call. We give people the objective of each call, what we’re trying to do, we tell them, “Look, these are things that is necessary to get from this call in terms of information and these are things that if you have rapport, or if you’re able to get it, get them as a bonus, but don’t worry too much about it because we’ll get these on later contacts with that person. And this is the main objective of the main goal of the call.” I’ve been able to put that together, requires you to hit the ground and work from the front lines for a bit and have enough experience to know what you want from that agency.
Mike: Yeah. I think having goal for each call is an extremely valuable piece of advice just because it’s very easy to get on a call where you’re trying to talk somebody about whatever it is that you’re developing, you’re in that customer development phase and run an idea by somebody or float some mockups in front of them and say, “Hey, what do you think about this?” Having that goal of the call in mind in advance of having the call really helps you dig into it and get to the heart of the matter rather than just having this open ended thing where at the end of the call, you’re lost and you really don’t know what to say because you didn’t have a goal in mind to start with. That’s a huge piece of information.
Justin: I speak to a ton of people who have a SaaS company that just started up and they try outbound so they’ll get a list, a small list of maybe 50 people, and they’ll start calling for that list. Typically what happens is they have their own responsibilities, they have life getting in the way and they have things throughout the day to do. They’ll probably get maybe two, three hours in the day where they start calling but because they hate it or because they’re not used to it… I think if we spoke to 10 founders, I’d say 8 hate the idea of call telemarketing and that’s probably why they’re not doing that as a job or profession, but because you’ve got this anxiety about it, that hour or 2 hours that you spend calling, it feels like a lifetime. What will usually happen with the other distractions that come in, you make 15, 20 calls. You then force yourself to do that again, like a second day and you make 15, 20 calls, you haven’t perfected your script, you’ve just started, you’ve done no kind of tweaking, testing, testing different messages and then as a result, you get no result, and a lot of people get disheartened and give up and they’re like, “You know what, we’ve tried outbound and it doesn’t work for us.” If you got 40 clicks from a PPC ad or a Facebook ad you didn’t convert, you think nothing of it, you just think I need more traffic, obviously.
But it’s exactly the same with calls, you do need to make a significant volume of calls, especially if you’ve not tested your script or your message or your approach out yet and it really is in the early days about churning through in getting data, knowing that you’re probably not going to convert that efficiently but you need to do it in order to work out what your messaging is. I always advise using cold email in the first instance as a way of breaking through that resistance to testing and finding out what the message is. If you’re hesitant about making phone calls, find 1000 people that fit your target criteria and over days, do 100 emails a day, or maybe batch 50 emails a day. See the responses you get and tweak your emails until you start hearing the message that works and then go on to making a few phone calls with that same messaging.
Mike: One recommendation I’d have in that situation is that either during the call itself, or immediately after each call, write down all the notes or stuff associated with that. If you have the flexibility or the leeway or relationship with people to make the notes on the call, that’s great, otherwise, recoding them is a good option as well, because then you can always go back to them, maybe even have those audio calls transcribed so you can go back to them later. I’ve got 75, 100 pages worth of notes just from calls that I did early on with Bluetick and I can always go back to each one of those calls and say what is it that we talked about and where are the important pieces that I took away from that conversation and use that to tweak future conversations, or I can hand that entire file to a copywriter and say, “Hey, these are all my notes on all the different calls and this is what people told me that were important.” It allows you to have that base of information to move forward with because if you don’t capture it at the time, you’re probably going to forget 90% of it. Which is terrible because then you can’t even transmit it to somebody else.
Justin: For sure. When we train new reps, we actually tell people not to make notes on the call. Every bit of a darling software now should record. We have our own dialler in the CRM that we built and it just uses Twilio and then grab the recording. But the reason why we tell people not to make notes, because we find that the minute people make notes, unless they’ve got this weird brainman likeability, they can do one thing well. If they’re taking notes at the time, they’re probably thinking about the notes they’re making and they’re not listening to the person on the other end of the phone, and one of the key things if you’re going to get a result is to be able to listen and take the little subtle keys that the points when people maybe switch off when you said a certain thing or the point when people get excited or you’ve got them on a hook when you’ve said something else. It’s really important to listen and to try and find that person’s pain or that person’s problem, and I think being fully present on that call and being able to do that, you tend to see a better result so we get our reps to listen to the recordings and then transcribe the recordings themselves later, to think there’s something important in there, but we generally tell them not to write stuff down while they’re on the call.
Mike: Justin, all of this has been fantastic information, really appreciate you coming on. I think that’s about time to wrap us up. Where can people find you if they want to learn more? On Twitter, email, website, what do you got?
Justin: Sure. You can catch me on Twitter. Twitter.com/flipfilter, which is an old name I’ve had for ages and like many people want to change but it’s been with me for too long, so I can’t. You can also find me at exitplan.co/digitallywed or you can catch me at optimumfeedback.com.
Mike: Again, thanks for coming on. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 362 | Calculating Lifetime Value (Not as Boring as it Sounds)
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about calculating lifetime value. They discuss how its done with one time versus recurring revenue and funded versus bootstrapped payback time.
Items mentioned in this episode:
Transcript
Rob: In this episode of the Startups For The Rest Of Us, Mike and I dive deep into the riveting conversation topic of calculating lifetime value. Seriously, it’s pretty interesting. This is Startups For The Rest Of Us Episode 362.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. I want to kick today’s episode off with a question, Mike. What movie would be greatly improved if it was made into a musical?
Mike: If it was made into a musical. Hmm, that’s a tough one. My guess would be the old, black and white Frankenstein.
Rob: Okay. Yeah, I guess it wasn’t a musical but it was turned into a comedy by, what is his name?
Mike: Mel Brooks.
Rob: Yes! Young Frankenstein, is that what it’s called? But yeah, I could see them doing a musical as well.
Mike: Yep, definitely. Mel Brooks is on a couple of others that I think he turned into musicals as well.
Rob: I agree. There’s a lot of completely random questions that catch you off guard right at the start of the show.
Mike: I know. You come up with these things that are just totally off the wall and you don’t even run by me first.
Rob: It’s your new favorite thing.
Mike: My new favorite thing.
Rob: Other than answering ridiculous questions at the top of the show, what’s going on with you?
Mike: I wanted to give a quick shout out here to Tyler Tringas. We’ll link this up in the show notes, but he has a blog article that he posted talking about how he sold his bootstrap SaaS business from somebody that he met at MicroConf. Just wanted to say great job to Tyler and mention it so that people can go over and read the whole story. It’s a really lengthy article on it and where the product started, it’s called Store Mapper. It allows people to embed a map of their stores on their websites, sound like a pretty straight forward thing but he couldn’t find anything out there that did something for his customers so he built it. Fast forward a couple of years and he was able to sell it. I just want to say congratulations.
Rob: Yeah, congrats, man. I read the post, it was really in depth and really interesting and it’s posted over there on indiehackers.com.
Mike: I also wanted to read a quick listener email to us. This is from Zoren, he says, “Love the show, great tips. We’re busting our ass trying to grow [00:02:28] right now, and your show’s been great insight. Keep up the good work and maybe one day we’ll be on your show to tell everyone our story.” Really appreciate that, Zoren.
Rob: Yeah, thanks. For me this week, we actually launched a pretty big feature that took a while. It actually didn’t take that too long to build, it’s a long time to get approved and it’s an integration with Facebook custom audiences in Drip. It means that you can, in essence, have a native action right there in Drip, so that if someone’s at a certain point in the workflow or you can even just have a global automation rule that says when this happens, when anything happens, if it a tag’s applied to this person or if the lead’s core goes above something or they start checking out and they never complete their purchase, then you can just put them into a Facebook custom audience and you can then assess and retarget them when they’re on Facebook and then if they do buy, then you can pull them out of that audience.
It’s a pretty sophisticated, powerful feature, even though it was not that hard to build, but there’s a lot of possibilities to this and there are some use cases that are going live on drip.com right now. It’s a really impactful feature that took a month from the time we were code complete, about a month in order to actually get approval from Facebook because they want you to really have tested it out and you have to jump through some hoops and everything, which are warranted, I will admit. That’s been the habub this week.
Mike: That’s interesting. I’m on the other side of the spectrum with Google where I talked last week about how I was finishing up the [OWAF 00:03:59] authentication for Google to get mailboxes integrated into Bluetick. Because of the level of access that I’m asking for inside of people’s mailboxes, they have to basically fill out this form and they’re like you have to justify why you want this or why you need this level of access, I’m like, oh great. I went through and they’re like oh, it will take a minimum of three to seven days in order to get it approved, and of course I went through the process and I was like, oh, this is going to suck. Three hours after I submitted it, they said, sure, you’re good to go.
Rob: Oh, that’s cool. Good for them then, for keeping that queue short. You totally understand why they do that, right?
Mike: Oh, totally, definitely. That wasn’t the issue. The issue is I didn’t look to see that that was what I was going to need to do. I don’t know, I think the part of it might have just been the stuff that I was asking for and why and the documentation that I had to send in. I was pretty detailed in what I was requesting and why it needed to be done. Though I suppose it paid off.
Rob: Yeah, that makes sense. The other thing for me is the iTunes reviews, we now have 544 worldwide reviews in iTunes. Our most recent one that comes from Honey Mora from Canada and his subject line is: Ton of practical tips and lessons. He says, “I’ve been a listener for about four years now. I love what Rob and Mike share each week, I’m hooked. I’ve been following Rob’s Stewardship Approach since launching several premium WordPress plugins first and a few months back launching my first SaaS. Thank you for all you guys do.” He’s at repurpose.io.
Thanks for that review, Honey. We would appreciate if you’ve never given us a review, hop into Stitcher, Downcast, Overcast, whatever it is you use, or iTunes and click that five star button. You don’t even need an entire review or shout out or anything like that. Just clicking that five star helps keep us motivated, it helps us rise to the top of the rankings, helps us get more listeners, and the more listeners we have, the more we can do at the show, frankly, and it motivates us to keep putting out episodes.
Mike: The only other thing I have is I am speaking at the Cold Email Success Summit next week. We’ll link that up in the show notes but it’s not really quite an online conference but it’s an online summit where you can go and there are 20 different speakers that they’ve pulled from the world of email marketing to talk about various topics and give their insights and discuss what’s working and what’s not and give you actionable tips and things that you can do to help with your email marketing reference.
Rob: That’s cool. We’ll include a link in the show notes to that.
Mike: Awesome. What are we talking about this week?
Rob: This week, I outlined an entire episode around a single listener question from Andrea [00:06:28]. If you have a question that you think could make an interesting or even just a topic suggestion that you think could make an interesting episode for us, you can email that to us at questions@startupsfortherestofus.com or feel free to call it into our voicemail line at 888-801-9690.
Andrea says, “Hey there, thanks for an amazing podcast. I have a question for you. A few times in the show, you’ve talked about customer lifetime value and how important it is for knowing how much to spend on user acquisition. That makes a lot of sense, but how do you calculate your CLV (Customer Lifetime Value)? I’ve seen some examples on how other people calculate it, it would be interesting to hear your perspective on how to do it for SaaS. Thanks.”
And just one quick note, I am going to use LTV for lifetime value. He calls it CLV, some people call it CLV, some people call it LTV, it doesn’t matter what you call it, it is the total amount of revenue that you are going to get on average from each of your customers. The reason that this is helpful to know is it can dictate the whole slew of things. The higher it gets in general, the healthier your business is, the more you can spend to acquire customers, and even the more you can spend to support them, to create educational material for them, more you can spend on feature development. This value grows and your customer count grows, those are the two things that multiply by each other.
If you make about having 500 customers with a total lifetime value of $100, that’s only $50,000. That’s the lifetime value of all those customers that they’re going to pay you the entire time that they are customers of yours. Now if they are a one time customer, you get that all upfront, meaning one time purchase. If it’s a recurring purchase, you will get that overtime but that’s not a ton of money to hire people, pay for server hosting, pay for whatever other – there are a ton of expenses; pay yourself, run ads, do all the stuff you need to do. Whereas if you take the same $500 customers and you just multiply that by 10, let’s say a reasonable lifetime value of $1,000, now we’re talking about $500,000. It’s a whole different ball game of how you can treat your customers.
We’re going to dive in today, we’re going to talk quickly about how to calculate it, and I have just a very simple and very streamlined way to do it. There are different ways to do it, there is more specific, in detail, and advance ways to do it, but especially for a podcast, we don’t want us just reading off a bunch of equations. We can link out to some more advanced stuff, there are some great stuff from Tom Tungus, there’s someone who dives into this really deep and they have five different formulas and it’s the simple one and then they add another thing and then you have the cost of goods sold and then you add this, and the that. It gets super complicated by the end, but for now, we will just dive at a more of an entry level but then I really want to talk, we are going to get in deep into some rules of thumb that I have for payback time on advertising and then run through a couple of examples that are very close to real world apps just so you can get a better sense of why all this matters.
To kick us off, if you think about having a one time purchase business, like a WordPress plugin, or even DotNetInvoice, which is an old product of mine versus a recurring business, there’s a big difference on how you calculate lifetime value. We aren’t going to spend a ton of time on one time purchases, it’s obvious if you are going to do a really simplified version of calculating it, you’re just going to look at your purchase price. To be honest, if you have multiple purchase prices, let’s say you have a $50, $100, $150, and again, these are one time sales, you should know at this point what you breakdown has been historically. You should be able to go back pretty easily, do an export out of Stripe and just basically, you want the average of all the purchases that people have made and that’s what I would start with.
As you get more advanced, you might have upsells, you might have cross sells, maybe there’s an annual payment that comes once a year, there’s all that stuff that you can add in later but this is a five second estimate of what people will pay you on a one time basis. An example, DotNetInvoice is a one time sale downloadable invoicing software, the purchase price was $329, and then we had a bunch of different add ons and we could do the math, it was 20% of people who bought DotNetInvoice bought one of the add ons and the average price of the add ons was $99, you can do that math and then 20% times the 99 is another $29, so it actually raises the lifetime value up to $349, give or take. What you’ll notice with that example is if I had just said DotNetInvoice is $329, and that’s the number I’m going to go with right off the cuff just so I would have it, it’s actually pretty close to the ultimate value.
That’s something I want you to think about is, ultimately, you’ll want to get down to the dollar because once you’re paying for ads and you’re running big time marketing spend, it does matter. But in the early days, when you’re just trying to get a sanity check on things or just trying to get an idea of how much someone is worth starting with one time sale, starting with the purchase price, that’s a fine way to do it especially if you’re prelaunch because you’re not going to have all the numbers that I just threw out right of who’s going to purchase what of which tier, just make a judgment call. If you’re one purchase price, use that. If you have three tiers, I would take the average of the bottom two. An example of the $50, $100, $150, I would take the average of the $50 and $100 and I would obviously say I have $75. That’s the lifetime value I would have going into a one time purchase business. Next we’ll dive into how to calculate it for recurring.
Mike: I think the analogy I might try to draw between calculating the lifetime value and how it relates to your business is that when you’re looking at this, you would think that calculating lifetime value is really straight forward and easy as okay, how much money you’re going to make per customer, but once you start digging into the details as Rob illustrated, if you get into things like cross sells and upsells, those things start to change what your lifetime value actually looks like. It’s very easy when it’s just a flat number and it’s one time payment but anything else, let’s say that you’re paying affiliates, that eats into whatever that margin is. If you’re doing cross sells, or upsells, maybe it adds 20% to the revenue but only for 50% of the customers, then it starts to get complicated.
It’s almost like the very simplistic analogy is okay, this is how you calculate gravity but depending on how close you are to center of gravity or how far away you are, there’s all these other little things that come into play. Then there’s air friction and lots of other stuff. It starts to get more complicated, and there are other things that you can add in that may make a difference or you may decide to gloss over them just based on what it is that you’re trying to get at and why you’re trying to get at that number. If it’s try to maintain profitability or optimize your profitability, you might dig in and say yes, these things actually matter to the calculation. In other cases you may just say, I don’t care, I just need a back of the envelope number so that I know kind of what I’m shooting for. It really depends on where you are in the process of trying to figure out how much money each customer is making you.
Rob: Let’s flip over to recurring which is what we’ll focus on for the rest of the episode. Obviously this works with SaaS, but also works for membership sites, something where someone pays you on a recurring basis. This can be used for quarterly or annual or whatever. We’re going to look at monthly because it makes the most sense for what we’re talking about.
To calculate lifetime value, the simplest formula is to take your average monthly revenue per user, per customer and you divide it by your churn percentage. If your average revenue per customer per month is $30 and you have a 10% monthly churn rate, then you’d have $30 over 0.1 and that means your lifetime value is $300. It’s not complicated, it’s just hard to explain on a podcast but basically your average customer lifetime, how many months they stick with you is one divided by churn. Again, it would be 1 over 0.1, so that would give you 10, and then your lifetime value is your average monthly revenue per user which is also called ARPU (Average Revenue Per User). ARPU times the amount of moths they stick around times the lifetime. The amount of months they stick around is 10 and the ARPU in this case is 30. 30 times 10 is 300.
Again, the simple way to do it, we don’t really need to derive it here like I’ve just done but it’s basically your average monthly revenue per user divided by your churn percentage. There is a more advanced way to do it, we’ll link over to profit wealth. We want to get down to the penny and how all these things come into it. But what’s interesting is you think about HitTail where an earlier SaaS app I had, had pricing tiers that were 10, 20, 40 and 80 and then it went up from there if you got really big. If I would to look at a SaaS app that had pricing tiers of 10, 20, 40 and 80, this is actually similar to what HitTail had. Those were the pricing tiers for that. You could take a reasonable guess. Typically, when I’m looking at a SaaS app, if I’m going to guess what the average revenue per user is, it tends to be one from the bottom. In this case 10, 20, 40, 80, I would from an outside perspective say it’s probably around $20. Maybe it’s $22, maybe it’s $25, something without expansion revenue specifically.
Expansion revenue is like what Drip or people as the ad subscribers goes up quickly, the costs. But in an app like HitTail or app where people choose a tier and stay on it, it’s going to tend to be somewhere on the lower end. If your average monthly revenue per user is $20, you can see how driving churn down drives this lifetime value up. If your churn is 10%, which is quite high, you only have $200 total from the lifetime. But if you cut that in half down to 5%, then you’re looking at to having $400 that you’re essentially grossing from that customer over their lifetime.
Mike: The thing to keep in mind with that churn rate is that as that churn rate goes up, it dramatically starts to affect the lifetime value. If you think about it strictly from a percentage, I think it was 5% churn is the example that I’ve used in a MicroConf talk in the past where if you have 5% churn, then on a year over year basis, you’re churning over 60% of your customer base and it actually gets a lot worse than that because it is 5% per month, not necessarily the total of the entire time because you have to calculate it at each point where somebody could potentially churn out of the application. That 5%, great number to have but you really want it over 5% over the course of the year, not 5% per month. You can get in trouble if your churn rate starts to climb and you end up churning over most of your customers on a yearly basis. That’s a really bad position to be in.
Rob: And I’ll just throw in this little tid bit here, this isn’t even in the outline but it’s interesting, you can get to the point where you have net negative churn, your churn is actually negative because your existing customers are expanding. It’s called expansion revenue like I just talked about. In a business where it is based on something that is constantly growing, let’s say imagine Amazon EC2, Amazon S3.
Mike: I think Stripe would be a good example.
Rob: Stripe’s a good example. Yup.
Mike: Stripe takes a percentage of the purchase price for their customers but as those customers grow and they sell more, Stripe grows their own revenue because of that.
Rob: Right. If they have a bunch of people signing up and some are churning but the ones who are there are growing 10% per month each, just as an example, you can imagine that their churn is negative and that’s crazy multiplier, crazy multiplier on lifetime value.
Why are we even thinking about lifetime value, why do you care? The big deal is lifetime value gives you an idea of what you can spend to support and to build the product and they acquire, but there’s even more interesting aspect that we can drill into and it’s not directly lifetime value but it’s based around payback time, payback duration.
Let’s say that there’s this common mistake of beginning startup founders, thinking that they can take their entire lifetime value and they can spend that to acquire a customer. If you had $500 LTV, I could go out and spend $500 to acquire that customer. That is far from the truth. There are three major reasons why that is, first one is that you’re going to have expenses, you’re going to be paying employees, you’re going to be paying yourself, you’re going to have hosting, you’re going to have Stripe cost, payment processing, there are a ton of expenses that are out there. When you are small you can get those small, but especially as you get big, your expenses will become a larger and larger percentage of that lifetime value. That’s the first thing to keep in mind. That’s where if you want to do the exhaustive LTV calculation where it’s net LTV, you can start deducting out expenses on a per customer basis, just takes a lot longer. When you’re small, it isn’t such a big factor, I wouldn’t necessarily do that earlier on.
Second thing is you don’t want to spend $500 to acquire a customer who’s going to bring you $500 because you want to make some type of profit, you want to have a business that actually generates some type of money that you put in your pocket. The third one is that you are likely to run out of cash. Imagine if you have a really long customer lifetime, people just stick around forever. Let’s say they stick around for 50 months and you get $10 a month from them. The lifetime value would be $500. But if you spend $500 to acquire them, or even if you spend $300 or $400, you don’t get payback for 30-40 months and unless you have a massive pile of cash, you are going to get killed. Frankly, you’re going to go out of business, it’s what’s going to happen, you’re going to run out of cash.
There is this whole concept of payback duration or payback time that doesn’t go all the way up to the LTV, it only goes for certain number of months to the point where you have enough cash to cover it and basically enough comfort to cover it. So Mike, you want to talk a little bit about these rules of thumb that I’ve used over the years for a funded company’s payback time and bootstrapped company payback time.
Mike: Yeah. The difference between them is striking because with a funded company, they have money to burn because they’ve gotten money from their investors and the whole purpose of that money is to not just find the customer but to also leverage the channels that are going to get them more customers. Not necessarily as concerned about profit. They can burn through the money that they are getting and it doesn’t matter as much to them, they’re really trying to spend that money in order to identify the channel that’s going to get them the most customers as quick as possible and then they’re going to use that to start optimizing what the revenue is. Sometimes they don’t even do that, sometimes they don’t care about revenue at that stage at all, they’re really just looking to get users.
If they are looking for a return on their investment though, they’re typically looking at something less than a year because they have the money to burn and they have the money to invest in those channels and the purpose is to get that money in the door overtime so that when the year comes up, then they have the money back in the bank. As Rob had given the example, $10 a month over the course of 50 months, let’s say that it’s $100 a month over the course of 12 months. They want to get that return within a year.
With a bootstrap company, you really can’t do that. Most people do not have the runway in order to be able to make that happen. This is where people are really looking to get that payback within two, three, four months at the most. If you have more cash in the bank, you can stretch it out to six or seven but if you don’t, you really need that payback very quickly, maybe one or two months at the most. This is an area where if you’re selling annual plans, it can make a huge difference in your ability to leverage channels that are going to cost you a lot of money to acquire those customers because if you can sell an annual plan, you get all the money up front, you don’t have to wait for it to come in. Maybe not everybody signs up for an annual plan but if you can get a certain percentage of them to sign up for an annual plan, then that calculates into what your upfront revenue is and what your payback time is on average. It’s not going to say everybody’s going to pay back within this period of time, whether it’s three months or upfront. But you also want to make sure that you have the money in the bank to be able to reinvest in wherever the channel is that you’re finding that’s working.
Rob: Yup. I remember when I first started running ads with HitTail was Facebook ads and my payback time that I was looking for was I think two months or three months because I didn’t have a lot of cash and then I did some deals. I did an AppSumo deal and I got $11,000 in cash from that and then I upped it to a four-month payback. And then I got even better at it, and I realized I wanted to spend more and grow faster so I went to five months and eventually I was at six months payback because I was comfortable with it and I had enough cash coming in from existing customer to cover that. It’s a really interesting thing to see how comfortable you are and how much cash you have in the bank. I would say as a bootstrapped founder like you said, somewhere between two and four months is where most people typically start.
One other thing I wanted to point out is there is there’s this rule of thumb with lifetime value to CAC ratio. CAC is Cost to Acquire the Customer. LTV to CAC ratio, in general is in funded circles but they say it should be about 3:1. Meaning if your LTV is $1,200 that your cost to acquire them should be right about $400. If you go over $400, let’s say you’re at $800, it means you’re spending too much to acquire customers and actually there are funded companies that do this because they’re trying to go after growth and they’re nowhere near profitable. These are the kinds of the companies that I think that a lot of us roll our eyes at because it’s like yes, you’re growing and yes you’re bragging about how you’re killing it but you’re never going to make money until you prove that you could acquire customers for less.
And then in the funded circles, if they say you’re acquiring customer’s, lifetime value is $400 and you’re only spending $100 or $200, then you’re actually missing out on growth. They’re not saying it should be below 3:1, they’re saying it should be at 3:1 or as close as you can get there. Personally, when I’ve done this, I have often not spent 3:1, I have often done below that like 4:1 or 5:1 because the rest is profit. If you are a bootstrap founder, you have to think about that. The less you spend, the slower you will grow but the more profit you will have. You want to balance that, you want to grow really fast, you can obviously have that ratio be even higher.
For the last few minutes of today’s podcast, I wanted to run through a couple examples of some real numbers to wrap your head around what it actually looks like to run ads and to think about payback time. What I’m saying is, as reasonable clickthrough rates and reasonable ads cost at different times, you have to find the right ad network to be able to justify some of these but let’s go back to lower price SaaS, which is $10, $20, $40 and $80 a month with average earn per user at $20 point, churn is 10% a month just to make it simple. Obviously you’d want to get lower than that but it’s easy math, that makes your lifetime value of $200.
Interesting thing, we’re just going to look at two scenarios, back in the day, when I was running Facebook ads, this is 2012, I was getting clicks for $0.30, that is not impossible to do at this point but there are ad networks still today where you could find those. At the time, Facebook was a [00:24:50] ad network and when Google AdWords was [00:24:53], it was cheap clicks that Jason Cohen and talked about getting $0.05 clicks when he first started the SmartBear. You have to go outside these mainstream areas because they are overcrowded with highly funded. It’s where everyone’s playing and so the clicks are more expensive, but if you can find networks or other opportunities for getting inexpensive clicks, be creative with it, that’s where you can get these $0.30, $0.40, $0.50 clicks.
Let’s say we were getting ad clicks at $0.30 piece, let’s say 2% of the people who came to our website converted the trial, that number is high but for a lower priced SaaS app, that’s really curiosity based, it’s possible although we’ll look at the next example as I think is probably a little more realistic these days. 2% conversion to trial and then half of your folks, this is credit card upfront, 50% convert from trial to paid. With that, if you do the math, $0.30, 2%, 50%, it takes you out to $30 to acquire each customer and you would get a payback in 1 1/2 months. You would want to run that all day and all night and you would actually want to pay more per click to drive more traffic faster. I would consider doubling one of those numbers, if you literally were getting 2% conversion rate to trial, that is a pretty hefty rate.
The second example is pretty much the same example, but I doubled the cost from $0.30 to $0.60 and then I cut the conversion to trial in half from 2% to 1%, which I’ll admit is a bit realistic. It’s $0.60 per click and 1% converting to trial and half converting to paid, that gives us a cost to acquire of $120 and that’s a 6 month payback. Realize that if you’re driving 100 customers new customers a month from this ad approach, that’s going to be $12,000 in cash that you’re going to need to do it. It puts into perspective, those are just loose numbers, if you add a higher average revenue per user, not uncommon to have $80 or $100 average revenue per user, then these numbers become very different. You can pay a lot more per click. If you pay a lot more per click, your conversion trial’s probably also going to be lower with a higher price point thing. These things will have to shake out.
But this is the analysis that I have done many times when I’m thinking about are we ready to start running ads and is there a scenario under which this is feasible and then we can reasonably grow a business using ads because every business is not cut out to do pay acquisition.
Mike: I think the most important piece to keep in mind when you’re looking at the numbers and try to figure out whether or not it makes sense to go after a particular advertising network is how quickly you’re going to get that return on your investment back. Because if it is six months, and if it’s costing you $10,000 to pump into that, you’re not going to see that $10,000 that you paid this month until six months out. In order to get yourself to that six month period or get yourself through it, it’s going to cost you $50,000, $60,000 and yes it decreases as you go on because you’re getting more money from the customers in the third month than you were in the first month, but the reality is you need a lot of money to make something like that work. That’s why funded companies can do it and bootstrapped companies really don’t have the ability to. Again, that’s also why the annual plans and getting the money upfront helps so much with being able to grow the business in an advertising space because you get that money and you can spend it, and in fact, almost gives you negative churn as a result of that.
Jason Cohen has talked about that at MicroConf. I think there’s a talk that you can find on the MicroConf website under the videos section from 2013 or so where he talks about exactly that.
Rob: Yeah. To be honest, even though we’ve been talking for more than half an hour, this really is high level introductory. I say introductory and I hope it was easy to understand but I will say that the kind of rules of thumb that I’ve thrown out here are from years and years of experience running this across multiple SaaS apps, many, many small businesses and this is the way that I think about paid acquisition as I’m diving into it. I was trying to think of any networks these days, like ad networks in particular, that would probably have tripleclicks, I think Twitter is one, and I think Instagram is another. I don’t know if Instagram’s up to Facebook cost yet, I know Instagram’s a pain, it’s not necessarily B2B, it’s got to be visual and all that stuff. Those are the two networks I think have a decent reach that could potentially have cheap clicks. I don’t think Facebook does it these days anymore, last time I ran ads, the cheapest I was getting was the $0.60 clicks but a lot of them were mostly between $0.60 and $1, I think it’s even higher than that now.
That is why these businesses like Facebook and Google mint money and why they’re worth so much, why the stock market values them so high because they know that overtime, if they’re successful and if they figure out their ad tech, which is pretty hard to build, if they figure that out, it’s just going to grow overtime and that’s good for them. It’s not necessarily good for the advertisers in the sense of it becomes more and more expensive to run ads.
Mike: I think the one wrench to throw in this entire thing is that even if you’re paying money to get those people to your site, there is the chance that they may not convert right away and they may just end up on your email list and you may need to figure out, okay, it cost me this much to get somebody onto my email list, but later on did they convert into a customer and that’s where you start getting into a really advanced analysis of what your sales funnel looks like. Maybe some people convert, maybe some people never convert or just unsubscribe and they will never become a customer but those are the places where it becomes very difficult to start making some of these calculations because then it’s not as straightforward as I paid $1 for this ad and 1% of the people converted. It’s probably a little bit more than 1% but it’s hard to know overtime, then you end up with problems trying to figure out what your attribution looks like. Attribution is an entirely different world, we could probably spend an entire episode on trying to figure out attribution but it’s complicated to say the least. I’ve talked to a lot of people who said trying to figure out what your attribution looks like is very, very difficult.
Rob: Yup. This is all good points. It’s not necessarily a purchase right off the bat from an ad, especially not from Facebook. They’ve tweaked their algorithms so actually they made that harder. If you look at someone like Brennan Dunn with Double Your Freelancing, he talks about every email subscriber he gets is worth x dollars and I forget what the number is. I imagine he’s been public with it, but it’s something like $10 or $11. He knows that if he runs Facebook ads and can just get someone to opt in, that down the line, if he does all the math, on average, it’s about $10 or $11 based on how much a bunch of people don’t buy and the ones that do buy these many things from him.
It’s interesting, if you can run ads and getting someone on the email list is not that hard, depends on the list, depends on the time and clicks and all the stuff but I’ve done it pretty consistently for between around $1 at the low end up to maybe $5, $6 on the high end. What I was just talking about, it’d be pretty interesting, you could see how you could mint money with the business model that makes money based on people being on an email list.
Mike: I think that sounds like a good place to wrap it up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you could 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 361 | Planning for Better Productivity
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to plan for better productivity. Based on a blog post by Noah Kagan, they discuss some different tactics including organizing time by energy level and value.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about planning for better productivity. This is Startups For The Rest Of Us Episode 361. 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. Rob, I’m back, your coup failed.
Rob: Aw man, I was going to ask if you listened to the episode last week. That’s funny. Did you listen to it or did someone…
Mike: No…
Rob: You made it back. I figured I’d exiled you and this is my show now.
Mike: No, you know what, it’s funny because for whatever reason, it reminded me of the very first Micro Conf that we ran and the survey that I sent out afterwards. I don’t know if you remember this but the last question on the survey was who’d win in an arm wrestling match, Mike or Rob?
Rob: I don’t remember that.
Mike: You don’t remember that? 75% said that you would go down.
Rob: I would go down, yeah, well that makes sense. What do you think of the episode?
Mike: It was good. It’s probably always awkward to record something completely by yourself. I’ve listened to podcasts before where it’s just one person talking but I think there’s a lot to do with delivering content. Sometimes, it works out really well, sometimes it doesn’t. I think it depends a lot on whether or not the topic or the content resonates with you, and then there’s also the appeal of listening to the person who’s speaking.
Rob: Right. I did realize that I talk fast normally, but for some reason when there’s no one else on the podcast, I talk even faster. I just string the sentences together. I was listening to it at 1.5 speed and I was like whoa, you need to pause, dude, you need to have some space between the sentences.
Mike: Well, that actually also plays into when people are doing public speaking, they get excited and nervous. People tend to talk fast when that’s the case. But people, I’ve noticed, also talk fast when they are extremely knowledgeable about a particular topic because they want to get everything out as much as they possibly can.
Rob: Yeah, it’s like excitement and passion for this stuff.
Mike: Yeah.
Rob: That’s cool. Good, I’m glad you enjoyed it. What else is going on this week?
Mike: I’m in the middle of finishing up implementing [OWAF 00:02:20] inside of Bluetick in an effort to basically streamline the onboarding process because right now when somebody signs up, the first thing you have to do before anything else is set up a mailbox. If you’re using Gmail, it can be problematic at best. I’ve been getting on a call and essentially walking people through manually. It sucks. It’s not just that it sucks because I have to talk to them, the problem is that sometimes it doesn’t always work or you have to go into admin settings or each situation can be different based on how your G-suite account is set up or what admin settings are and which ones aren’t set.
It can be very difficult to figure out, and users will probably never be able to figure it out on their own. I’ve had a few go through and have no problems, but then there’s ones where settings were all over the place or they’re not an admin and the [OWAF] should just completely get rid of all of those things and just take care of it.
Rob: That would be really nice. That sounds like a nightmare when you talk on the phone like that, you can’t just have a single KB article or some type of walk through and you got to almost trouble shoot it, custom consulting just to get on boarded is pretty rough.
Mike: I do have a KB article for it. If I were to print it out, it’s probably five or six pages, which sucks. You can go through it, but I’d rather the person not have to. If that’s their first experience with it, it’s not a great experience. I really try to avoid that. Plus, I’ve had people who even I couldn’t get them on boarded because it just did not work. We couldn’t figure out what the settings was. Things worked for a little bit, and then Google has this algorithm in the background that if they think that it is hacks, it will just block access. You got to be kidding me, but [OWAFs 00:03:55] gets around that kind of stuff.
I’ve got it mostly working right now, mostly just going through some testing and making it so people can convert their existing mailbox over to using [OWAFs 00:04:05] instead of the app passwords that they have to use right now. But yeah, open to employ that out in the next couple of days and move on because that’s just been a nightmare.
Rob: It’s one of the few cases where you may actually have a silver bullet. Most of the time, it’s like oh, this is still not going to solve it. But if it actually does, that’s a big deal.
Cool, well I want to talk about MicroConf. We have save the dates for MicroConf Started Edition and Growth Edition next April in Las Vegas. Tickets are going to be available in the next few weeks. Mark your calendars now for Growth Edition is April 23rd and 24th, it’s a Monday, Tuesday. Of course, we have the Sunday evening reception on the 22nd. Started Edition follows that, much like last year, it is April 25th and 26th. If you are interested in hanging out with a couple hundred successful or aspiring to be successful bootstrap, startup founders, you can get on the mailing list at microconf.com. Historically, MicroConf has sold out pretty quickly. You will want to be on that mailing list if you want to get the first grab at tickets. In addition, MicroConf Europe is happening here in about five weeks in Lisbon, Portugal. Tickets are still available for that, microconfeurope.com.
Other than that, in terms of work, we’re doing a lot of scaling stuff. We have gotten out ahead, it’s so nice. Remember how several weeks ago I was talking about how cues and scaling were just a big issue. They’re perpetually going to be a big issue but we’re well out ahead of them now, it just feels like you have breathing room. Basically, I put together, it’s called a platform engineering team. It’s people, they’re just going to be working constantly on the scaling now.
Typically, every four to six months, we would turn our attention to it and then we go back to building features. It’s at the point now where we just have a staff of—it depends how urgent it is—between five and eight engineers who are just constantly going to be looking at how to 2X this and how to 5X this. We’re doing a chunk of it in a sprint for Black Friday, even though our volume is historically not gone up that much on Black Friday, we do just want to make sure that we can send emails very quickly. I think the other day, they 2X or 3X our email throughput with three, four weeks of work. They re architect something and they decoupled something, doing something asynchronous. You just slowly make those wins, that’s a big one. If they can 2X or 3X it again, we will be sitting pretty even based on our most pessimistic estimates of the volume that we’ll need to send.
Mike: That’s awesome. Sounds like things are firing on most, if not all, cylinders at this point.
Rob: Yup, it is good. It will be nice to get past that. We’re still working on features but we definitely have slowed feature development just a tad in order to make sure that we’re well equipped for it and then got some good stuff cooking for the end of the year.
Mike: Very cool.
Rob: What are we talking about today?
Mike: Speaking of optimization, we’re going to be talking about planning for better productivity. This episode is based off of an article that I read over on Noah Kagan’s blog at okdork.com, we’ll link it up in the show notes. It was a series of time management tips. We talk about time management tips a couple of times on this podcast but we haven’t gone in depth into anything in probably 100, 150 episodes or so. I’ve went back and made sure that we hadn’t done that recently.
I wanted to take some time and dig into a process that he outlines on this blogpost because the title of the blogpost is Time Management, Tips of Insanely Busy People. Because of a lot of the things I’m doing, more or less juggling back and forth between all these different activities for Bluetick, it’s been difficult to prioritize things properly and make sure that I’m spending enough time in a way that allows me to move forward in every direction as opposed to making too much progress in one direction and not enough process in others.
I took the time to actually read through this and start applying some things already. So far, this week, it’s actually worked out really well. I’m getting up early and reprioritized when I do certain things. What its helped me do is essentially helped me put myself in a position where I make time for the important stuff and then rearranged the time where I’m making poor decisions or my glucose levels are low and not able to make good decisions and push that off to times where I know that that’s more of a recovery time for example.
We’re going to go through this. The thing that jumped out at me the most in this particular article is that there was a line in there that said success is fundamentally about how you spend your time. If you think about it, conceptually, if all of us had the same amount of time in the day but some people are much more successful or much more productive than other people. Kind of want to take a look at this to see if there are ways that I can apply some of the stuff that we learned and wanted to share some of that stuff.
Rob: Indeed, let’s dive in.
Mike: The first thing that comes out of this article is the recommendation to list all of the different categories of work that you need done. There’s a screenshot in this article where he’d list out all the different activities that he does into the different categories. He’s got green for gym, salmon color for Sumo work, purple for podcast planning, recording, and brainstorming, and then he has grey for growth or learning or consuming, whether that’s reading, or podcast, or whatever. Then, red is all sorts of random stuff that he likes to do. His calendar is—I won’t say it’s completely full—but there’s a lot of places where there are areas of time that are blocked off for these different activities.
The basic idea here is to figure out what things you need to be doing and then categorize them and figure out what times of the day that you are spending time on those things. If you have five different things that you need to be spending your time on, are you actually spending the time there and what times of the day or what days of the week are you spending the time?
Categories might be marketing, engineering, or support. Another category might be your downtime, rest or recovery time, which is really winding down for the evening. That’s the way I look at it. Shutting down your computer at 7:00PM or 8:00PM to put you in a position where you can actually go to sleep at night.
Rob: Yeah, I think this is an interesting exercise to do. I’ve never thought—you have work in quotes, a list of categories of “work” you need to get done because you include sleep and social time and exercise. I think it is good to think about those things as something that you have to have on your calendar because although we don’t think of sleep as being a form of productivity, it’s something that allows you to be productive the next day.
I’ve never calendared something this specifically, I have done time blocking during the day where I’ve blocked out tasks to work on whatever it is, writing, or eating. I’ll put lunch in there or obviously meetings are time blocked, but I haven’t gone outside of my 9:00 to 5:00 schedule. I don’t time block stuff in the morning or after work. I don’t know that I would do that permanently, but I do think it could be an interesting experiment. It kind of reminds me of I don’t have a personal budget, but I did at one point. I tracked it for a couple of months and it gave me a decent sense of what we were spending. That allows me to have a ball park now.
That’s what I feel this would do, I wouldn’t want everything time boxed all the time but I do think doing this one or two weeks could give you a better idea about where you’re slipping and give you the discipline, that reminder dings and it says which task, that if you’re not getting stuff done, either you’re not giving yourself enough time, you’re not realistic enough about estimates, or maybe you’re getting distracted and it can be a reminder to get back on task. I like the discipline and just the idea of tracking everything for a period of time just to see what it actually looks like on your calendar and how it feels to work like that.
Mike: One of the things that I found when I was going through this was something that I haven’t done for a while now. Pay more attention or pay enough attention to exercising and going to the gym. Part of that was because my shoulder was all messed up for a while, but I also recognized that when the end of the day came along, 6:00, 7:00, 8:00 at night, I lost the decision making ability to actually go to the gym. I would think about it and I would say no because I didn’t have the willpower to actually go to the gym at one point. It’s like I’ve been making decisions all day long, some of them were very difficult, I just couldn’t bring myself to do it.
I think that a lot of people fall into that category, and I’ve done this myself in the past where after a hard day at work, you come home, you eat dinner, and then you sit on the couch and watch TV, but then you also snack which is a universal problem almost but you’ll sit there with popcorn or potato chips or something like that and you’ll veg out in front of the TV. You can’t stop yourself from eating those potato chips or the popcorn or whatever, and it’s because you don’t have any decision making capabilities left, you’ve lost the willpower.
What I do for example was I switched my schedule around and I put gym very first thing in the morning. The past four days, I’ve gotten up somewhere between 5:00 and 6:00 in the morning and gone to the gym which is not normal for me. I do not do that, but I’ve actually found it very easy to get up and go to the gym first thing in the morning just because it’s the first thing I have to do. I’ve had a decent length of sleep, go to the gym, and it’s hard to discount going to the gym that early because I’ve made no other choices at that point.
Rob: Wow, that’s impressive. I have heard that exact thing that you slowly lose willpower during the day and that’s why midnight snacking and making poor decisions, buying things on Amazon late at night or whatever, are so much more common than when you have the energy.
It’s interesting, a big part of this I think is knowing yourself and how you work. There are certain times of the day where you are going to be more productive. The majority of people are most productive in the morning when you’re fresh. I find that I get a second wind often around 10:00PM and I used to work from 10:00PM to 2:00AM was when I’m ultra productive, like in college, at that time. That’s when I would do all my homework. And then even when I got out, I would write a lot of code when I was consulting and didn’t need to be in a day job, I would write a lot of my best code at night.
Over time though, having kids wrecks that. I learned to try to adjust back to mornings. I do think that knowing what constraints you have and knowing your own personal body clock is another big thing that you’re going to want to know before you start putting things on the calendar during the day.
Mike: One thing you mentioned there was doing code late at night and getting that second wind. I can do that as well but for whatever reason, you’re walking out the door and going to the gym at 7:00, 8:00, 9:00 at night, that takes a lot more effort and willpower for me to do it than sitting down and coding does.
Rob: I agree. I’m on the same boat.
Mike: I think that it’s partly because of how interested you are in what it is that you are trying to get as a goal. I think there’s a lot of things that factor into that, but I recognize that I was not going to the gym and it was because I was pushing it off until later in the day. I didn’t have the willpower to make that decision anymore. It really helped.
Rob: I’m actually reading a book right now called Sleep Smarter, 21 Essential Strategies for Better Sleep, or something like that. In it, he talks about how they’ve done studies and that exercising in the evening is actually not good, that it amplifies stuff and it can negatively impact your sleep. Some people say I exercise in the evening, it makes me tired and then I go to sleep, but the studies have shown that that doesn’t tend to be the case in general so it is actually better to work out—I think he said no caffeine after 2:00PM in general, and you get the most sleep benefit if you worked out in the morning. If you worked out in the afternoon, it was a wash. Then if you worked out in the evening, it was a detractor to your quality of sleep, so something else to keep in mind.
Mike: Let’s move on so we can get into some of the different experiments that Noah had gone through in this article. The next step is after you’ve listed all the different categories of where you think you should be spending your time, your ideal workload for the week, then track how much time you’re actually spending in these areas. It’s very easy to put yourself in a situation where you think that you’re spending an hour on something and you actually spend two, or three, or four because one we’re not very good at estimating our time, but two we’re also not very good at looking back retroactively on oh, how much time was it that I spent on that yesterday? Unless you’re tracking it right at that point, it’s very easy to mis-estimate how much time you’ve spent on something.
Rob: Mis-estimate? Remember that bushism, mis-underestimate? That was good.
Mike: Yes.
Rob: I think it’s really easy to go through your day on autopilot, and especially with ADHD inducing tools like Slack or Twitter or Reddit, if those are your jam. Even your email inbox. You can just wonder from thing to thing, checking them every 10 minutes, and that could be your whole day and you never get anything done. I think this entire thought process is a way to help you not do that and also looking at a calendar and actually slapping an hour on something and saying I only have an hour to do that, it’s a great way to force yourself to get stuff done and to focus. I think especially, I would pair this with my most productive times of day, I would pair it with a small amount of carefully titrated caffeine, I would have a playlist like deep focus or I have some punk playlist that I put on loop. I think that is the way you’re going to eek out the maximum productivity, but it’s the first step here as you’ve just said, becoming aware of where you are spending your time versus where you think you’re spending your time.
Mike: That’s exactly right. Once you have figured out where you are actually spending your time, you start to compare it against what your ideal time would look like so that you can analyze that and figure out where you need to make adjustments in order to improve it.
The first experiment that Noah had done was he went through and organized his time by what he called energy level. There were a couple of different things that he classified some of the work as. He has manager time, maker time, which he was talking about on this podcast before where manager time is you’re doing things that require management capabilities. For this type of stuff, you need anywhere from 30 to 60 minute blocks of time to handle that stuff. Whether it’s taking phone calls, or meetings, or checking email, or managing people, or doing certain types of planning work. Those are all essentially manager time.
Maker time, he says block off two to four hour blocks of this time so that you can really get into something. That includes writing, coding, any sort of creative activities where you need a couple of extra hours of uninterrupted time in order to work on it. If you’re interrupted, it’s going to throw off your schedule and you’re not going to be able to be as creative and be as productive on that stuff.
Rob: In my opinion, I’m kind of a self identified maker in general. I hate manager schedule, I’ve happened to have had a manager schedule for the past several years as I’ve been running Drip and I still do. When you’re a manager, you need to be constantly interrupted because you have to keep other people unblocked. You can’t make them wait 30 or 60 minutes to hear from you in general. But as someone who is strictly, since I was 8 years old, has been a maker, whether that’s writing books, writing blog posts, writing code, building things, I think the entire point of this should be to protect your maker time and to make it predictable and make it something that is deliberate and something that will not get interrupted.
The work environment these days, especially with tools like Slack, I’m going to say it again, I’m a little bit of a Slack basher. As much as we use it and it’s helpful, it is like being in a meeting all day with people. It has real pluses and minuses, obviously it improves communication for remote teams, but at the same time it’s just a constant interruption stream. I wind up snoozing. I’m snoozing Slack more and more. These days I’ll do one hour, sometimes I’ll do two hour blocks. I’ll tell people look, if it’s really urgent, you break my snooze. It’s easy enough to do that with just a click. All that to say, I think that maker time, it’s really easy in today’s work environment to lose your maker time unless you’re extremely deliberate about blocking, essentially snoozing or blocking all your notifications and then not allowing yourself to wonder off into the abyss of time suck.
Mike: One of the things I noticed when Noah was talking about the results of this planning exercise and going through this experiment where he organized his time by maker time versus manager time, you look at the proposed schedule that he wanted to do and it was very repetitive from day to day. There’s reading at the beginning and then morning rituals and then writing for several hours, that was his maker time, and then back to some manager time task. And then in a couple of places he had more maker time schedule.
But if you look across that, it’s very repetitive from one day to the next and it assumes no interruptions. It assumes that nothing is ever going to change in your schedule, there’s no other meetings that happen to come up on a Tuesday or Wednesday morning, and it forces everybody else to work around your schedule which I think depending on who you are, that can work in some cases and not in others.
Rob: Yeah, depends on how much control you have. I think if you are a founder or the CEO and you can dictate your schedule, I think you’re in a pretty good position. I think if you are working for a small startup where communication is fairly easy let’s say, or on an eight-person team and the culture is to just allow people to be makers, I think you probably have a pretty good shot at this. I have worked at places where that isn’t the culture, marketing driven cultures and sales driven cultures, I’ve worked at companies that are both. They’re all about this interrupt driven thing and it’s all real time.
The space that you’re given both in terms of time and in a lot of times in terms of how offices are set up are not super conducive to allowing you to actually create stuff, allowing you to have that maker time makes it really hard and you have to go out of your way to do it. It’s going to depend on how much control you actually have but I do think that odds are pretty good that if you’re a knowledge worker and either a founder or even just someone working at a startup, I would bet you could pretty dramatically improve your ability to carve out that maker time.
Mike: Something else that I found interesting about this was that one of the lessons he learned about this particular experiment was that how he spent his time was not necessarily how he spent his attention. I kind of draw an analogy between that and going to the gym for example where you can go to the gym and it’s time that you have to spend but you don’t necessarily have to pay attention very much when you’re at the gym.
If you’re just on a treadmill or elliptical machine or lifting weights or whatever, you tend to not have to pay that much attention to it. You just mechanically do those things, but you can listen to audio books or podcasts and things like that. One of the big benefits of that actually has been my ability to get through a lot of my backlog of podcasts that were queuing up that I hadn’t listened to that I wanted to but I just hadn’t really found the time because I was spending so much time doing all of these other tasks. I didn’t have the time available to sit down and just listen to a podcast, I couldn’t pay attention to it. I just didn’t do anything with them.
The second experiment that Noah had done in this was that he organized some of the different tasks that he needed to do by what their value was. I really liked the way that he separated out the different types of activities. What he did was he created this little spreadsheet that essentially classified all of his different activities as either $10 an hour, $100 an hour, $1,000 an hour, or $10,000 an hour activities. He categorized them into each of these by saying if it is incompetence activities, then that’s $10 an hour, these are things that you constantly encounter failure and frustration or conflict, you’re stressed out about them, you just do not like doing them.
Under those, he put things like running errands, working on social media, cleaning and sorting things, attending meetings, stuff like that. I think that for each of us, our list is going to be different for what is going to fall underneath each of those buckets. I think the point here is to make sure that you understand what the value of those activities is not just in your personal life and in your business but you personally. Because if it’s something you don’t like doing, you’re probably going to push it off, and then it becomes more of a cognitive overhead because it’s going to be in the back of your mind and it’s going to interrupt your thoughts when you’re doing other things.
Rob: And the next rung up are the $100 per hour tasks. Just as a note, Noah pulled this list from Perry Mashalls’ book 80-20 Sales and Marketing. $100 per hour tasks are things like solving a problem for a prospective or existing customer, talking to a qualified prospect, writing an email to prospects or customers, creating marketing tests, outsourcing simple tasks, customer follow up. It’s that next level up where you’re not essentially doing the work that is kind of one-to-one stuff but it’s either revenue producing—I guess some of it is one-to-one but it’s more about revenue producing or bulk stuff like writing an email to a group of prospects where it’s one to many and there’s some leverage here, or it’s like you said, outsourcing, which is something that is gonna really give you quite a bit of leverage.
And just as a note, Noah calls the $100 an hour work competent activities. It’s tasks where you meet the minimum standard but they cause you anxiety and they feel repetitive. I think that’s a good way to think about them.
Mike: The next rung up on the letter is the excellent activities which are classified under the category of $1,000 an hour work. These are tasks where you have superior skill and reputation but you don’t necessarily enjoy them, you just don’t have the passion for them. Under his list for these, these are things like planning and prioritizing your day, negotiating with prospects, building your sales funnel, creating pay per click campaigns, delegating complicated tasks, writing sales copy, other things fall into that bucket. Again, those tasks are specifically for him. These may move around for you.
Rob: And then the top rung of this ladder are unique ability activities and these are the $10,000 per hour work tasks that you can do. Noah defines them as tasks which you show superior skill, energy, passion, and desire for never ending improvement. I guess this is actually yeah, it’s Perry’s list and then Noah says he used a four tier system from Dan Sullivan to group them. He’s kind of combining the two things, the dollar per hour and then the rungs of the ladder, the incompetence all the unique abilities.
$10,000 per hour stuff may be things like improving your unique selling proposition, creating new and better offers, repositioning your message and your position, negotiating major deals, selecting team members, public speaking. These are really high value, high impact tasks that frankly, you’re probably one of the only people in your organization who is capable of doing them and they’re within your zone of genius.
Mike: What I like about Noah’s assessment of this is that it’s not important that you actually make $1,000 an hour or $10,000 an hour doing these things, but the relative value between the different tasks and those different categories, that’s the important piece. Those are the things that you need to pay attention to and make sure that you’re spending enough time on the stuff that would provide a heck of a lot more value than the things that are low value that perhaps you enjoy doing them but they don’t provide a lot of benefit to the business and they really don’t move it forward.
If you’re spending an exponential amount more time on support tasks, you really enjoy doing it, that’s greta but it probably doesn’t move your business forward because there’s other things that it is taking time away from that you need to dedicate some of that time towards.
Rob: What I’ve noticed is that if you’re a solopreneur, then it’s likely you’re going to start off doing all of these and then you slowly outsource the lowest ones on the totem pole. The higher you get up in this ladder, it’s harder to find good people at a cost that you can afford if you’re a boot strapper. What I’ve seen is that as my team grew and then post-acquisition, that it is so much easier with a, a larger team, and b, more resources, more money to be able to find people who can do these things very well and find someone whose zone of genius is outside of yours, who’s not a co-founder but actually hiring a director or a VP or a whatever who can really level up and do $1,000 an hour and $10,000 an hour tasks.
It’s pretty unique to find someone like that. It is very expensive. In general, it’s expensive. Obviously, you can find a unicorn somewhere, a diamond in the rough. These are things that are more of a challenge to do with a small team and/or a bootstrap team, but it’s still something that I think you should strive to do.
Mike: I think one of the things that Noah’s getting at in terms of assigning the dollar amounts to these is that it’s not necessarily how much it is of value to the business but if you were to do those things, what would you want to be paid for them, or what could you potentially get paid for doing those things? The $10,000 an hour work, you could potentially get paid a lot more for them versus the $10 an hour stuff. It’s stuff that you don’t like, it’s stuff that you’re not good at. Those are the things that you can mentally classify as oh, I need to outsource these, oh, I need to delegate these tasks to somebody else, not just because you’re not good at them but also because they don’t bring you any joy or fulfillment in your daily life. Chances are really good that you’re probably going to push those off to the future or just simply not do them. That’s where you get out of balance in terms of the amount of work that’s getting done in some of the different categories. Does that make sense?
Rob: I think it does.
Mike: Once you’ve classified all these different things and looked at the different ways you can cross section them, you look at when these different activities take place in your schedule and then adjust your schedule to fix what’s not working and then optimize what is working. If the things are not working, if there’s a balance that is completely out of whack for example, the activities you should be spending a lot more time on you’re not, those need to either get delegated or you need to dedicate the time to do those things. That could be by pulling away time from those activities that you really simply do not like doing or you’re not very good at. Take those things, offload them, outsource them, and move on to doing the things that you are really good at because you can provide yourself or your business a lot more value by doing those rather than those lower level activities that you just simply don’t enjoy.
Rob: Realize that Noah ran two experiments. One, he organized his time by energy level. The other one, he organized his time by the value. It’s a different way, it’s a different lens through which to view the tasks that you have to do. He had different takeaways trying both of those. It doesn’t come out at the end and say you should do one of these and the other one didn’t work, it wasn’t like that. I kind of feel if you’re going to do this that you should try both of them and see which one works better for you, but I also think just doing each of them will be a learning process for you to figure out which tasks you should no longer be doing, which ones are at your $10, or $100 levels, that you didn’t even realize you were doing. I think that’s a big part of tracking your time and running through these experiments is going to do.
Mike: I think if you’re really strapped for time, the title of the article as I said is Time Management, Tips of Insanely Busy People. He has a 80-20 version of the article at the bottom that you can go take a look at. It’s only a couple paragraphs. It gives you all the different highlights, and some of them we talked about in this episode. It’s a very interesting read, I would definitely highly recommend going through and taking a good, long look at this, especially if you’re strapped for time and find yourself juggling a lot of different things.
Rob: I think that wraps us up for the day. We have zero questions right now in the queue. No voicemails, no written questions. If you have a question for us, you can call our voicemail number at 888-801-9690 or you can email 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.
Mike: Isn’t saying you’ve got no questions kind of like announcing on Twitter that you’ve got no emails in your mailbox which is going to let people comment on it so then you get more emails?
Rob: I don’t know, but that would be good if people send us questions then we’ll have them for the next Q&A show. Man, we were doing Q&A shows every other week trying to get through those. It was pretty cool the volume of the questions that were showing up. I can’t remember the last time we’ve literally had zero questions in the queue. I think it may have been a couple of years ago.
Mike: Yeah, I think so. Oh well. Hopefully we’ll hear from people and we can answer more questions on the show.
Rob: Indeed.
Episode 360 | The One Where Rob Takes Over the Show
Show Notes
In this episode of Startups For The Rest Of Us, Rob takes over the show and answers a number of listener questions. Topics include launching a book and dealing with two sided market places.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups For The Rest Of Us, I complete my coup to take over the podcast. I kicked Mike off and I’m going to be answering listener questions on my own. This is Startups For The Rest Of Us Episode 360. 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 and I’m here to share my experiences to help you avoid the same mistakes we’ve made. This is a milestone in Startups For The Rest Of Us history. Funny thing happened, as I was planning the podcast this week, I actually wasn’t able to make our normally scheduled time, nor was I able to make several other times that Mike tried to meet up with me to record the podcast. As a result, I proposed that I find a guest. I contacted a couple of guests and neither of them could make it this week. Frankly, the week became pretty crazy. There’s some stuff going on on the personal side that I’m sure we’ll talk about in future episodes as they unfold, but suffice to say it was me basically running from work to home, back to work, back to home, and didn’t check email for a few days.
Before I knew it, it was Friday morning and poor Josh, our editor, was expecting a podcast recording a few days before that. Here I sit with about an hour to put out a podcast episode and I wanted to go through listener questions. I always have thoughts and opinions on the questions that come through and I have done a few solo episodes over on the podcast I do with my wife, zenfounder.com. I figured I’d give it a shot for Startups For The Rest Of Us as well, it will be an interesting experiment. We’ll go through basically our entire backlog, I think we only have four, maybe five for today. I want to talk through the questions and comments, and we have a voice mail as well, and then lend my thoughts on those.
Our first email comes in from someone who prefers to remain anonymous. The subject line is, “THANK YOU. Finally launched, first 24 hours were an awesome success.” He says, “I’ve been to several MicroConfs, three of the last four years in the US, and I’ve been a long time listener of the show since Spring of 2013. After a few different projects and non-starters, last October, I re-focused and went back to what I’m good at, video based, on-demand training. Today, I concluded a 24 hour special launch offer to my subscribers. My first ever launch, and first time taking payments other than as a contractor. After my 24 hour email launch, I wound up with over $100,000 in sales. This was a lot of work and a lot of fun getting ready for launch, including dealing with Hurricane Irma. I wanted to express thanks to you guys for everything you’ve done for micropreneurs like me. I just put the wannapreneur out to pasture. Cheers.”
As usual, we love success stories like this, and this is why Mike and I started the podcast while we run the conference and really why we have Founder Cafe, our online membership site, foundercafe.com. This is the part about making a difference. It’s always interesting to me. I haven’t tended to start companies to make a difference, I’ve tended to start companies to serve a business purpose, to serve a need, and to make money. Whereas the blog, the podcast, the conference, Founder Cafe, just everything, the book, everything that I create, my content, that’s to actually make a difference. I know we make some money from it, but I’ve in my life made ten times more money from actually building software startups, products, and websites for that matter, than I have putting content out.
I know some people want to start companies to make a difference, there’s this Steve Jobs ‘I want to put a dent in the universe’ or you see a lot of folks in Silicon Valley saying they want to change the world with their startup. Personally, that has never been my aspiration. Yet, I have wanted to change the world in some fort or fashion. The fact that the podcast and MicroConf helped this person get to $100,000 in sales in the first 24 hours of launching, and obviously they built up to that. They had a subscriber list, this isn’t some cinderella story of them just putting something out and it’s selling $100,000 in 24 hours. They put in a ton of work, probably took a few years of building a list. I got to say, that’s the way to start the stair step. Congratulations.
Our next email is a question about launching a book as part of the stair step approach. It’s from Arthur Johnson and he says, “Hey Mike and Rob, it was pretty funny for me when you released Episode 350 featuring a listener question about launching books the exact same day I launched my picture book for kids. It’s called The ABCs of Programming. Like Dan, the author of the question, also thought writing a book was the best way to get started on the stair step approach. It’s a simple product, and unlike a SaaS or one-time software, you don’t get bogged down in the code. This has let me focus on learning process, marketing, and advertising. Since both of you have books, do either of you have any tips on launching a book, specifically if you’re doing it at step one of the stair step approach? Thanks, Arthur.”
I think books are a fantastic way to get started on this precisely for the reason that he said. You don’t get bogged down on the code, you also don’t get bogged down in support, and bugs, and all the stuff that goes along with the complexity of code. In addition, people buy more books than they buy software. I buy one or two books a week probably, either physical or audio, and I read most of them. Most people don’t. A lot of people buy a lot of books with the aspiration that they’re going to read them and consume the content eventually and they don’t, whereas people less often buy software out of this excitement to learn something. They typically buy it only when they have an actual task to accomplish.
Something like the ABCs of Programming or anything that’s going to teach my kids programming or make them better at something, entrepreneurship, learning how to manage money, I’m all in on these types of things, especially if it’s written by someone who is putting it on Indiegogo, KickStarter, or someone who I can tell has a lot of love and care for that thing; it’s not just some big publisher putting a book out, but it’s actually an individual who probably has kids themselves for example.
Yes, I think this is a very good idea if you’re thinking about it. I would go to Kickstarter myself, that would be the first thing. There’s a network effect there, there’s a lot of people on there, a lot of them have kids. It’s just something that whether you’re launching a book to kids or not, it’s probably beside the point, but you get the idea here. I’m on Kickstarter a couple of times a week and I’m looking for projects that are interesting and relevant to me. If it can teach me a new skill or teach my kids a new skill, or is kind of a new and unique thinking around a gadget, that’s the kind of approach that I personally would take.
Obviously, if you have your own audience, there’s another approach there. It doesn’t sound like you do, but that’s where you get that network effect from Kickstarter. It’s pretty easy to promote and you’re basically pre-selling, so as long as you have the cover and a few pages, you don’t even have to have printed the thing, you have several months after that to go get it printed. You can go to one of the print houses that are in China that will print hard cover books and you can ship them back here.
Whereas if you pre-launch on your website, there tends to be a little more skepticism about whether you’re actually going to deliver it. I know there are some Kickstarter projects that have never been delivered, but it’s more often than not, especially the high profile ones, they’re gonna deliver something eventually. There’s that confidence level. When I back something on Kickstarter, I do assume that eventually it’s going to come out one way or another, even though Kickstarter does say that it is not a store.
I’m trying to think—I’ve backed probably 150 projects, I have to look at the exact number. I don’t know if there’s one that I’ve never received, there is one that I received probably two years, two and a half years after it was supposed to arrive, and it came just like two weeks ago. I was very surprised by that. But a lot of things like the books, the author, it tends to be a passion project and they tend to be mostly done with the book at least in writing it and getting part of the art done, there’s not a ton of risk in that not getting done unless someone just totally flakes on it.
All that to say, I think launching a book, I would go for that. A Kickstarter thing to get the network effect, and then beyond that of course you’re going to put it on Amazon. I even debate the amount of effort to set up a solo landing page these days for a book like this. I probably always would personally, especially you can get the square space theme or WordPress theme, gets them up there with the gum road purchase button but the advantage of having channels like Amazon or Kickstarter I think is a big deal.
In addition, since it’s called The ABCs of Programming, I might even think about a little bit of Amazon SEO where The ABCs of Programming for Kids is going to get you to rank for that term ‘programming for kids’ because I know that I’ve searched that title, that phrase, probably ten times in the past year just looking for different programming books for kids because I want to teach my kids how to program, I want them to learn. You don’t have to go too far down that road, but it is interesting to think about when you’re one of these big, essentially it’s a search engine.
Google is the largest engine, YouTube is the second largest, and at one time Yahoo! was third and I’m not sure that’s the case anymore. Amazon’s got to be up there in terms of search traffic, and certainly for commerce search traffic, I can’t imagine it’s not number one. Then there’s app stores as well, we’ve talked about the Android App Store, it’s the Google PlayStore now, the iOS App Store, and all those things. These are all search engines where you can get in the line of sight of search traffic. If you are just a little bit clever or a little bit deliberate about thinking through some keywords that people might specifically be searching for—and you don’t want to jack up the title of your book of course—if you think Programming For Kids, and that actually works in this title pretty well, that’s obviously something I would think about as well. I hope that helps, Arthur. Thanks for your question.
Our next question is a voice mail.
Michael: Hey Rob and Mike, Michael Needle here. I’m currently launching [alltheguides.com 00:10:02], an online platform that innovates on the current process for booking and outdoor adventure guides. Before I get to my question, I want to say that I love, love, love the show, thank you guys for all the insights you provide. I found the show a few months ago and I’ve basically gone through all the episodes available on iTunes, really been helpful so far.
In Episode 262, 13 Signs You Should Kill Your Idea, one of the signs is that you’re building a two-sided market, which is exactly what I’m doing. Knowing how difficult this could be, what hints or suggestions do you have for someone who’s committed to doing this exact thing? Any best practices you’re finding in product-market fit, testing traction channels for both sides at the same time which is generally building this type of SaaS app. Thanks in advance for taking the time on this question and thank you again, so much, for producing the show.
Rob: This is a good question. I’m glad that you asked this. There’s a lot of questions about two-sided marketplaces that come through. They are one of those things that once you have a network effect, they’re very powerful, but they’re so hard to get started especially if you’re not raising funding, very, very difficult to pull off.
Two-sided marketplaces, the key is that you have to focus on one side of the market. One side of the market is going to flock to your site once you have the other side and you need to figure out which side to get first. For example, you look at GroupOn, two-sided marketplace. They had to get a bunch of retailers on one side and then there are consumers on the other. Zero consumers will come to that sight until you have some deals, some retail deals. You can promise them deals, you can probably start building a mailing list, but what you really need to do is you need to go out first and you need to get enough retailers on the site that you can start bringing consumers to it.
Once you get a big swath of consumers, you get that snowball going, it’s so much easier to recruit the retailers. You do a little on one side, just enough to get the other side to snowball and avalanche. Once that avalanches, then the second side will be a piece of cake.
In your case, you’re looking for both. Guides, and you’re looking for people looking for outdoor adventures. The strategy I would take is I would—you have even a third channel because this is geographical. It’s not like eBay where there are buyers and there are sellers and they can be anywhere in the world because of the postal service, you have guides and you have consumers. Much like Uber or Lyft, you also have a geographic thing because they need to be together in the same place.
The first thing I would do is geographically limit this and I would pick some type of tourist place, look at them. Number one outdoor adventure spot in the United States. I don’t know if that’s going to be in Colorado, if it’s in California somewhere, but pick that and pick a 40 mile radius or one town and make it work there.
This is what Travis and his co-founder did with Uber. I only keep bringing Uber up because it’s a parallel story of what you need to do to what they did, and they did only black cars, they did only San Francisco. At the start, I’m pretty sure it was one or two of them literally driving black cars, they rented black cars and they were driving themselves just to figure out if this thing would work, and then they started recruiting the black cars. You needed enough black cars that then you could recruit the other side of the deal, the consumers in essence. And then when you had a bunch of consumers, you can get black cars automatically because the black cars want the money. It’s like this back and forth.
For you, I would do the same thing. I would pick a small geography, I would get 10 guides or 20 guides on the platform and they’re going to be the people who are willing to take a flyer on you. I was going to say you can give them a special deal but I don’t even know if you need to, I think when you say that you’re gonna be Uber for outdoor adventure, some people will think that’s cool and some people won’t.
Maybe you talk to five or ten guides. For every one you get to sign up, that’s okay, this is the hustle. You talk to 100 guides, you get 10 or 20 on the platform, then you’re going to go out and you’re going to just blanket that area and you’re going to blanket that internet with whatever you can do, whether it’s Facebook ads, Google Ads, whether it’s retargeting, whether it’s blog posts, whether it’s posting in forums. That’s the online stuff.
And then the offline stuff, assuming people living in that area also need it. I don’t know if everyone’s just flying into town, then offline won’t actually be that helpful. Where are people going to be located locally when they need a guide, are they going to be in REI? Is there a bulletin board in that REI? You can post a flyer or you can post your flyers on the counter at a local outdoor place, or you can make a deal with five of the outfitter shops that they will pitch you.
I don’t know the system, maybe you’re in direct competition with the outfitters and that doesn’t work but you get the idea. It’s like think locally, where would someone be located when they’re looking for this or when they’re thinking about it? There might not be a ton of local opportunities, maybe it’s all online. You got to try both to know what’s going to work and what’s not.
To summarize, I would geographically limit yourself and then I would focus on one side first and that’s going to be really, really hard to get and get just enough that it’s minimally viable, and then I would launch on the other side. You’re trying to bring in all the consumers to basically book the guides that you’ve signed up. You’re taking a small percentage of that, which is the challenge of this thing. Until you get to thousands and thousands of bookings, taking your 10%, 20%, 30% fee, this isn’t going to amount to much. You are definitely going to have a long road ahead of you, but I do wish you good luck on your journey.
Our next question comes from Chris Portier. The subject line is Pet Projects and Learning. He says, “Hey guys, first off, love the show. Been listening for about three to four weeks now on my commute to work, it’s amazing, props to you guys. I work in marketing for a Fortune 50 company and I love what I do, but it isn’t quite aligned with what I want long term. I love learning and I learn best when I have an idea, a theory, or a best practice to put to test in an application. I find it hard to find something that I can do on my own. I really want to learn and work my way up the project ladder to something that is sustainable/impactful. What things could I do/steps could I take to do smaller scale projects where I could take my learnings and put them into practice? Thanks guys. For reference, these are things like best practices, video techniques, targeting techniques, data analysis, and pretty much a little bit of every gospel of marketing.”
I think, Chris, you haven’t heard me talk about the stair step approach to bootstrapping yet and I’m not going to go through it here because it’s like a drinking game at this point, every time I talk about stair stepping, everybody takes a shot. I would recommend a couple things that one, you go search Google for the stair step approach to bootstrapping. You should find a blogpost on my blog, softwarebyrob.com, as well as a prior, at least a couple prior episodes, of Startups For The Rest Of Us. Listen through that and it should give you ideas about how to take something that you can do and launch something.
Whether it’s a book or whether it’s a WordPress plugin or whether it’s a video course, it’s something small. One time sale, typically a single traffic channel, that single traffic channel might be SEO, it might be people finding you in Amazon, it might be you have a small email list even at 500 or 1,000 people, and you’re not going to get rich off this but you’re going to learn so much. You’re going to learn how to make money on a project or a product like you’ve never done before. When you’re used to trading dollars for hours, that first dollar that comes to you that is from something that you made and just made a copy of is incredible, it is life changing. I say that with no exaggeration. It changed my life.
When I see people email in about their first sale, you can tell that it is life changing even if you only make $500 from this first product, it is incredible. The confidence that gives you, the experience you get, you learn what’s hard and what’s not, and you learn what you like to do and what you don’t. Maybe you learn this isn’t for you at all and you just want to be a higher paid, salaried worker, or you want to be a higher paid consultant. That’s a good lesson to learn. It’s a good thing to know instead of sitting there for years pining away thinking that the entrepreneurial life is for you. Odds are, I think once you make the money, you’re going to realize boy, I want to do this again and again and again.
That’s the stair step approach, it’s stepping up from one thing to the next, to the next, and doing what you love. If you’re motivated by learning long term, entrepreneurship is for you. Thanks for the question, Chris. I hope that’s helpful.
My last question for the day is a fun one and it’s from Brad. He says, “I hope you’re well. I’m taking a stab in the dark, I’m writing a blog post for my website on what it takes to be a successful podcaster. I was hoping you’d take a few minutes to add your comments.” He has a forum and I may or may not look at it, but I just thought it was an interesting question.
We do get this now and again of how do you launch a podcast, how have you guys become successful, how do you handle this, how do you handle that? I think the bottom line that I’ve realized is that you can hack initial growth of a podcast, I see folks doing this, I think it’s good, I think it’s basically kind of like doing SEO for iTunes in essence. You launch your podcast, you email your list, you get everybody to download it, and then you catapult to the top on New & Noteworthy. And then you got to build momentum from there.
That’s a great way to launch. That’s a tactic. What I’ve learned and realized through my experience and the experience of watching other people launch a great fanfare and some of whom have stuck around and some haven’t, is that it’s about showing up every week or twice a week or three times a week. It’s about showing up. It’s about relentless execution, which is a phrase that I use often. I don’t know any other way to build a large podcast audience other than to put in the time. You look at the largest podcast in the world, you look at Serial, you look at This American Life, you look at StartUp and The Gimlet Shows. You look at the Tim Ferriss Show.
You look at whoever else, Stacking Benjamins, they put out either a show a week, some put up three shows a week, but they put in time. You know that although Tim Ferriss is the four-hour workweek guy, you know he’s spending a ton of time prepping those guests, booking guests, I know he has people helping him do that for sure. He ships a show or two every week. He didn’t just rest on his laurels and his name and ship a podcast and then not record again. There is an aspect of being entertaining, providing value, and all that stuff. Yes, table stakes. You look at This American Life, amazingly entertaining.
Also, hundreds and hundreds of person hours per episode, but they show up. They ship an episode every week. I think that would be the first takeaway, don’t think that you can do it sporadically, you can do it as you feel like it. At this point, shipping weekly is now table stakes. I think two or three times a week is going to be even better, you’re going to build the audience faster.
The other thing that you should think about is there are really only three values or three pockets of value you can get from a podcast. One is entertainment, two is relationship—it’s a one sided relationship but there is a relationship. The third is tactics, how to. Let’s cover each of those a little more in depth.
You think about entertainment, this is This American Life. That’s a great example, Serial as well. You don’t listen to it because necessarily you have a relationship with anyone in the show or you feel the people in the stories on a long term, ongoing basis. Maybe you might listen to this podcast, Startups For The Rest Of Us, you might listen to Jordan and Brian on Bootstrapped Web. You’re following along on the story, it’s the journey of acquiring HitTail and selling it and launching Drip and being acquired by Leadpages. You listen to Mike go through Audit Shark and through Bluetick and his launch. Over time, there’s a narrative. Again, same with Bootstrapped Web, you follow along on their journeys of launching things. That’s the relationship side of it.
There’s a little bit of entertainment but it’s mostly because you like the people. That’s not how I feel with This American Life, although Ira Glass is obviously an amazing talent. I don’t necessarily listen to it because he’s the host. If they still put out the same quality show and someone else was hosting it, I would listen to it. I’m not sure that I would with Bootstrapped Web because I know the people, same thing with The Art Of Product Podcast. It’s Ben Orenstein and Derrick Reimer who’s my co-founder of Drip. Same thing, it’s their journey and you’re following along as they’re launching and building products.
I don’t want to get confusing here. What I’m saying is that the entertainment piece—I can listen to a comedy podcast, I can listen to a podcast about roleplaying games, and it’s just fun. It’s something to take my mind off of real life, in essence. That’s one thing you can do. If you’re good at that, do that.
The second one is the relationship and that’s building up a long term narrative that people really want to hear. You maybe could say a little bit that Serial is like that, although it’s more the story that you get tied to. Obviously, Sarah Koenig, the host, again if suddenly next season she was not the host, I would still listen to Serial because it’s a good show. For me, that, again, is more about entertainment.
The relationships are when you really start bonding with the people and their stories. If you met them in person, you would feel like you knew them. You can tell, man, I want to be this person’s friend, or maybe I don’t want to be this person’s friend but they’re interesting to listen to. I think sometimes folks listen to Marc Maron which is the WTF Podcast. There’s a bit of entertainment there.
There’s also the ongoing relationship of what is Marc going to do next. If you’ve listened to him for years, you’ve seen his whole journey from the depths of being an interviewer on a small podcast to having his own TV shows come out and really launching himself into fame. There’s a relationship aspect. That’s where the entrepreneur journey that’s going to take years is designed pretty well for that.
The third is the tactical piece. I think tactical can get you started, it’s what gets an initial audience going if you have no name because just coming onto a podcast and starting to tell your story isn’t that interesting, typically, especially if you’re just getting started and you don’t know what you’re doing. A lot of times, something tactical can be there to help people justify listening to it.
When I say you don’t know what you’re doing when you’re just getting started, you certainly know something. If you’re doing anything, you can talk about the experiments you did that week with SEO or AdWords, and then you can put out a podcast about here’s how I failed at AdWords. That becomes something that people can learn from.
Long term, this is feedback we’ve gotten about this podcast, if you listen to 350 episodes of this show, the tactics at a certain point aren’t that helpful anymore because you’ve gotten so far past where tactics are helpful, if that makes sense. I know that for me, a few years into my entrepreneurial journey, most of the podcasts I listen to that talk about five ways to do this, ten ways to do that, had very little value, had tips here and there, and I would always note them down. They had so much value upfront when I was just learning.
When you’re a beginner, you’re just thirsting for knowledge and that would help me, and I’d make notes, and then I’d go in and I’d implement him and I’d see what worked and what didn’t. As time goes on, more of the tactics come from your peers, from mastermind groups, from in depth conversations with friends and colleagues from attending conferences like MicroConf or BOS and getting new ideas from a really crafted one-hour presentation, from trying things on your own, and honestly still from podcasts. I don’t want to downplay that, that even though we put out 350 episodes or even though Conversion Cast has 100 episodes or whatever, trying to think of some other—I used to listen to some SEO podcasts. I still would pick things up because things do change and people try and do interesting things.
I think having a mix of probably two of the three that I just named which are entertainment and the relationship which is kind of long term narrative, and tactics. Having two of those three, you can pick any two, frankly, I think is a good combination to have. Then, just relentlessly executing on it and shipping every week. You’re going to start out pretty crappy, as Ira Glass says, it’s hard to get started creating any type of art because your taste is up here and your ability to produce that art is way down here.
It’s painful to hear yourself write a song or play music or produce a podcast or build a business or write copy or speak on stage because you know what it means to be good at any of those things and you’re going to suck at it for a long time, but you have to suck at it over and over until you get better. Eventually, you will see yourself on stage or you will listen to a podcast episode, or you will look at copy that you wrote six months ago and you will think to yourself that is badass, I’m good at this now.
That’s what relentless execution gets you; it’s showing up everyday and it’s doing shit that scares you.
I’m going to wrap up this episode. I think it’s funny, I don’t actually know if Mike’s going to listen to this, I don’t know if he listens to the show after we record it. He may never know unless you email and taunt him or post a comment, don’t taunt him I’m just kidding. You should totally let us know if this was an interesting format at all or if you feel like eh, we should have two people, I don’t know, I’m just curious. Now and again, it’s not like we’re going to plan to start doing a solo podcast episode, it really, truly was an emergency thing and I wanted to have new content out for you guys next Tuesday but would be interested to hear your thoughts.
You can email us at questions@startupsfortherestofus.com, post a comment on the website at startupsfortherestofus.com. This is Episode 360. You can also call our voicemail number at 888-801-9690. Our theme music is an excerpt from a song called We’re Outta Control by MoOt who was offered up under the Creative Commons license.
It’s actually interesting, go to YouTube and search We’re Outta Control by MoOt and you can hear the whole song, I’m sure they’re in Spotify as well. It’s kind of a trip when you hear it because you’ll hear the intro which is the part that we use. And then when he starts singing the verse, it’s so weird for it to continue and not to fade out after hearing our version hundreds and hundreds of times.
If you’re not subscribed to this podcast, you can search in iTunes or Stitcher, Down Cast, and search for Startups. We’re typically in the Top 3 or 4. You can get a full transcript of each episode at startupsfortherestofus.com.
Thank you for listening and I will see you next time.
Episode 359 | The 3 Tenets of Fulfillment at Work
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike discuss a talk giving by Jason Cohen at the Business of Software Conference. He tells you what things to focus on to create fulfillment at the work place for you and the people you hire.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about the three tenants of fulfillment at work. This is Startups For The Rest Of Us Episode 359. 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 Mike’s trusty sidekick, Rob.
Mike: And we’re are here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: I’ve decided to just start throwing curveballs at you every week in the intros.
Mike: You totally messed me up there, you know?
Rob: I know, Josh is going to edit out.
Mike: I don’t care if he edits it out. We screw up the intros all the time, it’s not that big a deal.
Rob: This is not a new thing. For me, things are going pretty well. I was bummed to miss Business of Software last week, had to fly home with our kids but I am getting geared up and pretty excited for the Zen Founder book that Sherry has been working on for months and months and months. I’m a second author on that and I have contributed stories and revisions and stuff. She’s been doing the work and it’s turning out really, really well. We still have only have a tentative title.
One title suggested by our son which I thought was great is ‘the entrepreneur’s guide to keeping your asterisk key together’, it’s kind of appropriate. It’s about how to stay sane while running a business; a startup and then even other types of businesses because there’s just stress involved even if you’re running any type of thing that’s not a startup. It’s good, it pulls a lot for material. Just talked about over the years there’s a lot of new material in it. I think it’s going to be good.
We’re taking the tact of it’s not an info product, it’s going to be a book so it’s going to be whatever it is, $25 or $30. It’s not going to be this $99 or $200 dollar thing, just going for larger audience, kind of like I did with my first book, Start Small, Stay Small. That really served to get the message out to as many people as possible. I’m stoked about it and if that sounds interesting, you should head over to zenfounder.com and there is a landing page for the book there where you can buy to preorder it or even just sign up. If for some reason you can’t find it, there’s an email capture widget in the lower right, a Drip widget where you can enter your email and certainly we’ll be emailing all this once the book is available.
Mike: I really like the working title, even though I know that it’s not final but I think your son is a budding copywriter.
Rob: I agree, yeah. When he said that, I was like “Dang, well a, don’t say that word, but that is really good.” He’s 11 years old, so he’s right on that cusp where they start doing that stuff.
Mike: Yes, my kids are infatuated with any movie that has cuss words of any kind and they just simply want to watch them over and over. They just want to skip ahead to that one part.
Rob: Yep, makes sense. How about you? You were at BOS this week.
Mike: Yeah. It was really good. I really liked a lot of the talks. Honestly, there was not a bad talk among them. Usually, you’ll go to conferences and you know, there’s one or two that are sort of interesting, kind of on the cusp of, “Could’ve done without this one.” I can’t think of a single talk that I went to that was not fantastic. They were all really, really good. I was just going through the survey afterwards and I was just like five, five, five.
I got halfway through it, I was like none of these sucked at all. I handed in the survey as it was. It was just an interesting experience to be there in front of those people. Plus, Seth Godin was there. That was awesome, I got to ask him a direct question pertaining to Bluetick, got some direct advice there.
Rob: Yeah, was that after his talk? Was he in the hallway? Or was he up on stage when you asked?
Mike: No, he was up on stage asking questions and I kind of explained to him the situation I was in and he gave me direct advice, he was like “Yeah, go do webinars, based on the situation that you are in.” That’s definitely one of my listed things to do anyway but that will probably percolate more to the top just because of source of the advice, I’ll say.
Rob: Yeah, totally. That’s cool, I’m glad to hear that it went well. Sherry said the same thing. She did a talk there that I heard was pretty well received as well. She had a lot of good things to say about it. She had never been to Business of Software. She does have a frame of reference with some WordPress conferences. Obviously, she’s been to several Micro Confs and she just spoke very highly of the speakers as well as a lot of the attendees she met. There’s enough overlap that she knew a bunch of people, she knows Jason Cohen, I know Mark Littlewood threw me in. I think it was really good for her to be at. Then now we got to meet your wife.
Mike: Yes, finally she’s not just a Photoshopped person on my Facebook page.
Rob: I started to question if she was real. You and I have known each other for 10 years or something but we’ve never met the wife. You guys came out because we were staying in Boston’s north end over the weekend, and you guys came out and we had cannoli and whiskey, is that right? That’s a good combination.
Mike: Yes. I don’t know if I would go with a too much of one or the other on any given night but at least not together.
Rob: If you have not had a cannoli in Boston’s north end, you’re missing out. Cool. What are we talking about today?
Mike: Well, today we are going to be talking about essentially a condensed version of a couple of slides that came out of Jason Cohen’s talk from Business of Software and we’ll link over to his blog at https://blog.asmartbear.com.
This particular story or instance is not on his blog but he talked a lot about what constitutes fulfillment at work. This was just a very, very small segment of his talk. Most of his talk was really about decision making and holding onto certain decisions too long, just not making them fast enough. The example he threw out was letting somebody go and he asked the entire room and said, “Is there anyone here who has fired too late? Who you waited too long to fire somebody?” Tons of hands went up and then he asked, “Have you ever fired somebody too soon?” There might have been one person who half raised their hand and that was it.
The reality is that when it comes to those types of decisions, his comment was that holding on too long is really a consistent predictable failure of judgement. He talked through some of the different pieces of what constitutes fulfillment at work and how to make some of these decisions a little bit faster so that you can get your business to a better place. That’s not just for you or just for the business but also for the employees or workers or contractors that you have inside of your business and helping them make sure that they are happy and productive. If you’re happy with what you’re doing, you’re going to be naturally more productive at it as well.
Rob: The part I like about this is this is equally applicable to a founder because it is really easy to stop being fulfilled as a founder. You build this business and you drive for revenue and you drive for these goals and then you turn around one day and you’re like I built this whole thing and it sucks and I’m unhappy and I think that’s a really important thing. That’s obviously a lot about we’re sharing that talk about over on the Zen Founder podcast.
But then this also applies to your people. As soon as you have two or three people on a team, you have to start worrying about their well being, whether they’re happy and fulfilled. You can keep some of them around for 6 or 12 months but long term they need to be fulfilled or they’re going to burn out, they’re going to quit, they’re not going to be productive. This may sound like a topic if you’re a hardcore entrepreneur, startup founder, solopreneur, where you think I don’t need to worry about this stuff. You do, because you will burn yourself out, you will find yourself in the situation I have many, many times over the years where suddenly you look around and you’re like I have lost one of the elements that made me really happy. Knowing what those are for yourself is really important.
In my MicroConf talk this year, I talked about my three which are freedom, purpose, and relationships. Whenever I’ve had only two of those three or one of the three, I find myself slowly slipping into sadness and unhappiness with my work and my life. I get the feeling that there’s going to be some similar type of magic in this talk. Jason Cohen always delivers. Every talk I’ve seen him give is typically one of the best, if not the best at the conference he is giving it at. I actually don’t know, I didn’t see the talk and so I’m interested to dive into what he had to say.
Mike: Yeah, the other thing I really liked about his talk was that when he was going through it, it kind of made me a little bit more aware of how this plays into the people that are working for you. It is very easy to get stuck in the doll rooms or trying to power through certain problems that you’re having or certain challenges that you’re facing and not really think about the people around you because you’re so focused on the stuff that you’re doing. Even though you might be unhappy, you overlook the effect that not just you being unhappy has on other people but also the effect that the work that they’re doing has on them. You can end up with a lot of charm based on the types of people that you hire really related to the situation that you’re putting them in. It really made me think about that a little bit more.
Let’s dive right into it, the three things that he talked about on this slide were joy, skill, and he said need but it really kind of meant business need in that context. What he showed was essentially a venn diagram of joy, skill, and business need. If you see a classic venn diagram of three different circles together, there’s usually places where two of the circles overlap in three different places and in the center you’ve got this one area that all three of them overlap and that’s the part that he referred to as the productive happy fulfillment that everyone needs in their work environment. If you’re happy about the work that you’re doing, joyful about it and you’re skilled at it and the business needs it, then that puts you in a very happy, productive and fulfilled place and you’re going to be able to do that stuff for a very, very long time. By long time, I don’t mean a few hours or days, I’m talking months and even years on end.
Rob: Got it. The business needs it. That means that you feel needed and wanted. You are contributing towards the bottom line, right? That’s the idea?
Mike: Yeah.
Rob: You’re helping the business. I have seen people, I worked at large companies. There were people who were getting paid to do something they can do but it didn’t make any difference for the business and they stuck around because the company was old and stodgy and didn’t want to fire people but those people were not very happy in their jobs, right? That’s that piece. Skill is pretty obvious, it means you have the ability or the attribute to get done what’s being asked of you. It’s like build this application, write this code, and you know how to do it.
What is joy? Go deeper into joy, does that just mean doing that skill makes you happy?
Mike: Yeah, this one is an interesting one because when he put it up there, it didn’t quite make sense to me because I was like isn’t all of this joy? What he really meant by joy was learning. Are you challenged doing this in a way that you are continually learning new things? For example, the place where joy and skill overlapped was you’re building an application for example and you’re learning new things as you go along. It’s kind of past the boiler plate stuff that you’ve always done in the past, you’re doing architecture, you’re figuring out how the different business layers of the application fit together, doing new things so you’re learning as you go through that process and you’re skilled at programming.
The overlap of those two things is really when you end up in a flow state and your mind just kind of shuts off and you’re like, “This is a lot of fun, I’m having a good time doing this.” What I found really interesting about the way he phrased this is he’s like this is also a trap. The reason it’s a trap is because you’re doing it because it’s fun to learn but the business doesn’t necessarily need all of the different things that you’re doing. You’re probably doing a lot of things that are not necessary for the business to succeed but you’re still having fun doing it so you’re able to focus on it for shorter periods of time and that short period of time can be a few weeks or a couple of months but if the business doesn’t genuinely need that piece done, then six months out, the business hasn’t moved forward, which means that it wasn’t really needed for the business, and things aren’t going well and then you become unhappy as a byproduct of not fulfilling needs of the business. That’s where the productivity really comes into play.
Rob: Got it, joy is very similar to learning but as long as you’re learning things that the business still needs.
Mike: Yes.
Rob: The three are joy, skill and need; business need in this instance.
Mike: Right.
Rob: Alright, I’m buying it. I like where we’re at so far, what’s next?
Mike: The next one was kind of combining the scenario we talked a little bit about, combining joy and skill to get into flow. Joy and business need is also an area where you can get into flow because you are learning new things and you know that the business needs it. Whatever the byproduct of that, even if it’s not necessarily something where you need to be skilled at it, if it’s stuff that’s helping the business move forward you feel some level of fulfillment by doing it. You can get into that flow state because it’s very easy to power through a lot of that work.
But, at the same time it is kind of a trap because you don’t need a great deal of skill to do that stuff. You can outsource it, you can hand it of to somebody else but you do it because it’s fun and you do it because the business needs it and it’s going to move the business forward, but it’s also a trap. It’s very similar to the combination of joy and skill where you get into a flow state and it’s very easy to find yourself continuing to do that but eventually you’re going to be unhappy doing it because it’s just not challenging at you at all, it’s not developing your skill set, it’s not using the skills that you already have. It just gets boring.
Rob: I have a couple examples of this. When I had the ecommerce site justbeachtowels.com and I was so excited, it was still a new business thing for me to be doing online business full time and this is 2007, maybe. I guess I wasn’t doing it full time yet but I was starting to get away from consulting. It was fun for me back then to interact with the customers and be email support for an ecommerce website which is pretty low skill need, it’s not even like I was supporting software, it was basic questions. It was making me happy that I was interacting with customers and I was just enamored by the whole thing. Obviously, the business needed it but there was no skill involved, a very low skill.
I did find that pretty soon I got bored and I didn’t have enough time to do everything. I outsourced that. The other thing I did was I was doing a lot of the manual copy paste and some kind of fulfillment of orders, not physically packing them but interfacing with different software packages because they didn’t talk to each other. That was actually, interestingly enough, in a weird nerd alert way, was fun for me in the early days. Man, I got an order for $40, it was so cool for me to see it, participate in it, and to make sure that thing gets sent out.
Again, it’s a very low skill activity. I think a lot of us do fall into this trap at one point or another and don’t outsource stuff that we probably should because if it is something you enjoy and the business needs it, it’s easy to justify. I understand why this is a trap and it’s something that really keep in mind as a founder, because you’re the one that has to make the choice and make the recognition that this isn’t something that you should be doing and then fire yourself from that task and hire someone else to do it.
Mike: I think we can all think of a lot of examples that kind of fall into both of these different areas. The last one I wanted to dig into was the combination of need and skill. Let me give you an example. Let’s say that you are an attorney or even the business owner and the business needs to have a privacy policy and you have to have some level of skill of interpreting the human language in a way lawyer speaks so that you can put that together. You can do that for a little while but even if the business needs that or even if it’s like reviewing contracts because you’ve got a consulting company and you’re working with a lot of people, a lot of clients, and you need a custom contract for each one. You can do it because you’re skilled at it but eventually it gets boring and you’re not learning anything new, you’re really just looking for all the gotchas that could be put into a contract that you need to pull out and re negotiate them with whoever is on the other side.
That’s a very good example where the business needs it, you’ve got skill doing it but eventually it leads to burnout because skill alone leads to toil, you’re going to just be toiling away at something that is not fun because you’re not learning anything new. Although the business needs it, it’s not that much of a need, to be perfectly honest. It’s one of those things where if down the road something became a problem, then it would probably show some sort of benefit. But if the engagement goes well then it’s not actually a business need. That’s really where the burnout factor comes into play. You can do it for a while but not forever.
Rob: Yeah, this is where I think most founders eventually find themselves, in the need plus skill and it’s doing hard things that don’t bring you joy. You’ll find yourself doing a lot of operational work. Or you’ll find yourself hiring the lawyer to do the privacy policy and worrying about vacation days or getting your health insurance signed up or making sure the payroll ran or just stuff that is enough skill or enough intricacy in knowledge that it’s hard to train someone straight away to do that and there’s a desperate and immediate need for it but it doesn’t bring you joy.
This is where, much like the joy plus need thing we talked about where I talked about doing email support, you need to outsource that to somebody. That’s where need plus skill, that quadrant I guess is one that is easily a trap, especially for someone who is a technician and likes to get in and do things themselves. This is the easiest one to just get in and grind it out and the business needs it and you have the skill and let’s do it and it works for a little while until it doesn’t and until you are unhappy and you don’t like running your business anymore. This is when you need to take a step back. Even though it can be hard to train someone to do the things that you’ve been doing, whether that’s the operations of the business, whether that’s still coding on your app when you’re at 10 employees, there’s a bunch things that this can fall into. But, the further and further away you get yourself from these things that don’t bring you joy day to day, the better off and more longevity you’re going to have.
Mike: The example that Jason had given that kind of illustrates the idea of the combination of need and skill was also enterprise sales reps. His comment was they don’t really do this on the side after work. The business needs it but it’s not something that they go home and practice their negotiating skills or practice doing enterprise sales on the side.
Paul Kenny had commented on it on his talk afterwards. He’s like, “Actually, we do think about this stuff and we do try to develop our skills.” I wonder how much a developer can relate to that situation because I think that classically we think of ourselves as developers. We are willing to go home and work on code on the side and develop those skill sets. To us, that’s helpful because we’re learning new things and doing stuff. I would imagine that sales reps, to some extent, do see that in the stuff that they do on the side.
To kind of sum up the different things that Jason had put together with joy, skill, and need. The intersection of all three of these things really creates a productive, happy fulfillment for somebody who’s working there. People will have different motivations, they have different skills, they have different things that make them happy. It’s important to realize that there has to be this balance that can be struck, not just for yourself but for other people that are in your work environment, to help them maintain this balance and end up in that situation where they are in that three pronged intersection between these three things to help them be able to push through certain things. I think it is very easy to push through certain environments or challenges when you’ve only got one of these things or two of these things in play as an entrepreneur but your employees and your contractors, they can do it for a little while but probably not nearly as much as you because you have different motivations than they do.
Rob: The best managers that I’ve seen are the ones that can spot that in other people and figure out their unique giftings. The things that they’re good at and the things that are going to bring them joy. It’s two different things. Just because you can see that a developer is good at managing people, that developer may hate managing people. To try to not force them into things that are going to make them unhappy in the long term, which I’ve seen happen over and over, is a real needle that you have to thread as a founder, or as a CEO, or as someone who’s going to manage other people. It’s keeping in mind, a, are they good at it? B, does the business need it? C, is this person going to enjoy it? The only way you’re going to figure that out is by knowing them better and by having conversations with them, and trying it out and seeing if it does actually make them happy.
Mike: One of the traps that Jason had illustrated was the idea that it’s very easy to, as the founder, put yourself in situations where you’re doing the types of work that give you all three of these things but then leaving other pieces of the project or other work for other people to do that doesn’t necessarily fulfill them. The example he used was for example doing all of the architecture work for a software design and leaving the stubs inside of the functions for other people to fill in the blanks and that doesn’t ever work. We know intuitively that doesn’t necessarily work. If you look at this particular framework, these three things that come into play, that’s why it doesn’t work. It’s not just that you have to recognize the situation doesn’t work, you also have to understand why it doesn’t work and be able to translate that to other types of projects in your environment.
Rob: It sounds like the point of his talk was to drive home how you yourself can stay happy in the long term as a founder and then how you can interact with employees, contractors, and other people you interact with to identify on these 3 axes how they can as well. Is that a good summary of it?
Mike: That’s a really good summary of this particular tactic. What he was really referring to in the greater context of this talk was how to make difficult decisions faster and understand what people’s motivations are for different things. For example, looking at these things in the context of the problem that you are in and trying to figure out whether you need more information or you can just make a decision right now and more about being kind to others and allowing them to work on things that are going to make them fulfilled.
If you’re taking all the fun work for example, you’re not going to have contractors working for you for very long or employees working for you for very long. They’re going to leave, they’re just not going to be happy or they’re just not going to do their best work. You really need to hold yourself accountable to the results of people and what it is they’re achieving in your environment.
He had a thread that went through his entire talk about not just the decision making for letting people go but also making sure that you elevate yourself in a position where you’re more of an editor and letting people do the things that they are really good at. Another piece of this was the whole aspect of making sure that you are hiring A players as opposed to hiring B players who are then going to hire C players.
Rob: I think that about wraps us up for the day. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us 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 358 | Bootstrapping into the Enterprise, Avoiding Death by Google, Selling to Outside the U.S. and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including bootstrapping into enterprise, avoiding death by Google, storing customer pricing data, and selling to companies outside the US.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups For the Rest of Us, Mike and I discuss bootstrapping into the enterprise, avoiding death by Google, selling to companies outside the US and we answer more listener questions. This is Startups For the Rest of Us Episode 358.
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 you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: I’m headed over to the Businesses Software Conference this coming week. That’s from Sunday to Wednesday. I think that by the time people hear this, it’ll be Tuesday. If anybody happens to be around, feel free to get in touch with me and I’m more than happy to chat for a few minutes and just talk about business.
Rob: For those who don’t know, Mike and I both have very high opinions of Business Of Software, and in fact it’s one of the reasons that we started MicroConf back in 2010, 2011, is that Business Of Software does such a good job with a certain strata.
Originally, it was cellphone and software companies and there’s a lot more folks going after IPOs and raising moneys. It has developed into a lot of B2B SaaS and it’s a larger scale. I was thinking of it like, if you outgrow MicroConf, you could graduate up to BOS. There are a lot of parallels in terms of how we run the show and I have a lot of respect for what Mark’s put together. BOS, it’s like a step up in terms of a lot of things that’s more expensive, it’s larger and it’s for larger organizations but I do still have a lot of respect for it. In fact, I was planning to go because my wife, Sherry, is speaking next week at BOS. I have a ticket and everything and we had plane flights and then our live in nanny, remember her? She moved out.
Mike: I don’t remember her specifically, but I do remember [00:02:01].
Rob: You remember the story, yeah. She actually had a family health issue and she had to move out suddenly to go help out with her family which is obviously a real bummer for them but it means we don’t have her because she was going to fly back with the kids on Sunday and I was going to hang around for the conference. Since Sherry is speaking, she gets priority on this one. I will only be in Boston over the weekend. Are you and I going to see each other, though?
Mike: I don’t know. I was going to talk to you about that. But we’ll talk about it after the show.
Rob: We’ll have to figure that out.
Mike: That’s actually an interesting side note because most people don’t realize that we aren’t anywhere close to each other, and haven’t been for seven years. We used to live in the opposite sides of the country, now you live in Minneapolis and I live about an hour west of Boston.
Rob: Right. We see each other generally twice a year, at the two MicroConfs.
Mike: Yup, and that’s about it.
Rob: Cool. On my end, it’s like every couple of months, doing scaling stuff. Right now we’re trying to take the load off the database, drip it to a large system, we’ve already denormalized tables off into Redis and into other data stores but just wanted time pulling them off to reduce load because we’re starting to get some cue backups, peak times and obviously want to keep things moving through.
Now that I’ve sold the company, I think scaling is my least favorite thing. Before I sold, it was like operations, it was HR and taxes and all that stuff but I don’t have to worry about that for the company anymore because I don’t own it, but I think this has become my new thing that I don’t want to ever do again.
I want to hire good people to do this, not have to do it myself, basically. Not that I’m not doing it myself, granted I’m not writing the code and we’ve had the luxury of, since Leadpages does have so many resources that we actually have some really smart senior scaling architects that we’ve been able to pull over and so I have actually slowly stepped away from any involvement or planning in that which I think is good both because they’re smarter than I am at doing this stuff, as well there’s just other things to be done with a product of this size.
Mike: I think the hard part about those scaling issues is that when you run into them, they are typically things that you can’t solve very quickly and those problems are just going to linger for the entire time that you have that customer base using those particular resources that are getting bottlenecked for whatever reason. You can’t fix them quick enough. I think that’s what the stressful part about it is that for however long it is, if things are going to be backed up and even when you go to deploy stuff that will fix it, you’re not absolutely sure that it’s going to really fix it just because your test suites don’t typically have the load on them that your production system does. It’s just stressful. I ran into my own this morning but not nearly at the scale as yours, I’m sure.
Rob: Right. It’s always stressful because in the early days, you only have few customers and you’re worried about even losing three of them. We’re at the scale where obviously it’s a different thing but still, there’s a lot of stress to it at both ends of the spectrum. What we actually did, it’s interesting, the app is so large and so many servers that it is virtually impossible to simulate the load and to actually test approaches. We test them as best we can and then we push them in. To date, they have all improved, we noticed that things got faster.
About three weeks ago, we split cues apart into their own separate scaling groups and it was certainly going to make everything faster. In fact, each individual thing was faster but since they’re all pointed at the database, it actually started having the database thrash because there was too much throughput to it and it wasn’t traffic guarded, it was just having a big pile up at the database layer, starting to slow things down. We actually reverted that and we recombined the cues about 48 hours ago and it was just a huge shift. Suddenly, everything started going back to where it was three or four week ago which was in a much better position. That’s one of the things that’s hard about it. We haven’t had that happen in the past where we launched something that made it really slow but man, you really got to keep your eye on this stuff.
Mike: One of the things that I did when I started running into some scaling issues, I found some raise conditions but with raise conditions it’s similar but it’s still difficult to replicate. What I did was I created, I forgot what it was, it was like 10 scripts and I just launched them all at the same time, pointed them at the same location and just let it go and then looked at everything afterwards and said to this thing hold up, where did it fall over? It worked great, the thing was responding 30 requests a second or something like that which doesn’t sound like a lot but it was all on my local machine.
Rob: Cool. What else is going on with you?
Mike: Not really much, just spending a fair amount of time on support issues at the moment. I think I have to look at outsource and some of that stuff just because there are two different types of problems that are coming in; one’s general usage and questions about how the app already works. And then there are things where something just isn’t actually working the way that it’s supposed to and those things would probably have to get escalated to me. I have to look at how to delineate between them and then bring somebody in to help serve as a buffer to help maximize my time in the most productive places.
Rob: Yup. Boy, that is one of the first things that I always outsource. It’s easy enough to train and they can always escalate to you and it doesn’t seem like a big burden and I’ve heard folks tell me, oh no, it’s only a few emails a day. But it’s the distraction and the fact that you need to get back to it quick and you have to task switch. As soon as you get someone good in there who’s doing it, they will take more and more and more of that burden off your plate. When it grows to 30 minutes a day, an hour a day, two hours a day, you don’t have to worry about it, it just naturally scales up.
Especially solo founders, but anybody who’s bootstrapping, it just buys you so much time and really support is obviously always super important, but it’s extremely important in the early days for you to be more involved because you’re still doing customer development, and you want to hear the questions so you know what docs to build and what on boarding to build and you want to hear the concerns and the bugs so that you can fix super-fast for these early adopters. You have to transition out of that at some point.
Mike: Yeah. Mostly it’s the time looking into different things and then turning around and getting back to them. As you said, it’s not the time itself to answer somebody but it’s the context that goes along with it. There has been days where I spent two or three hours doing support and sometimes it’s just looking at stuff. Just like this morning, I spent a couple of hours trying to troubleshoot an issue and come to find out nothing was actually wrong, it was just things were backed up.
Rob: Yup, that makes sense. If you hire a support person, obviously part time, and they start wrapping up, then you’re going to basically be their backing engineer, they’re going to escalate to you when there’s a tech thing that they’re unable to do. The next hire I would do, because you’re going to hire a developer I suppose after that, that person should be the backing engineer and it’ll be a drag for a little while but it’ll free you up to run the business and then they essentially are the technical escalation, and that also will just pull a huge weight off of you from having to troubleshoot API calls and dig into people’s JavaScript, and just all the stuff that is, as you said, very time consuming.
Mike: The only other thing I have going on is that I’m probably going to be taking over some of the marketing efforts from my wife’s fitness studio. The interesting thing there is I really just have to make the decisions about what to do and then say, “Here, you go do this.” That’s nice, actually.
Rob: Got it. She is your minion on this case.
Mike: I would not phrase it that way. However you could pick a case for that argument.
Rob: Cool, that’ll be good. It’ll be nice for you not to have to implement. I’ve enjoyed being able to do a little bit of that with Sherry as well. Talking through books in Zen Tribes in Zen Founder stuff and being able to say here’s what I would do but then I don’t have to get in and write all the copy or whatever. Cool.
We are answering listener questions today. We have several, we’re going to kick it off with a voice mail or two. Our first voicemail is from Mark Stevens, and he has a comment on our Build Versus Buy discussion we had a couple episodes ago.
Mark: Hi Rob, it’s Mark Stevens from Ideal Solutions here. I’m a big long-term fan of your podcast. To add my two cents to your episode on build or buy, I’m a big fan of building because that’s quite often where you figure out how to pivot your company and find the product you really want to end up doing. I’m looking forward to hearing Sherry talk at the Business And Software conference next month. I hope you’ll be there and we can catch up. Bye.
Rob: It sound like Mark’s saying he likes to build it because he uses it almost as exploration into perhaps another business idea or even a way to pivot his current business. That’s an interesting way to think about it. I guess in my head, if you’re pre-product market fit and it’s build versus buy, and you found something else that was super interesting… I’m trying to think of you built email marketing software and then you built a drag and drop builder and suddenly you’re like, oh, this drag and drop builder is a better business than email marketing software itself and an ESP. That’s one example I could think of.
Certainly for past product market fit, and you’re already scaling, then you’re not going to do that. It’s probably not going to pivot your company to sell this other product. It’s an interesting thought, I hadn’t thought about that angle of it.
Mike: Like most questions. I think the particular topic that we talk about is very context sensitive, where you are and the journey of the application or the business that you’re building and specifically what it is that you’re looking to either build or buy as to whether or not that’s a road you go down. You have to take it all down, the context of your current situation in mind.
Rob: Alright, our next voicemail is about how to bootstrap a B2B enterprise SaaS app.
Randy: Hey guys, this is Randy from [Nolin 00:11:49] Office. Just discovered the podcast a couple of weeks back and I’ve been soaking in the information, great work. I have one weird question for you, we’re the weirdos trying to start an enterprise level B2B SaaS and bootstrap it and we’re really struggling with the education and consumer buy in process. Any advice or tips you can offer or previous episode you can point it to, I’d love to hear about it. Thanks again, please keep up the great work. Thank, bye.
Rob: Alright. Good question. The first thing I would do is I would go to startupsfortherestofus.com and I would search for ‘enterprise’ and search our episodes because I know that we’ve talked about this in the past, probably not super in depth. It might not be an entire episode but we’ve answered a lot of questions about this. You could probably cherry pick three, four, five episodes and get a lot of our thoughts on this. Aside from that, or in addition to that, Mike, I imagine we both have thoughts on what he’s talking about. What are your thoughts?
Mike: I think the first thing that jumps into my mind is that if you’re really targeting the enterprise, look around at your competitors and see how it is that they’re getting into their customers. If they’re at any level of scale and they’re having any level of success, then chances are good that the way that their selling into their customers is working at least to some extent and look to see if that is one, if it’s appealing to you, and two, you think that it is a mechanism for getting in front of those customers that you could replicate.
I feel like when you’re talking about enterprise level customers, there are certain ways that they are accustomed to buying and acquiring software. If you don’t follow those paradigms, then it can be very challenging to get into those environments. Looking around at what other people are doing and what they’re having success with, especially if it relates to the type of software that you’re selling, that’s probably where I would start.
Rob: Yeah. If you’re going to bootstrap into the enterprise, a, it’s going to be very long road because the enterprise sales circles are long and the enterprise is pretty cautious. They’re going to want to go with experience providers.
First thing I would try to do is to get a single case study that you can point to, and you’re going to point everyone at that during your sales process because without that, no enterprise is going to have confidence in a small team of people to deliver. What that means, you have to go slightly below enterprise and do more of a midmarket company or whether you get an enterprise company to do it for way cheaper than they should, I don’t know that I’d offer to do something for free but that’s a big deal, having logos on your website that you can name drop during sales calls. That will also show you how much of a pain it’s actually going to be.
That first one maybe is a semi-custom, you’re really the scratching and clawing because you don’t have product market fit yet, you don’t know if you built anything people want, you don’t know a lot of things at this point, and so you’re really just trying to get in front of a customer.
The challenge here is when you’re bootstrapping to small businesses and solo founders and all that, you have a volume play and you can talk to 100 people, 200 people and you can get 100 people using your app and then you figure out, you listen to the feedback and you can pivot based on that and you add features based on that. But in the enterprise, it might take you a year or two years to get five customers, and the deals are way bigger but the number of voices that are talking to you, and that you’re hearing from, is going to be a lot smaller. It’s going to be a lot harder to parse out the noise. When you have 100 people telling you, you start to see clusters of features and ideas and directions and then there’s noise around there at the outside edges. Like, okay, we’re not going to do that. When you only have five people, pretty hard to figure out what is signal and what is noise. Thanks for that question, I hope that was helpful.
Our next question is about how not to get killed by Google. It’s from Jukah and he says, “What can we do to avoid being too dependent on Google? If they block you from AdWords or their search results for whatever reason, how does your business survive?”
Mike: Start using Bing.
Rob: That’s the worst advice ever.
Mike: Google’s got their hands all over the internet, so that makes it difficult. There are also large players and depending on what type of business you have, your biggest channel may not necessarily be directly from Google or from search engines. If you have links plastered all over the place, then you’ll get a lot of traffic from people just by virtue of having those links coming back to your site from relevant articles or content that people put out there. There’s also other things like advertising channels that you can use either buy sell ads or Facebook or Twitter or various other places. I’ve heard people having good success with Instagram marketing depending on what type of business you’re running.
And then there’s also channel partners. If you look at a lot of for example the enterprise base, if you go look at some of these websites, there is very little there that tells you really what the enterprise level product does or how it works or gives you a download link. That’s because they use sales reps and channel partners to talk directly to people. They’re essentially bypassing Google at that point.
Don’t get me wrong, Google does serve an important function for them, but it’s not the full source of traffic or customer acquisition for them. By leveraging other channels, it gets you in front of those customers and you don’t have to rely completely on Google. This question really seems centered around relying too much on Google search results and I don’t know if you’re doing regular white hat, or you have maybe some grey hat strategies that you’re going to get heavily penalized by Google or get slapped the classic Google slap. That said, it could happen at any time or they could even just accidently drop you from their algorithms, you never know what’s going to happen. Unfortunately, that’s out of your control. You have to find other ways.
The last one I would say is email marketing is one of those things that’s just simply not going to go away anytime soon. If you have an email list that you’re adding people to on a regular basis, even if they do something like that, you still have that email list to go after and you can still leverage that for the time being until you figure out what to do about it or until some sort of corrective measures take place.
Rob: Yup. I like that. I think it’s diversification is the biggest thing. If you know how to rank in Google, then do that first, and then spend the next six months of your marketing trying to figure out on how to not be reliant on Google. Facebook ads, you named a bunch of ideas there, that’s it. As someone who has had a number of businesses, either severely impacted or completely decimated from over reliance on Google, I’ve never had a large business that Google killed. It was always these micro businesses were really the only marketing channel was SEO and Essence.
I had some apps, I’m trying to think of the biggest one was probably doing a couple grand a month and then it went to $300 a month after whatever Panda, Penguin, or one of these things several years ago.
I can’t imagine having a $50,000, $60,000, $70,000 a month business with employees that was strictly relying on Google. I personally would not feel comfortable building a business like that. I think that’s something to take into consideration as you’re thinking of what businesses to start there, a lot of considerations. Do you want to hire a low price point, do you want employees or not, what customers do you want, and who do you want to be reliant on? There are other factors like a friend of mine built an app that was based on the Twitter API, and this was several years ago. You remember Twitter basically just nuked a bunch of their folks.
Building a business that’s reliant on any single provider is a large risk. That’s the mindset, I don’t think there’s any easy answer other than diversification of leads basically, and like you said, building your own email list is a big way to do that.
Mike: Yeah. I think there’s a subtle thing there with the email list which is it takes the control of your channel out of other people’s hands and put it in your own. You can send those emails and you can put them into a different provider or you can even send them from your own mail client if the worst came to pass and you had to do that, but at the same time, you’re really just shifting where the responsibility is and where the control is for that traffic acquisition source or the revenue generation piece of it.
Rob: Yup, that’s one of the reasons I’ve always been such a proponent of email marketing, why I decided to launch Drip and why I’ve never gone down the road of building a whole Facebook community. Brian Clark from Copyblogger calls it Digital ShareCropping. It’s like building a community on Facebook or on Twitter or on Myspace or YouTube and then you don’t have control of that. That provider can just someday decide, oh, you paid all these ads and you built this following on Facebook and now we’re going to change our algorithm. Even though they are your followers, they’re only going to see one out of five posts instead of every post like they used to. You understand Facebook’s reasons for that. I bet they had customers complaining or whatever but suddenly you are basically at the behest of this large organization who’s going to do what’s in their best interest and not yours.
Once you have an email list, you are so much more in control. I like your point that even your ESP, you’re not reliant on them because you can always export and go somewhere else and send broadcasts and be in touch with your list from the 500 or 600 ESPs that are out there. It’s a good question, thanks for asking. I hope that was helpful.
Our next question is a general question and then with a specific one, it’s about storing customer data and what he should store. I’ll read through it and we’ll see which part of this we want to attack. “Hey Rob and Mike, I’m having trouble coming up with a strategy for tracking my user information for my SaaS app. I understand this may be a little on the technical side for the podcast, but what fields in your customer/user table. What should I be tracking, how is it setup? For instance, do you have a monthly pricing amount field or do you just have a plan field, like plan type = gold and then the gold has a dollar amount attached to it in a separate join table. Are there any advantages, disadvantages to use one method over another? Thanks for the podcast, I have been listening from the beginning and I look forward to each new episode every week. This is from Mike Richards.”
I’ll jump in on one thing. For the monthly pricing amount field versus just having a plan type, we usually have both. The plan type has a plan name because people want to know what plan they’re under, but every individual customer has a dollar amount field on there, some record. I don’t know if it’s a customer table or a join table or whatever it is. But it allows us to have crazy flexibility with pricing per customer. Of course that’s copied over when they first sign up, there is the template for the plan. Gold plan is $30.
When you sign up under gold, it’s going to put $30 in your dollar amount. But let’s say you want to give a free month or you want to give a price break or a discount, there’s just so much you want to do on a per customer basis. You don’t want to keep having to create a new plan every time you do that. Let’s say I want to charge $28 to this customer, just because. You don’t want to have to go in and put you’re gold, minus two, plan. You just want to be able to update that to $28. Same thing if they ask for, hey, I want to add another user to my account. Alright, that’s $3. It’s going to be $33, you don’t have to go and create your gold plus one user plan. You want to just be able to edit that in the row itself.
I’m not going to dive into all the rest of this. You could’ve asked a more broad question but I think the thing to think about is as you’re doing this, it’s thinking about what are you going to want to change in the future and to leave yourself the most flexibility that you can. I think that’s the key thing. You don’t necessarily need to over engineer the code around this, but over engineering a data model, I found, has its advantages because changing data models especially with join tables and adding more flexibility tends to be really hard. You have thoughts on this, Mike?
Mike: Yeah. I would agree with you that storing the dollar amount is definitely a wise idea and then storing the plan name. I’m early enough on Bluetick that I don’t have either of those stored right now. Honestly, it’s painful because I do have early access customers who have a discount that’s applied and that’s solely in Stripe. Even going into stripe, I can look and see how many subscriptions I have and it gives me the price but it doesn’t give me the price after the discount has been applied. It’s a little bit misleading when I look at some of the data because they don’t appear to know how much the person’s going to get charged until after they get charged. I would definitely keep those things in your own database.
The other thing to keep in mind is where you’re going to be managing that billing, is it going to be something custom that you do in your own app or are you going to use an online provider like Chargebee or there’s 30 of them out there. Chargebee is one that I’ve looked at in the past that manages recurring subscriptions and then the other option is to just use Stripe system directly.
One thing I would definitely do is you’re going to have to have some way of matching up the subscriptions for customers in your database up against whoever your payment provider is. If that’s Stripe, there’s a Stripe customer field of some kind and I would store each of those inside of your database so that if you need to, in the future, ever go look up data in Stripe and pull it back into your database, then you have that option. I’ve written scripts that’ll just go out and pull back billing information or things like that that if I need to import the data later, I can, especially if you’re later registering hooks with them to have your application notified that oh, this particular charge happened, update the billing information and local database and be able to show that inside your apps so that the user doesn’t have to go someplace else.
Rob: Yup, that’s a big one. I think for billing, we built our own script, it took a few days and then we’ve expanded that since then, that was a very, very good decision based on how complex metered billing is. I would link towards doing that in the future, I‘m not sure I will ever use a Chargebee or even Stripe’s subscriptions API. It’s too many limiting factors and I’ve heard too many people who are limited by that. Not having it in your code is the thing, it’s not a terrible decision, it’s not a decision I personally will do in terms of using an external billing system.
Other thing we did early on and Derek actually, you came up with this, I think this is a very, very good idea is that our database is essentially the master or the database of record for all charges. As an example, we never went in and refunded Stripe charge directly in stripe. Even when we were at 10 customers, I needed to refund somebody, he put a refund button in the Drip admin area so that when I clicked that, it went into our database marked as refund and then it went out and hit the stripe API.
The point is he wanted all the numbers in our database to be accurate, that we’re like, oh yeah, that one refunded and go in. Or this one tweaked the billing code or this discount or these edge case things. You don’t want those to only be in your payment provider for a lot of reasons but what happens when you want to change payment providers? If we had this switch from Stripe to someone else, it will always be a pain to write the code to do that but we would have all the data and switching would actually not be as hard as it would’ve been 10 years ago.
Mike: Yeah, that’s a really important point, figuring out what your source of authority is going to be. If you’re going to stick with the same payment provider, then it’s not a big deal. I’m running into this now because I just did certain things to get things done and I’m regretting some of those choices, I’ll say, just because I don’t have the data locally so it’s a little bit more difficult to run some of the reports.
Rob: Yeah, that’s always the trade off, moving fast versus doing stuff that’s going to keep you good in the long term but there will be no long term if you don’t move fast in the early days. It really is this perpetual balance.
Our next question is from Andrew Martin and he’s asking about selling SaaS to companies outside the US. He says, “Hey guys, Startups For the Rest of Us has been one of the main sources of information in my journey into learning to be a marketer and entrepreneur. Still working full time but I have a SaaS based company that I plan to fully launch this year. I’m a single founder and at this point, I’ve done all the development and the marketing. With the limited amount of outreach I’ve done at this point, I’ve managed to attract a couple companies that are based outside the US. Aside from convenience related things, like currency localizations etc., are there legal or tax related issues to having subscribers in other countries, is this something that ends up being specific to every country?”
Mike: I think the interesting thing with this question is that everyone does this type of thing a little bit differently and I wouldn’t say that there is probably anyone you could point to that you could accurately say they are the ones who are doing it correctly. It’s just because the laws in some cases are so obscure or the regulations of the different things that you have to file are very difficult to know in advance before you run into them and run a follow of whatever regulation and they jump all over you for not submitting taxes or for not collecting VAT in a specific country that is a particular amount. There’s all these things that are just difficult to know in advance.
I think generally speaking, like Bluetick for example, I’ve over simplified things and I only deal in US dollars. When the billing goes out, it’s billed in US dollars and then it’s converted on the back end using Stripe or whatever the currency is. Whether that’s Australian dollars or what have you, it doesn’t really matter. In my accounts, I’m treating it all as US dollars.
You can optimize things and charge in local currency, in some ways that’s a marketing thing just because people prefer to see their own currency when they’re looking at services that they’re purchasing and I know that it is more effective, I’m not just doing it right now. And then, beyond that, in terms of filings and stuff, really, I would say that’s outside the realm of my expertise or knowledge at this point. I just wouldn’t go into buffering advice on that stuff.
Rob: Yeah, I agree. This can get really complicated. I think it’s about learning what to do that’s mostly correct because I think if you genuinely try to do everything to the letter of the law, I don’t know that that’s going to be feasible for a single founder. I do believe that all of this stuff is country to country, that you might have a unified policy. I know that they have this unified privacy policy and that’s changed twice in the past three years. I had it when I was still independent, I had to pay lawyers to draft the contracts and I kept getting questions, they said Safe Harbor is no longer allowed, so then you have to have this contract drafted, so I paid a lawyer for a grand and now people in the EU, if they were going to use Drip, then they would have to sign this doc. They would e-sign it, it’s a big freaking pain in the neck, to be honest. And then they changed it again. Within the last six months, they’re like, nope. That doesn’t work anymore now. They had given you a model contract after which we modeled ours after. And they’re like, nope, it’s something different now.
I got to be honest, given the choice, if I was talking to 20 US companies and 2 European companies, and it was early and you’re still trying to figure stuff out, I don’t know if I would bother with it right now. It’s just one more thing that adds headache, it adds paperwork and they need invoices whereas companies in the US don’t, there is difference like the Can Spam Laws of the US are different in Canada and they’re different in Germany but not in the rest in the rest of the EU. Each of these things is a pain in the neck and I would be cautious into just diving in because people want to pay you money.
If the only people asking are Europeans and there’s a specific reason for that, that’s fine. But being that you’re in the US, you know the laws, you know things are generally how they operate, I would personally lean towards doing the things that you know about and that your legal counsel and your CPA are going to know about because it’s mostly done at a federal level. I’m not saying not do this but you just really got to think do you want to get into the complexity of trying to track all this stuff and keep track of it.
I know some SaaS founders, especially small SaaS founders doing $10,000-$20,000 a month and they deal with the EU companies and a lot of them are small business, whatever, it’s freelance or something. They don’t even bother with EU compliance agreements, the safe harbor thing, they just need maybe the invoice at the end of each month and you can just have your app generate that and then that’s it. They’re not technically complete and compliant with every EU statute and law but since it’s two really small businesses dealing together, the odds of that blowing up are fairly low.
Maybe that’s part of the risk tolerance question, are you willing to maybe do 70% or 80% of it right with the chance that if you traveled to the EU one day, maybe they would come after you for VAT, I don’t expect that to happen. I guess that’s the worst that could happen or they could take you to court in the EU. You got to think about these things realistically, like what’s going to happen. If you’re not a Fortune 1000 company, is it going to be on their radar? I’ll say it’s a personal preference or a risk tolerance and you got to think about what you’re willing to take on.
Mike: I think a lot of that also boils down to are you making a reasonable effort to do the right thing versus actively skirting the laws. You can say, hey, I did this and I did this and I didn’t know about that over there. I know that there’s this classic legal thing to say, ignorance is not a defense of whatever your actions were, but the reality is when it comes to paying taxes or filing paperwork and stuff, they will let you slide a lot if you just legitimately didn’t know and you looked like you were trying to do the right thing and you screwed up, versus if you were actively doing things that skirted whatever the laws happened to be. If you really are ignorant of what those laws are because you didn’t look them up, they are likely to give you a lot more flexibility and lenience than if you were actively putting accounts overseas and some Cayman Islands account to try and avoid paying taxes. I would take that into account as well.
Rob: That’s a good point actually.
Our last question for the day comes from [Fabrichio 00:33:16], and the question is about the right time to scale marketing. He says, “I love your podcast, I hear it every week driving on the East Rally Roads. Thanks for the good advice and interesting angles. It’s been six years since we started bootstrapping our personal finance software. We soft launched a year and a half ago…” Wow, so four and a half years in development. “In order to have users help us debug, improve the UX, find product market fit and optimize. Marketing efforts were small but brought enough users to iterate and improve.
Today, 5% of downloads become active. They use it at least once a month and 1½% pay monthly or yearly. We feel good about the direction and we get nice reactions from users but still we know there are many things to improve. We’re concerned about potentially damaging the brand if we make broad marketing campaigns when part of the first time users will be disappointed while others might not. We’ve identified some market niches but most missing features are common to all users and have no specific market common denominator so we can target a specific audience. In parallel, we have a big waiting list for other operating systems as we support only windows. When is the right time to scale marketing considering product market fit is a never ending activity?”
Mike: I think the first thing to consider is that you can’t please everyone so you’re going to have to move forward at some point. You can’t wait until you have all the information because that will never come to pass. You’ll never be in a position where you have all the information in front of you and readily available to make the optimal decision. You’re going to make those decisions about when to move forward and with what segments of your market with incomplete information.
I would say maybe take a segment of those people, if you’re really not sure and you’re really uncomfortable just blasting something out, take 20% of them and send out an email to those people and advertise things into them. If you also have a fairly large list, you can upload that into Facebook for example and do some targeted Facebook ads and look alike ads and see if that starts to pan out without going through your entire list. That actually brings another point, if you upload the entire thing to Facebook, you’re going to get much better information about the types of people that you should be targeting in order to get their interest in your ads and then bring them over to your website.
I don’t know if I would worry too much about disfavoring your brand. I’ve had discussions with people about brand strategies and things like that and it seems to me like until you’re much further along, trying to focus too much on the brand itself versus getting the right types of customers into your app, I don’t wanna say it’s a waste of time, but it seems like there are better places to spend your time than on trying to figure out what your brand is going to look like and how it’s going to be perceived. As long as you’re solving the problems for the customers that you have now, it doesn’t necessarily matter that you’re not talking in the right way to people who are prospective customers down the road. It’s going to take several touches before those people sign up for your app or become a customer anyway. Just by virtue of them seeing things, that is probably enough even if it doesn’t speak to them right away.
Rob: Yup. I think those are good points. I think it makes sense to do it when the money makes sense. If you can pump $1 into marketing efforts and you can get the $1.50 or $2, $3 back, that’s when you’re there. That means your churn is low enough that you can then put the money in and then you can use the profits that come out of that to build more features, to get closer to product market fit, and to market more.
I would be less concerned about having users come in and be disappointed, I think you can set expectations up front, I think you can improve on boarding, I think you can add features overtime but I wouldn’t hesitate to start running marketing if you do have a core group of users who are stoked and who are paying you. The percentages, it sounds like you are running a premium deal, 1 1/2% sounds fine. That’s in the range, I typically hear between 1% and 3%. It depends on how long you give folks. I think Dropbox was at 1%, after a year people start paying or maybe it was 3. But that was the general range.
1 ½% is in the middle there, you can obviously improve that but I think you’re on the right track. I personally would start marketing, I’d start getting more people in there and then you’ll know, you look at the first month or the first two months and if people are churning out quickly or their usage is not there, you should know the patterns of what it takes to get someone to a paying user status, you will know if that money’s going to pay itself off pretty quickly. If it doesn’t, that’s when you stop marketing, which I’ve had to do in the past. If it does, then you keep going with it. It builds that snowball, both the feature momentum part of market fit momentum and also marketing momentum. It was a good question. Thanks for sending it in.
Mike: I think that’s about all we have time for today. If you have a question for us that you want us to answer on the air, give us a call at our voicemail number, 1-888-801-9690 or you can email it to us at questionsatstartupsfortherestofus.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 357 | Courtland Allen – Indie Hackers
Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Courtland Allen of Indie Hackers, about commonly held expectations new founders have about their businesses.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups For The Rest Of Us, I’m going to be talking to Courtland Allen from Indie Hackers about surprising discoveries that new founders learn. This is Startups For The Rest Of Us Episode 357. 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.
Courtland: And I’m Courtland.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Courtland?
Courtland: I’m doing excellent, little bit sick, little bit overworked. Other than that, doing great.
Mike: It is Friday. For the listeners, it will be Tuesday but it is Friday for us. Hopefully, you’ll be better by the weekend.
Courtland: I’m getting into the habit of having weekends. Usually, everyday is the same to me, but my girlfriend is helping me develop better, healthier work habits. Looking forward to the weekend as well.
Mike: Excellent.
Why don’t you give me a brief introduction to you if the listeners aren’t familiar with what you’ve done and what your background is. You’ve run a popular community for aspiring entrepreneurs and founders called the Indie Hackers which has a series of interviews and blog posts and various articles on there that entrepreneurs and founders can learn from. Indie Hackers was recently acquired by Stripe as well, right?
Courtland: Yup, been with Stripe for five months now.
Mike: How’s that going? It’s interesting to hear from somebody who is acquired by Striped. I’ve talked to the guys at Stripe, Patrick McKenzie who’s also a friend of the show and a frequent speaker at Micro Conf has moved over to Stripe as well. It’s interesting to hear about the transition from owning your own thing and going into Stripe.
Courtland: I have to say that Patrick, by the way, is great. I’ve gotten the chance to hang out with him at the Stripe HQ a couple of times that he’s been in the US and he’s been very helpful. I always tell people at Stripe when they ask me how it’s been, Stripe is my first full time job. I’m 30 years old, I’ve always worked on startups and as an entrepreneur since I graduated college. A lot of ways, I was worried before I joined that I wouldn’t like it. But also, Patrick Collison has been so amazing, the way that they handled the acquisition was exactly how you should handle acquisitions in my opinion, which is to be as hands off as possible.
My life hasn’t changed very much since before joining Stripe, now that I’m at Stripe. They made things easier to run. Before I joined Stripe, I was basically financing Indie Hackers by selling advertising. I had ads in the email newsletter, on the podcast, on the website itself. That was something that took up so much time. I got to about $5,000 a month in revenue by the time I was acquired, but I was beginning to spend half of my time on ads. The most helpful thing that Stripe has done is just paid me a salary so I don’t have to worry on any of that, but I’ve been able to focus much more on the quality of the website itself and improving the community. Joining Stripe was a great decision, I think. I’m excited to see where things go in the future.
Mike: Interestingly enough, there’s kind of a corollary there where 100% of your revenue probably came from those ads. If you’re spending 50% of your time on it, then you’ve got 50% of your time free to do whatever.
Courtland: That’s true.
Mike: Wanted to talk to you today just because you’ve got a lot of experience talking to various founders and entrepreneurs. Obviously, you’ve got your own podcast that goes along with Indie Hackers where you interview founders and talk to them about what has gone into their business, what sorts of successes and failures they’ve had along the way. I thought it would be interesting to have you on to talk about some of the commonly held expectations that new founders have that don’t necessarily hold up to reality. Obviously, you’re gonna draw some of the various examples and stuff but also from your own experience and background running Indie Hackers as well.
Courtland: Yeah, totally. I think it’s tricky being a startup founder, especially if it’s your first time, because as a consumer, as a normal member of society, your view into what happens at any company is extremely limited. We generally see information that they put out there that they want you to see, but you don’t really see what goes on behind the scenes. When you start, I think you tend to be driven by your intuition and by what you’ve experienced as a consumer, but it turns out that actually being a founder and starting a company is completely different than it looks. People end up falling in the same holes, same pitfalls, same mistakes that others have fallen into simply because they don’t know what to expect.
I think it’s definitely worthwhile to talk about what’s surprising and what might you not expect that you should expect when you become a founder.
Mike: I think there’s a lot of these types of examples where people will hear them and I say oh yeah, that’s kind of obvious. What’s obvious to you is not necessarily obvious to everybody else. There’s certainly traps that you can fall into yourself that there’s lots of other people who would say well, that’s kind of obvious to me, how did that happen to you? I think that just reiterating some of these and talking through them about what are probably the most common ones that people fall into or experience that are not necessarily things that they think about in advance, is it worthwhile talking about?
I guess with that said, let’s dive right in. The first one that I wanted to talk about was the runway needed to get a startup going. Again, to limit the discussion, we’re not really talking about funded startups. It’s stuff that you’re either bootstrapping or self funding, building on the weekend or on the side in addition to your day job, in an effort to eventually go solo or try to establish a source of income to either be in addition to or to replace your existing income from a full time job.
The first thing to talk about there is when you’re leaving a full time job to go solo, what are the sort of things that you have seen and heard from people that have made the decision to leave their full time job and go solo? Are there mistakes that people make or assumptions that they make that later on they find that are just completely invalid?
Courtland: Yeah, I think probably the biggest mistake is just underestimating the amount of time it takes to actually work on a startup. I have never been in a situation where I’ve had a full time job and I’ve had to run a startup on the side, but I’ve heard from a lot of people who have. It’s extremely difficult to do. Number one, you’re probably going to be somewhat mentally exhausted after a full day of work. Building something on nights on weekends is going to take a toll on you.
I think it really comes down to being ruthless at prioritization. Ultimately, you’re not going to have time to do everything you want to do. Your task list is going to be growing faster than you can get things accomplished. It comes down to being able to prioritize and putting the most important things first and actually being able to recognize what’s the most important and what might seem important that you can actually get away with not doing.
There’s a lot of cool stories as well on Indie Hackers of people who have found creative ways to get around this challenge. For example, Mike Perham of Sidekiq, it’s an open source plugin for developers to basically allow their servers to run tasks in the background. He was able to convince his employer to allow him to work on his projects at work. The reason was that he was basically the CTO of his company, he was in charge of all their technology decisions, and so he built Sidekiq on the side at home and then he used it as his only customer on the job. This way, he was able to discover bugs and actually contribute to it, because it was open sourced, while at work. He kind of cheat the system and figured out a way to actually get more hours into his project while he was working a full time job.
I’ve seen other people do similar things as well. I think the expectation that you will be able to just go to work and come home and essentially put in non-distracted, 100% productive hours over a long period of time is probably not true for a lot of people. If you can find a clever way to allow yourself to work more hours on your project or to work it into what you’re normally doing, then that’s advantageous.
Mike: I really like the phrase you just used where you said “cheat the system” but I also, for anyone who hasn’t listened to that episode, I don’t want them to think that he was going behind his employer’s back or anything. He worked with them to figure out a solution and I think that’s the key takeaway from that, finding creative ways to solve the problem that you have which is not having the time, or you come home from work and you just don’t have the energy left to do it. I’ve heard people who said, “I’m going to get up at 5:00AM and work on my product for two hours before I have to go to work.” That’s a solution to it, there’s other solutions like working one weekend day a week and just work from 8:00AM to 10:00PM or something like that. There’s lots of ways you can squeeze more hours out of the day. I think it’s really about identifying those places where you can leverage creative solutions to the problems that you have.
Courtland: Exactly. I think we’ll probably talk a little bit about this later. Depending on your situation and how much free time you actually have to devote to your project, you should probably decide what you want to work on based on that. What I mean is if you have a full time job and if you have a family and if you have all sorts of responsibilities that give you a limited amount of time to work on your project, you probably shouldn’t pick the most ambitious project.
If you’re going to work on a SaaS application that’s going to require six months to develop and build, then that’s something that’s better suited to someone who has more time. There’s an entire spectrum of projects that you can work on. Indie Hackers itself being a content site didn’t take that much time for me to get out the door even though I was working on it full time, versus something like Bluetick which you’re working on which I can only assume is a completely full time job.
Mike: Yeah, it’s way more than a full time job, to be honest. I don’t want to even go back to my rescue time account every month and look at how many hours I’ve spent. It’s a lot. But that’s because it’s a SaaS product and I also recognize going into it. It was going to take a long time. But if you don’t have the time to be able to put into it, you’re trying to go from ground zero all the way to SaaS which is kind of a holy grail, it’s very difficult to make that transition if you’re not doing a stair step approach, which is what Rob has talked about quite a few times on this podcast and various talks that he’s done.
You have to be able to leverage your way into either larger projects or more lucrative products that you can put out there by using the assets that you created in advance. It’s like going to the gym, you can’t just go to the gym on day one, put in a three hour workout, you’re not going to be able to sustain that. You’re probably going to hurt yourself the very first day, just similar with starting a business. You’re probably going to do things that are essentially going to kill the business before it even really got started
Courtland: Yup, I think that’s exactly what happens. It’s difficult not to do that when it’s your first time because you’re looking around and all the examples that you see are these 300 pound guys at the gym who are established and can lift a lot of weight, these established companies that are building extremely ambitious products. You might think that’s what everybody does, I should do the same, but it’s not necessarily the case.
Mike: I think another thing that people underestimate when they’re trying to figure out what sort of runway they need or how to really get started is they don’t have a good sense of what the expected growth trajectory is for the business. When you’re starting out, if you haven’t started a bunch of businesses or tried to launch a bunch of things, it’s very difficult to make comparisons between what you’re doing now versus what you’ve done in the past to give yourself a basis first comparison that tells you whether or not you’re doing well in relation to previous things you’ve done, or whether you’re getting the traction you need to move forward.
What sorts of things have you seen that people can use as benchmarks to help them establish that sort of thing? If somebody doesn’t have previous things that they’ve worked on, what can they use as a basis for comparison to determine how well they’re doing with their startup?
Courtland: That’s a tricky thing as well. I think it leads into one of the next things we’re going to talk about which is the psychological aspect of being a founder. In reality, being a founder is very unique. If you’ve worked at a company before and you’ve had a job where you filled a very specific role, it’s almost completely different than being a founder where you’re going to have to wear every single hat. The metrics that matter are less, can you fill this one specific role, but are people using your product? Are people signing up? Are you finding users, are you increasing the revenue? That requires you to, like I said, wear a whole bunch of different hats and do a bunch of different things.
I think it’s difficult to compare to anything that you might’ve done before if it’s your first startup. As a result when there aren’t these clear cut comparisons that you can look at, you start to compare yourself to other people, you start to hit on this emotional startup rollercoaster type thing where you use your emotions to tell you how you’re doing. You get an email from a customer and you think oh, things are going great, I’m going to succeed. Or you get a scathing email from a customer who says they’ve run into a bug, you think oh, my startup is doomed.
I think people tend to underestimate the degree to which you fall back to that short sided, short term thinking, into the value of your overall progress. I’m not sure what the exact solution is, it’s different for everybody. I know that being able to talk to people, being able to zoom out and look at the bigger picture, have some sort of a plan can really help you with your ability to evaluate whether or not what you’re doing is going well.
Mike: I think that just having some sort of guidance or advice from people that are not in your own head, they’re able to look at what you’re doing or experiencing a little bit more objectively, is extremely helpful. Whether that’s people in a mastermind group or just other entrepreneurs that you talk to online, or even professional therapy for example.
I’ve been hearing more and more over the past couple of years, people, especially entrepreneurs, going to a professional therapist and talking to them about not just their life but also about their business and how things are going, different techniques that they can use to help get off of the emotional rollercoaster where not only is there the way that they feel about their life very heavily influenced by how their business is doing, but also the things that they do are driven by some of those emotions.
For example, if you’re not getting a lot of traction with your software, I see a lot of people making the mistake of trying to feature their way out of it and they’re building more and more things but none of those things actually get them more customers. They do it because it makes them feel better, but it’s kind of masking the problem which is I don’t have any customers and I’m not getting in front of people. Adding another feature, making something work better is not going to fix that.
Courtland: I like what you said about seeing a therapist which is such an unconventional way of approaching it that most people might not think about. As I mentioned on my podcast, my girlfriend is a sex and relationship coach. We also see a therapist for our relationship. Every now and then, I’ll talk to him about Indie Hackers and about how it’s affecting my life, how much time I spend on it, etc. It’s good to be able to talk to somebody who’s willing to sit down and see the problems that you’re going through and understand how all the different parts of your life might come together in ways that you don’t expect. Like you said, the things you do in your personal life can affect the decisions that you make in your business. The ways that you feel might affect the decisions that you make in your business as well.
Also being able to talk to other founders I think is crucial. A lot of people are in the situation where they had a cofounder. What I hear from a lot of people who aren’t in a startup hub like San Francisco or New York for example is that it’s difficult to find people who might understand what it is that you’re going through because starting a startup is such an unconventional life decision to begin with.
Mike: I think the other thing that factors into the professional therapy side of it is the fact that when you’re talking to a therapist, it’s more of a no-judgment zone. If you’re talking to other entrepreneurs, a lot of times in the back of your mind, there’s always those, “How am I doing in relation to them?” “I don’t want to look like an idiot.” Versus when you’re talking to a therapist, you’re paying them to help you understand how to move forward and solve problems. It’s not about them judging you or saying you should do this or you should do that, it’s more about them helping you understand what’s going on, how does that make you feel, and what you can do to change it if it’s not in line with what you want or what you expect.
Courtland: Exactly. It’s so underestimated how much of a role Imposter Syndrome plays in being a founder. Always thinking that other people are a step ahead of you. In reality, it’s easy to feel that way. If you look at other entrepreneurs and you look around at people who are writing blog posts, doing podcasts and giving advice, it’s extremely easy to find somebody who has more experience than you, more knowledge than you, or progressed further than you have just because people in those positions are more likely to have their messages amplified in the first place. That still takes a psychological toll on you.
For sure, being able to talk to somebody in a judgment free zone where they’re really not someone who’s going to judge you for what you’ve done, or really even somebody you can compare yourself to because they themselves aren’t an entrepreneur can be very helpful.
I think also practicing as an entrepreneur, being able to be vulnerable and open with other people about what’s going on. The easiest thing in the world is when somebody asks you what’s going on with their company to say it’s all going great, even if everything is on fire. If you take the time there to really slow down and let people know and let people into what’s going on with you, I think you’ll have much more fulfilling and enjoyable conversations and it will be easier for you to find people who can identify with you because you’re letting them into the hardships that you’re going through.
What entrepreneur doesn’t have hardships that they’re going through? Nobody.
Mike: One of the things that I found over the years… I have a home office, so it’s extremely isolating. If I go out and check the mail and I actually walk outside more than once on any given day, there’s certain periods of the year, especially winter because I live in New England, but there are entire weeks where I will step outside once, maybe twice, to go check the mail or something like that and that’s about it. If it snows, of course I got to go out and snow plow the driveway.
But what’s your experience been? You’ve said that you just started working for Stripe, so before that you worked for yourself. How did you deal with that early on? Was that something that you recognized early on you needed help with and you needed a support group and people to talk to? Or was it something that you had this epiphany one day.
Courtland: I think what’s been really big for me is transparency. I’ve done startups before Indie Hackers and I always had a co-founder. That had made things a little bit easier for me. I’m sort of an introvert, it’s very easy for me to sit at home, working at my desk, and like you said never leave. With the co-founder, that was a little bit easier because at least he was there too and I could go in the other room and talk to somebody.
With Indie Hackers, I basically started it by myself which meant that there was no one I could talk to in my immediate vicinity, there’s no one in my house who I could talk to about what I was doing. But being transparent online, basically vomiting out every fact and detail about what I was working on, whether it’s through blog posts or Twitter or my email newsletter, I found really helped me feel less alone and a little bit less contained. Even being at Stripe, I still work from home most of the time, but I’m a 20 minute walk from the Stripe office which has hundreds of people in it but I work from home almost everyday. I haven’t been into the office a single time in the last week. I think really having an online community of people who are going through similar things and people who care has been helpful for me.
Mike: What you just said about transparency is actually I’d say a little bit counterintuitive, something that I discovered. I think I knew this all along, but about a month or two ago I did this 21-day series of video blog posts before my launch. Every evening, I’d sit down with a glass of whiskey and I’d record a video and then put it out to my mailing list for three weeks straight.
I was actually very, very surprised about the email feedback that I got. There was a bunch of comments and stuff on the blog itself. I got a lot of emails from people that were encouraging and helpful, hey have you thought about this, you mentioned this problem, have you thought about doing this other thing over there? It’s interesting to see how helpful people are. If you become transparent about the stuff that you’re doing, I don’t think it’s obvious to most people that the benefits of doing that actually outweigh the risks of putting yourself out there and being judged.
Courtland: I agree completely. I think this goes back to what I was talking about earlier that unless you start at a company, you’ve had the consumer lens on your entire life. What do you see as a consumer? You see companies being these big corporate walls, always say we, and they never really reveal how the sausage is made and it’s all very neat and packaged. It’s easy to imitate that.
But in reality, if you let your guard down and you talk about what you’re doing, you talk about what’s hard for you and the decisions that you’re trying to make, there’s just something about that that people really connect with. My early newsletters for Indie Hackers have kind of gotten away from this recently, but every newsletter was basically, “Hey, here’s what I’ve been doing with Indie Hackers, here’s what I did this week, here’s what I’m worried about, here’s what I’m thinking about for the future.”
I would also get a ton of email replies from people who were going through similar things, or people who wanted help. Not only is the process of hearing from people extremely motivating and helpful, but just writing it down, writing down what’s hard and telling somebody else felt great. I think it can’t be underestimated, the advantages of being transparent.
We know people aren’t really going to steal your business model and steal everything that you’re doing because you’re sharing your details. The people who do that are oftentimes not the most competent of people.
Mike: It’s funny you say that because I’ve never seen anybody rip off somebody else’s idea and actually make it successful.
Courtland: No. Someone who’s really a go getter and is really talented is probably not going to be sitting around waiting for somebody to reveal their transparent details of their business so they can copy them step by step. Those aren’t the people you have to worry about, and I think the common fears of being transparent are mostly unfounded.
Mike: I guess the next thing to dive into is what sort of resources do you need to get started? When you started Indie Hackers, you said that it was really just you building this on your own. Was it more work than you expected, less work? You said you got it to around $5,000 a month in recurring revenue just from advertising, but how much effort went into that before you got to that point?
Courtland: A lot of effort went into it. It was by far more work than I expected. I think this is the case with pretty much any startup. There’s always going to be more work than you expect. My favorite analogy for this actually came from an article I read years ago about being a programmer and estimating how much time it takes to get something programmed.
The analogy that I used was a map. If you look at a map and you want to chart a course between two different points, you might just draw a straight line and you might draw a slightly curvy line to avoid some mountains or something. But when you actually zoom in close on that map and you look at that line, it becomes much squigglier because you realize that you have to work your way around all sorts of bends and trees and hills and rivers.
I think the same is true of being a programmer and a startup founder. From the outset, you might think okay, I need to hit these giant milestones. But when you actually get into the weeds and start working on it, you end up having to deal with a whole bunch of unexpected things you just couldn’t see when you were zoomed out so it becomes a whole bunch more work than you planned.
With Indie Hackers specifically, the bulk of the work, at least initially, was just doing the interviews and trying to figure out a repeatable, scalable process for doing three to five interviews per week while also building up a website and trying to charge for ads. That process took months and months. I was working at Indie Hackers for three or four months before I even really started focusing on ads. I’ve seen similar patterns with other people. To the degree that you can prioritize and cut features out of your product that are unnecessary and do only the bare minimum that you need, you should do that for sure because even that will take you longer than you expect.
Mike: Before we dig a little bit more into that, why is it that these things take longer than we expect? One of the things that I’ve kind of come across is that I’ll see my expectations for the quality of my own work tend to be high, and I don’t think that people listening to this are probably too dissimilar to that. We have these expectations for things that we’re going to put out in the world. Because we don’t want to be negatively judged for putting out a product that is sub par, we spend a lot of extra time doing things that are probably not necessary. Whether it’s a graphic design polish, or making sure that all the different edge cases are taken care of. We’ll spend a lot more time on things than we probably should in an effort to not look bad. The reality is you can get away with a lot, especially if ppl are not necessarily paying you for that particular feature or that particular piece of your product. People are willing to tolerate a lot of different things.
Courtland: I think something I personally underestimated before I started doing Startups was how much I would care what people thought. If somebody says something negative about something that I felt, it seems like a dagger through the heart. Just trying to avoid that feeling has led me to spend hours working on things that might not be the most crucial for my business’s success and maybe I can actually let those things fall by the waist side. Definitely, I have perfectionist tendencies that force me to some degree to spend time on things that I didn’t need to spend time on. I think this affects a lot of people.
A good example recently was I had a friend—I recently redesigned my newsletter—she told me, “Oh, your new newsletter looks so great. The old one looked kind of crappy.” It’s funny because I took that as a compliment because I knew the old one looked crappy, at least by my own design standards and I had been able to successfully fight off the urge to redesign it for as long as I did. That was progress for me.
Mike: Other ways that you’ve found to protect—I don’t want to say fragile ego—I think all of us have a fragile ego to some extent where you can get 10 emails that say, “Hey, you’re doing a great job.” And then you get one that says, “This sucks.” That one outweighs the other 10. Are there things that you found that protect yourself from those types of things? I’ve run into that myself, I’m not saying those are the exact numbers. The negative stuff weighs on you substantially more than the positive stuff.
Courtland: It really does. I think that’s just a part of being human. For me, it’s not even negative emails, it’s Hacker News that’s the worst for me. I put a lot of content on Hacker News, which for those of you who don’t know, is a community site for developers. People there are trolls very often. They’ll say lots of negative things, they’ll leave drive-by negative comments without really even thinking and it hurts.
The thing that helps me the most is just getting people on my side. Nowadays, I work with my brother who Stripe also hired to help me with Indie Hackers. When we see negative comments, we’ll both basically talk about them and talk about whether they have any merit and reassure each other. I think that’s extremely helpful. When you’re sitting in a vacuum and there’s nobody on your side, there’s nobody that can talk to you who can take your side and say you’re right, or this person’s wrong, or don’t listen to them, then I think it weighs on you a lot more.
Mike: The thing that you just said about being able to talk to your brother about some of the stuff that comes in, there’s a big difference between something that is simply a troll comment where it is much more of a personal attack versus a legitimate criticism of a piece of your work that isn’t right for somebody based on their situation, or it’s broken. There’s a very big difference between those two things. Sometimes, that line is very much blurred and it weighs on us regardless.
Courtland: It really does. I’m the type of person that almost, no matter what kind of negative feedback I get from a stranger on the internet, it’s going to weigh on me. Whether it’s legitimate or illegitimate, whether it’s private or other people can see it, I’m going to think about it for a while. Like you said, it’s going to stand out more in my mind than 10 positive comments.
I think that it’s something that as a founder you need to be prepared for. I don’t know if there’s a great way to prepare for it other than just to expect it and know it’s going to happen. One of the things that I told myself early on was that it’s very hard to get people on the internet to care at all. Most things that people put out there never get any attention, never get any comments whatsoever. If people are giving you negative comments, then at least they care to some degree.
Mike: We talked a little bit about the fact that everything takes more time than you expect it to. I think there’s also a corollary there, and this kind of especially applies to marketing endeavors or development. I think there’s this false equivalent of time being the same as money when you’re trying to put your marketing efforts out there. Everything that you do that’s marketing related is going to cost you money or a lot of money that you may not necessarily have. You don’t want to risk that if it’s not going to work, so people tend to do these little experiments that are not really statistically relevant but at the same time they do them because that’s the budget that they’re comfortable spending.
I think the general point that I’m trying to make there is that when people do that, they have this idea in their head that I want to do an infographic, and to hire a designer, it’s going to cost me $1,000 to have that done. It’s too much money. I’m just not going to do it. Versus doing it themselves and not spending the money to do it but yes it’s not going to look as good, but at the same time it still gets done and it can achieve the goals as long as they put a marketing slant on it. It’s really about being creative in your marketing efforts in a way that doesn’t break your bank.
Courtland: What do you think is the biggest misconception there in terms of what people expect versus what actually happens?
Mike: There’s two sides of that. I think that there’s your own expectation for what it should be or should look like, versus what people on the receiving end are going to think or look at and evaluate. When you’re doing a new marketing campaign for example, you want to make it as top notch as possible because you want to get the most impact, you want to get the most conversions, highest number of clickthroughs, and all that stuff. Of course your thought is hey, I need you to do a fantastic job on this.
The reality is on the other side, people don’t evaluate those types of things for more than a few seconds unless they get to the point where they’re actually going to click through and maybe read an article that you wrote. But with paid ads for example, there’s a headline. That’s the most important thing on the whole ad. If you don’t nail the headline, everything else doesn’t matter at all.
I’ve seen advertisements, I’ve mentioned this to Rob once, I saw an advertisement on Facebook, it was a snake. It wasn’t even a real snake, it was just this weird thing that showed up in my Facebook feed. It caught my eye. I don’t know how much he was paying for it but the fact that it caught my eye was enough to make me notice it and look over at it and say huh, I wonder what that is, and then I saw that it said Drip on it. Really, that’s what you’re trying to do, you’re trying to catch people’s attention. If you get the right people to look at it, then they’ll come through and they’ll click through and take a look at the other stuff and look at the quality of what you’ve got, whether it’s the writing, or the marketing collateral that goes with it.
Just catching their attention is really the main goal, not having the best designed thing. You don’t need to spend as much money as Buffer does on an infographic, for example. That’s kinda the point I’m trying to make, you can probably get away with a lot less than you think you need.
Courtland: That makes a lot of sense. I think even more broadly, that reminds me of this thing I’ve been harping out a lot in the last few weeks just by talking to people on the Indie Hackers’ forum about their landing pages and about their product ideas how important it is to realize that what you see as a founder and how you look at what you’re putting out is not the same as other people see it. It’s not the same viewpoint that your customers have, it’s not the same viewpoint that your partners might have. Being able to step outside of yourself and look at things from their perspective might be the number one quality that you need to have as a founder.
I’ve underestimated this to a huge degree. Especially early on in my career, I spent a lot of time doing things based on my intuition. Whatever I felt was important had to be what everybody else felt was important. I would work on that, and then I would realize that nobody cared what I thought was important. I wasn’t solving the problem that they wanted.
I think the example that you just gave is a really good one. If you’re crafting an ad or if you’re designing your newsletter, if you’re planning out your marketing campaigns, it’s very important to look at what it is that your customers or that your visitors are going to care about and try to prioritize those things first rather than prioritizing the things that you might intuitively feel are okay as a creator.
I think this is probably true in almost any sort of creative endeavor. My brother’s a writer. One of the hardest things for any writer to do is to be able to step outside of themselves and look at their story and their writing from the reader’s perspective. Sometimes, it takes a few weeks of not writing and stepping back and looking at what you’ve written later on with fresh eyes. I think the same thing can be true as a founder. Whether you’re talking about coming up with an idea, is this an idea that customers actually want, is this something that solves a problem that’s valuable to them, or is this a feature that you really want them to add because you thought it was cool?
Mike: Features is another one that we spend a lot of time building certain features that some customers just don’t even care about. I’ve done this myself but I’ve also talked to people. I think I answered an email this morning where somebody was talking about how they just wanted to implement this one more feature before they launched. The reality is that’s a snowball where you can always look, “I’m going to do this other feature, do this other feature,” and you’re always delaying that launch in order to delay judgment on all the work and effort that you put into it. If you delay it long enough, then you never get judged. You’re really putting yourself in this position where you’re never going to win because the game never starts, I guess.
Courtland: That’s totally true. It’s subtle. You might not be conscious of the fact that you’re doing it to make yourself feel better and to avoid judgment, it’s easy to convince yourself that you really do need this particular feature. Once that’s over, you really do need this other feature. I think this is something that generally if you’re starting a business, it’s advantageous if you have some development skills and you can code what you’re working on yourself rather than having to hire out. It’s also a trap that developers fall into more so than other people, specifically because if you have that ability to do something, if you’re really good at writing code, it feels good to write code and it’s easy for that to be the answer to everything. When in reality, there’s all these other hats that you need to wear, that you need to actually get your product out the door to succeed. Features is a really big trap that a lot of first time founders fall into, just taking too long to launch.
There are other traps there too as well, I think. One of the biggest reasons why I see founders fail and why founders tell me that they end up failing is because they quit early. They essentially hadn’t really put in the time that they needed to solve their particular problems that were [00:32:04] their businesses from succeeding. Often, it comes down to the psychological issue of they didn’t have enough wins under their belt, they were feeling demoralized about their project, it was this long death march, it was building features and never really getting any traffic, trying random marketing efforts and never really have any success.
That gets amplified under fold if you take six months to build a product because you’re continually adding features. Whereas if you build something, a good example would be Josh Pigford of Baremetrics who got his first product out the door and his first customer in something like eight days. He didn’t have time to get demoralized and quit, so not only is it helpful to build things quickly in order to talk to customers and it actually succeed, but it’s helpful for your own morale.
Mike: I think putting something in front of them faster allows you to get the feedback to course correct when you start to go in the wrong direction. As you said earlier, there’s a difference between how you perceive things versus how your customers perceive things. It’s very easy to confuse the two and think that you know what they need. And then when you know what they need, and then when you put it in front of them, they point out all these flaws that you didn’t think of or consider that make you have to go in a different direction. By delaying putting it in front of them, you’re just delaying the results of getting that feedback or results of getting that feedback so that then you have to make the course correction. It’s three months down the road instead of three weeks.
Courtland: I think a lot of it comes down to the curse of knowledge where this really affects creators in any industry, not just founders. Ultimately, if you spend a lot of time working on something, you end up building all sorts of mental models that describe how it works. You’ll understand all of your features better than your customers do, you’ll understand all of your copy better than your customers do, and it can be difficult to tease apart what you understand but it’s not clear to your customers, versus things that are clear to your customers. It kind of gets in the way of you being able to be as effective as you would like.
You’re sitting here thinking oh it all makes so much sense and your customer’s like I don’t get it, you send your landing page to your friend and they say I have no idea what I’m supposed to do here. I think talking to people and getting out of this solo solitary lifestyle where you’re just working by yourself without talking to anybody is extremely helpful. It’s hard to break out of that because as a founder you’re essentially responsible for everything, it’s kind of the default that you don’t talk to anybody and you’re constantly handling this avalanche of work.
Mike: I wonder if there’s a predisposition for software developers to have that mode of operation just because I almost feel like in order to be a software developer, it almost feels like you have to have introverted tendencies because you sit in front of a computer all day, you don’t talk to people, and people who are introverted would be more drawn to that line of work because they don’t have to talk to somebody. But it hurts you when you’re trying to build a business. If your goal is to have this lifestyle where you sit in front of a computer all day and you don’t talk to anybody. That’s the ideal life for you and that’s what you’re working towards. It makes it difficult when you put yourself in a position where in order to be successful, you have to talk to people.
That leads us into a lifestyle of being an entrepreneur and what is it really like versus what you thought it was going to be like when you first started.
Courtland: What you just said reminds me a lot of how I decided to start Indie Hackers. I had three or four other ideas that I was strongly considering, and I knew from my history, “When you’re a developer in the past, you’ve always tended to spend way more time coding than getting the product out the door, and you found every excuse under the sun to delay marketing.” I picked Indie Hackers as an idea because I knew that the product itself was just a blog, the actual work that would go into it would require me to do the marketing, require me to talk to people.
I think that’s kind of a hack that you can use if you’re aware that you maybe are a little bit more introverted, that you have a tendency to put off stuff that you’re not good at or that you don’t like like marketing. Pick an idea where the product itself is easy relative to the marketing part of it, so that you very quickly run into a wall where the only thing that’s left is the marketing.
Mike: That’s really just play into your own personal strength. I don’t think that it’s going to be possible in most cases to build a business where you never talk to anybody. You’re going to have to get out and talk to somebody at some point. A customer is going to have a question, you’re going to have to get feedback on what it is that somebody really needs versus what you thought that they needed. Otherwise, you’re in this position where you’ve put something out there.
As you said, the world doesn’t care. You post something on the internet and nobody cares. That’s the worst thing for a product launch or anything that you put out there, you post it and you get zero traffic and nobody bats an eye because they didn’t even know about it.
Courtland: Yeah, exactly. That’s unfortunately what happened to I think probably the majority of startups. It’s important to be aware that even if you have a successful launch and things do go really well and people do know about it, that’s not the end of the story and it never is the end of the story. I think it’s an expectation that a lot of people have, “I just launched, got a lot of traffic, word of mouth took over from there.” That almost never happens. In reality, you’re still on the hook for figuring out a sustainable growth strategy and a marketing strategy. That job pretty much never ends because in every single stage of your business, the techniques that work change. You have to figure out a new way to get your product into more customer hands.
I think it’s important to be aware of that. In many ways, just being aware of the fact that it’s never really over and that no matter what level of success you achieve, it’s always going to be more work to the next level will help prevent you from becoming demoralized when things don’t go that well.
Mike: Do you think there’s a danger in that where you’re going to be in a situation where you don’t have all the answers because you don’t have all the data for a particular problem? Kind of going back to your example with Indie Hackers, you said that you spent a couple of months on it, three to six months, before you even started working on the advertising side. You were working on it, did you know in advance that this is going to be an advertising model and that’s where the revenue was going to come from? Or was that you kind of had that as an idea but you hadn’t really thought it out or flushed it out or had customers waiting in the wings when you got the product itself done?
I wonder how prevalent that problem is where people delay those types of problems, or spend too much time on them, there’s the opposite of that. They just delay doing anything before they have solved all the problems, then they never get anything done.
Courtland: I think my particular situation was that I was basically doing that. The problem that I really wanted to solve with Indie Hackers was traffic. I wanted a repeatable way to get people in the door, reading articles, and I didn’t feel comfortable moving on towards revenue and finding advertisements to work with until I was confident that I was going to be able to bring more people in. Then at a certain point, I said you know what, the traffic is high enough, I should start making money. I hadn’t solved that problem but I just got to it.
In hindsight, I really could’ve started focusing on generating revenue. I probably should’ve from day one, there’s nothing stopping me from doing it back then. I wouldn’t say that I was spinning my wheels but I was definitely working on something that should’ve been less of a priority. I really should’ve focused on revenue more. I think a lot of startups come down to prioritization.
Working on a startup is more work than it appears from the outset. Every task that you work on will probably give you the idea for three to four more things to work on, three or four more bugs to fix, additional features to add. Your to-do list generally grows faster than you’re working on it. It really comes down to prioritization, how do you know what’s the most important thing to work on and how do you know what you can toss out.
Mike: I think there’s people—I have some perfectionist tendencies sometimes. The one thing that I’ve realized is that—in my younger years—I would look at what a business was working on. An example that jumps into my head was Oracle’s installer was absolutely awful. It never worked the first time I ran it. It was like that for 10 years. It never worked. I always had to go in and mess around with stuff and get it to work. The installer would always fail. I’m like how is Oracle successful when their installer doesn’t even work? Of course, it just made me angry.
I look back on it now and it’s like well, once they’re past the initial hurdle, the installer doesn’t matter. To solve that, oh, just hire these professional consulting services to come in and they’ll install it for you. Just like oh yeah, not only does it put money in their pocket, but it also gets around the problem. They don’t have to fix the problem. Then, it’s interesting to see those types of decisions that in retrospect, oh, that totally makes sense, but at the time it was in theory.
I think there’s a lot of places where that prioritization, there’s creative problem solving that you can do inside the business to get around or avoid solving problems that aren’t really that important to solve for you. You want to have everything perfect, but the reality is you don’t have time because as you said, your todo list is going to expand much faster than your ability to get everything done.
Courtland: Yeah, just getting comfortable with that state of affairs I think is extremely important as a founder, just knowing and accepting that you’re not going to get everything done. You’re better served if you’re aware of that up front.
Also, to your point with the Oracle example, I think probably the most common source of bad ideas is people looking at a product that’s successful, finding some highly visible flaw of that product and saying I’m going to make the UI look a little bit nicer, or I’m going to make this part be a little bit better designed. I’ll do a much better job than Oracle does and not really realizing that the reason why they slacked on that part of that product is because it’s not actually as important as it might seem. As an outsider looking in, it might be difficult to determine what’s important. A lot of times when you see successful companies that are doing well but are crappy looking, it’s because they know something that you don’t about what’s important and what actually drives the business and what’s not, they’re just prioritizing.
Let me ask you, what do you think about work-life balance, Mike?
Mike: I think work-life balance, if you have a home office, is extremely hard. If you’re at your computer, if your computer is in your living room for example, it can be very difficult to draw lines between when you’re working and when you’re not. It just makes things a lot harder than it probably would be otherwise. On those distinctions, especially if you’re a solo founder and you don’t have a co-founder or anything like that, it’s just a hard problem to solve. I don’t know if I have any great recommendations for that, to be perfectly honest, what about you? I think you said that you have a home office, how do you establish any boundaries between work and nonwork time?
Courtland: I, for one, am terrible at establishing these kind of boundaries. I’m somewhat of a workaholic, but I’m getting better at it. I think the key is to realize that as a founder, you’re always going to have distractions. We’ve talked about it a number of times, your to-do list is always going to be infinite. You’re always going to have more things that you can get done, and you’re probably also going to be getting a lot of email which is extremely interruptive. It can sometimes be urgent. You’re going to have to deal with that stuff at times where it might be inconvenient. You don’t have a boss so you can just say I’m not going to work at these points in time, you’re your own boss and it’s up to you to determine your schedule.
I’ve talked to people who have varying degrees of success in doing this. For example, I talked to [00:42:56] a couple of weeks ago. He basically works a 9:00AM to 5:00PM, 9:00AM to 6:00PM schedule, leaves his laptop upstairs, and refuses to bring it downstairs when it’s time to hang out with his family. That works for some people and I think if you have the discipline to set a schedule like that, it can be extremely productive because being always on and always working means that you’re likely to be pretty inefficient. I don’t know if there’s a secret technique or magic bullet for solving that, but it’s important to be aware that your work will never feel like it’s done. It’s not like a normal job where 5:00PM comes around and you’re done on your own. You need to really have the discipline to make rules like that for yourself and figure out what works for you and your business.
Mike: I think that goes back to the prioritization of the tasks on your task list as well. It’s like what is it that is important to you? I think there is a wide range of opinions on this. DHH from Base Camp has constantly railed about the working hours of Silicon Valley and how people should come to work and they’re paid to be there for 40 hours a week so don’t make them work 60 or 80. The fact that you’re working longer hours is not necessarily a badge of honor.
But I think there’s the flip side of it where there are some people, like if they are workaholic and they enjoy the work that they’re doing, then working 50, 60, 80 hours a week, that’s fun to them. I think that there’s this broad spectrum that people fall into and there’s no right or wrong answers, it’s what is right or wrong for you, not for everyone. I don’t think that there’s a general case answer that you can apply to everyone, there’s a wide range of answers and some apply to some people and some apply to others. I don’t think it’s wise to say that this is the way that it should be done for everyone just because it works for you.
Courtland: Yeah, I think it’s also worse experimenting. Sometimes, you don’t know what really works for you unless you’ve tried a bunch of different things. I, for example, thought I really like the idea of being a remote worker and going to different places and working from the beach, or from a coffee shop, or from a friend’s apartment. I tried that early on in my startup career and it just did not work for me, I was very unproductive, I spent a lot of time doing all sorts of side things besides actually getting into the groove that I’d like to fall into. Turns out though, what works for me the best is to just sit at home. It’s kinda boring but I get by far the most work done. I think I wouldn’t have really realized that unless I attempted to experiment. I think it’s worth trying out different things.
Mike: I’m in the same boat as you. I cannot take a laptop and go to a coffee shop and sit there for a little while. I know that it works for some people but it absolutely does not work for me at all. I just can’t get work done. It doesn’t work for me. As you said, you won’t know until you try it.
Courtland: Yeah, exactly. Something that’s been surprising for me also to add to that list is even though I rarely go into the office to work at Stripe, when I do, I have very productive days. I think a lot of it just comes down to everybody can see what’s on my monitor, so I can’t exactly do a bunch of random stuff and watch YouTube videos, whereas at home those distractions are my own private distractions. Again, definitely worth experimenting and seeing what works for you.
Mike: We’re kind of running short on time here, but I did want to touch on one last topic here. That was about what are the expected success levels or income levels after various time frames? I think this is a case where it kinda goes back to what people’s expectations are about either the runway that they need or the resources they need or the time they need to build the products and make it successful.
You’ve interviewed dozens of people so far for Indie Hackers. What is the range of timeframes it has taken for people to start something from ground zero and make it successful to the point that they can go full time on it?
Courtland: This is a good question because it’s difficult to answer because it turns out that when people start out their business, it’s actually a much fuzzier line than you might think, looking from the outside in. Sometimes, it’s very clear cut. They started their business on August 11, launched it, and then it was successful in two years. But often times, people’s businesses succeed based on things they did well before they started their business.
One thing that I get a lot of feedback on is someone will have a company and they’ll start it and get a lot of customers. People will say, “That guy cheated. He already had an audience beforehand,” Or “He already built a list beforehand and he used that to bootstrap his business.” “They already had a lot of expertise in one particular area, and that’s the only reason she was able to start this company. In situations like that, it’s hard to say when was the real start date?
It’s tough because as a founder, you end up comparing yourself to other people’s success. It’s not always visible when they really started doing these things that were crucial to their success. I’ve seen a huge variety of levels. The other thing that’s worth talking about startups is that they kind of follow a power law distribution where a very small percentage of startups will grow way faster and way bigger than others. You’ll always have those people present in the limelight where it’s very easy to compare yourself to them. But in reality, it’s such a huge range that you shouldn’t compare yourself only to the top people.
You should be aware that if it takes you two years to grow your business to the point where it can sustain your lifestyle, that’s perfectly fine, it’s not at all abnormal. If it takes you three years, that’s also perfectly fine and not at all abnormal. I would caution people to not expect or hope that they’re going to find some overnight success, it’s probably not going to happen in a couple of months or six months or even a year.
Mike: Yeah, that reminds me of a talk that Harry Hollander from Moraware Software gave an attendee’s talk at MicroConf a few years ago. He said that if he calculated back to when he started the business to that point which was I think 8, or 10, or 12 years, or something like that, he had just gotten to the point where he would make the same amount of money as he stayed at his previous job. It’s interesting to see that because it does illustrate the point that one, it takes longer than you think it will, but there’s all these other things that factor into it that you didn’t expect when you got started.
Courtland: Yeah, I definitely would not go into startups expecting to get rich or get rich overnight. I think it’s probably the most common reason that people go into it but I’m in the same boat. If I had just gotten a software engineering job after college, I would be doing a lot better financially than I am now having done startups. That’s not true for everyone, some people make a lot of money doing it. But I think there are other benefits worth looking into.
Personally for me, what’s really motivating is I like financial freedom, knowing that I’m basically the one in control of my finances. I like the locational freedom and being able to go where I want whenever I want. I like the time, being able to work on my own schedule. I like the freedom to determine the vision for the product that I’m building. I think all those things are their own reward for me.
I will also caution people not to get too sucked up into this idea that they’re going to be an overnight financial success and make millions of dollars.
Mike: Yeah, all those things that you just touched on, they’re the ancillary benefits of being a founder. You can’t necessarily get them from a full time job. Sometimes you can, obviously there’s financial rewards for having a full time income and you don’t have to pay for your own health insurance for example, that’s fantastic. But the freedom to come go as you choose, and work on things you want to, and not do the things that you don’t. So long as they don’t drive your business into the ground, it’s okay to ignore some of those things. You have to pick and choose your battles and there are going to be times where you’re going to have to do stuff that you don’t want to do and you don’t like to do but it’s part of business and it may not be why you signed up for it but it’s still gotta get done.
Courtland: That’s a really good point, actually. A huge percentage of the things that I do are not my favorite thing. If I was only doing my favorite thing, I would just be writing code all day everyday but that’s maybe 5% or 10% with what I do with my business and what I’ve done with businesses in the past. Whenever I go over that limit, it’s because I’m being irresponsible and not doing the things that I actually should be doing. That’s not to say that I don’t like the other parts of running the business, I think I’ve really begun to appreciate some of the more marketing type tasks, even some of the more extroverted talking to people and interviewing customers and interacting with people.
7I’ve really started to appreciate that. It’s important to realize that as a founder, you’re going to have to do whatever is required of you, and that’s not always going to be your favorite thing. If you prioritize only doing your favorite thing in your business, then chances are you’ll be spending a lot of time on things that your business doesn’t need and neglecting things that your business does.
Mike: Ultimately, I think those things will probably come back to bite you. You can’t avoid the things that are going to make your business successful. You can’t always do the things that you just want to do because they’re not going to benefit the company and it’s not going to make the numbers that you need in order to make your own payroll. You have to buckle down sometimes.
Courtland: Yeah, you really do. I think that’s another reason why it’s important to choose to do something in a field that you care about and that you like. I started Indie Hackers because I like startups, I really like the idea of revenue generating startups that don’t necessarily have to follow the Silicon Valley model of raising a ton of money. I could talk to people about it all day. No matter what, even if I’m doing mundane tasks that I don’t particularly care for, at least I’m doing it in a service or something that I do care for. That’s helped me stay motivated even when the times are tough. Very easy to underestimate how easy it is to quit when things aren’t going your way for 3 weeks straight or 3 months straight or 10 months straight. I can’t recommend enough to work on something that is actually meaningful to you and is not just an opportunistic business play.
Mike: Speaking of opportunistic business plays, how can people get in touch with you? You say you enjoy hearing from people, wrapping things up here, where can people find out more about you or get in touch with you if they have followup questions?
Courtland: I’m pretty active on Twitter, I try to be, @CSAllen. Obviously, I’d love to hear from you on indiehackers.com where we’ve got a community forum there where all sorts of entrepreneurs go to ask each other questions, get feedback. If you create a thread on the forum, I will almost certainly see it and try to give a response, or you can just email me courtland@indiehackers.com.
Mike: Courtland, thanks for coming on, really appreciate having you on the show. Look forward to more episodes of Indie Hackers.
Courtland: Thanks for having me on, Mike.
Mike: If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 356 | Finding Pricing for a New SaaS App, Small Business Banking, Selling to Companies Outside the U.S. and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include finding pricing for a new SaaS app, creating a new product category, choosing a name, and small business banking.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about how to determine pricing for a brand new SaaS App, small business banking, and selling to companies outside the US, as well as answer more listener questions. I also ask Mike what his favorite food is without having given him advance notice. Hey Mike, what’s your favorite food?
Mike: I don’t know, I like sushi a lot. That’s my answer.
Rob: I thought you were going to say Whiskey.
Mike: You said food. Yeah, we’ll change that to grain.
Rob: This is Startups For The Rest Of Us Episode 356. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re going to share our experiences to help you avoid the same mistakes we’ve made. Aside from eating Sushi this week, what’s going on, sir?
Mike: I’m looking to push a pretty major update to Bluetick. It unfortunately breaks all of the existing routing for the entire app. I’ve been watching to see who is logged in, when they’re logged in, what they’re doing. Pretty much all hours of the day right now, somebody is doing something. It’s kind of problematic to do to just push out a major update like that. I kind of have to wait until the weekend.
Rob: Yeah. It’s a good problem to have, right?
Mike: I know.
Rob: So many people in your app that it’s hard to push updates.
Mike: I know. It’s funny, I was complaining to my wife, “This is totally a first world problem, but I can’t push an update because people are using it.”
Rob: That’s interesting. With Rails, shadow upgrades where it waits for a particular server to not have anybody else. We have load balancers and a bunch of web servers, but we have a process for there won’t be down time, or you won’t lose your session when it updates. Is .NET still the old paradigm of if you load it and someone’s in their session, they’re going to lose stuff?
Mike: I think typically, yes. But because of the way I have things set up, I’m using an Angular App so I have this session information, it’s the token that gets passed back and forth with every request. That’s not really the issue, the issue is that the URLs that are being used inside the app are changing. The next time they go to make a request, because they have all the JavaScript loaded on their client, it’s going to fail. Even though their token information will be the same, it will still authenticate. It’s just there’s nothing to authenticate to because it’s not there anymore. That’s really the problem. I really have to figure out a way to force the client to say hey, there’s a new version of this, you really should click here or just automatically refresh the entire browser and be done with it. That’s really more the issue than anything else.
Rob: Got it.
Mike: I’ve also got a bunch of trials that are set to convert to paid in the next week or two. I made the next step to transition from a 30 day trial to a 14 day trial, so I’m going to see how that goes as well.
Rob: It’s a good move. Shorten that trial. The shorter you make it, the faster you can test. This is my soap box since day one on this podcast. Shorter trials are better. No trials, the best, because it’s so easy to split test. But you want someone to get value so it’s like 14 to 7, you can split test faster, you get your money faster, it encourages people to get on-boarded faster. But obviously the shorter you go, at a certain point, you give them so little time to get set up that you’re going to have less returns, you’re going to have fewer people making it to paid, so you got to find that balance.
Mike: That’s why I went to 14 instead of 7, I think it’s a good balance between giving somebody enough time and giving me enough time to reach out to them and to make sure that they get through all of the on boarding steps. Because if they don’t, clearly they’re not going to get any value out of the app, but I want them to get value before the end of the trial.
If they’re not doing things in the app and they’re not responding to emails or any of my on boarding stuff, then doing 30 days is not going to make any difference over 14.
Rob: I agree. I have tweaked with trial lengths with pretty much every app that I’ve ever run. I have found that you can just ratchet it down, ratchet it down, and then when you go too far it becomes kind of obvious if you have any type of volume going through it and you know your numbers, you know the typical trial to paid. You’ll either start getting complaints that trials aren’t long enough or you’ll just notice that people aren’t getting stuff done on time. I think this is a really good experiment. If you get it down and stabilized at 14, I would totally look at a 10-day next, maybe in a couple of months as you have time. And as your on boarding gets better, you can do that because it gets people through that part of the funnel quicker.
Mike: Yeah, 10 days might be interesting. The only issue there would be it’s part of a week, or maybe it’s not a big deal, I don’t know. I’ll probably test it at some point, I’m sure.
Rob: We have a ton of new iTunes reviews and iTunes reviews are so helpful to this podcast. A, they give us motivation to keep going. B, they help us rank higher and get more listeners. Right now, we have 531 reviews worldwide in iTunes. One from [Bob Moff 00:05:07] recently said, “Filled with so much great content. You will explode.” I like that one.
One from [00:05:13], he says, “The best. This podcast is amazing. I have a small app business and the advice they give is super helpful in my business. I listen to a number of podcasts for small business and passive income and this podcast is the most beneficial to me.”
Another one from [00:05:26] that says, “Thanks for an awesome show for Startups. Thanks for providing a great show for us.”
If you haven’t ever left us an iTunes review, you don’t even need to go in and write anything like these kind folks did. You can just deal with the clunky iTunes interface or Stitcher, click five stars. It takes two seconds, we’d really appreciate it.
Today, we’re answering listener questions. If you haven’t ever sent in a question, you can call our voicemail number which is super cool because then we get to hear your voice. That’s 888-801-9690. You can always email us at questions@startupsfortherestofus.com. We have five or six people today who did one of those things. Let’s dive into our first one.
Listener: Hey Rob and Mike. I just want to say first off, I love the podcast. You are by far the most actionable podcast that I listen to. My question today is about pricing. I have a SaaS company starting up and I know you’ve touched on pricing before in the past briefly. I’d really love to hear you go more in depth on how you would figure out pricing for a new SaaS just getting off the ground. Thank you so much, I look forward to hearing from you.
Mike: I think this is kind of a very general topic. What I did for Bluetick for this specifically, to try and find out what people were willing to pay for, was I asked them. When I put people through the initial validation process and I started taking preorders for Bluetick, I asked them how much value do you think this provides to your business? I gave them a text field. It said you tell me how much it is that you’re willing to pre-pay for and then we’ll multiply by how many months. I got ranges anywhere from about—I think the lowest was $1.29—most of them were between $47 and $50 and then I had one that came in at $100. It gave me a good idea that the $50 price point was probably not out of range for most people. That’s what people thought it was worth.
I think there’s other ways that you can do that as well. One of them is to anchor the pricing to something. You can either anchor the pricing to the value that you provide, and in your copy and the things that you talk to people about. You say look, this is what it’s going to save you, or this is what it’s going to help you avoid. You can use that to figure out what the pricing should be and you can use that copy to help you justify it to the customer.
Another thing you can do is look at what competitors are out there and what their pricing looks like in comparison to what it is that you want to do. And then you can either go higher if you want to offer more of a premium offering, or you can go lower if you want to be more of a commodity choice or a lower end option for those people.
I’d say those are probably things that I would look at. Rob, I’m sure you’ve got a ton of things to say about this. What do you think?
Rob: That’s actually a pretty good summary. A, ask, because you probably should be or are going to be doing customer development anyway so you should ask early and then start—as you’re doing customer trial—pitching different prices to hear how people react. I think that’s a great idea. Competitor pricing is always important because people, if you say you have no competitors, you’re probably fooling yourself because even apps that don’t have direct competition have some other form of competition. Even if it’s an Excel spreadsheet and three hours a week of someone’s time, that can be a competitor to you. You can start just doing even loose math about what is three hours of someone’s time worth in the role that they do this? Multiply that times 4.33 and that’s one month. Now alright, I’m going to charge a fifth of that, or a tenth of that, or something.
Another way, something that I did early with Drip was I kept asking myself how can I build an app where the lowest price point was $99 a month. That was the initial brainstorms or one of the thought experiments I did. By the time we launched, Drip was only at $49 a month but our average revenue per user is much higher than that because it scales up with subscriber count.
That’s another way you can think about it, try to dig yourself out of this I’m going to be a $10 a month SaaS app or a $20 a month SaaS app to start. Those apps are going to be great little lifestyle businesses but they are going to tend to have high churn and it’s really, really hard to grow them past, depending on churn, and let’s say $20k, $30k, $40k MRR. It’s just at that low price point, you have to find so many customers.
I think it’s an interesting angle to come at it from that other direction of alright, I’m a developer and I know I’m building an app for X. I know it’s accounting for lumberjacks. How can I make that worth $49 or $99 a month? Does it have to then, in order to provide that much value, go out and scrape people’s bank accounts? Does it have to do 10 times what Quickbooks can do? What does it have to do? I think it’s a third angle to think about as you’re doing this.
I think the last thing I’ll say is with competitor pricing, I think competitors give you a really nice level set or comparable price of what someone might be paying. That doesn’t mean you have to be the least expensive, that’s the thing. I would tend to argue you probably want to be more expensive than most of the other ones. Maybe in the very, very early days you can’t be. But as soon as you start getting some traction and you’re moving fast and you’re shipping fast, people, depending on the industry, often want to use the new cool thing. You’re going to probably have a better UI, better user experience, you’re going to be more responsive because you’re such a smaller company.
When we priced against the MailChimps, AWeber, Constant Contact, we are more expensive than all of those apps. Some people would say, “I’ll just stick with MailChimp because I can save my 10%, 20%, 30% a month.” Our answer was well, we’re more powerful, we’re more responsive, our support is better. Even over time, as we talked about a couple of episode ago, our pricing is now even a little higher than 20% or 30% over MailChimp or Constant Contact. We’ve earned that right. The price premium is a bit of positioning and positions us as much more of a premium offering in the space. I hope that helps, thanks for the question.
Our next question is about creating a new product category.
Listener 2: Hey, what’s up Rob and Mike? This is Chris Badgett from Lifter LMS which is a WordPress Learning Management System Solution for creating and selling courses and membership sites. I love your guys’ podcast. My question for you, it’s about introducing a new category. We’re growing really quickly, disrupted the market a little bit with a free frontend product and an add-on model, premium pricing, things are going really well.
We’re about to pour gasoline on the fire and really introduce a new category. What I mean by that is something similar to how InfusionSoft introduced the marketing automation category and that was really big. We see an opportunity in the learning space and how we can move into a new category outside of just learning and courses and the membership sites. I’m actually having a hard time naming it. I know what it’s going to be and how it’s going to work, but I want to pick that name kind of like marketing automation or sales automation or those big category names and make it simple and rememberable and not too techy and not using insider lingo and techno babble.
Any advice on naming a category? A new category which is going to involve some education and teaching people about that new category, I would really appreciate that.
Anyway, keep up the great work, guys. Thanks a lot, I appreciate it.
Rob: Thanks for the question. This is a big one and an interesting one. Most people will not face it in their lifetime. I think to start with, you mentioned it, InfusionSoft introduced marketing automation. As far as I know, they did not, they just brought it down from the enterprise. Marketo, Pardot, HubSpot, Eloqua, those guys were kind of around, some of them. InfusionSoft was around before that but it was more like back office for lawyers and brick and mortar. By the time they became marketing automation, there were other players. I don’t know that that’s critically important but it is a clarification I want to make upfront.
Inventing a new product category is very, very hard and very expensive. Since you already have a business and you already have customers, you may be able to gorilla market this to them and have it spread. I’ve been involved, either peripherally or directly, in this type of exercise before. One thing, back in the day, as I was looking for a different term for an entrepreneur who wanted to stay solo and start small software companies.
Micropreneur is this term that I came up with and got micropreneur.com, we launched the academy. All the stuff happened. It was years and years of saying the same thing and talking about it and speaking about it and writing about it and still the adoption of that term. There are some people who used that term, but even with the reach into this space of those people, it still doesn’t resonate with a lot of folks. They don’t call themselves Micropreneurs.
There’s a bunch of reasons why that might be the case, number one, because it’s just really hard to come up with a new term that resonates with people and to define it and have people get behind it. Another reason could be that perhaps the name itself, I didn’t choose it very well, meaning that maybe it’s hard to say, it’s hard to spell, maybe it doesn’t resonate with certain people. I think that’s what the first takeaway is. A, are you sure you want to do this? It’s going to be really, really hard. It’s going to be a ton of money.
Another one, I had a specific conversation with Dharmesh Shah from HubSpot. He and I have known each other for years, blogged, guest posted, we speak at conferences and we talk. We talked about HubSpot inventing the term or getting behind the term inbound marketing. They wrote a book and they pumped money and money and money into it. It was a casual-ish conversation, it may even have been on Twitter, actually. He was saying it was $5 million or $7 million and years for them to get traction with that term to where people associated it with their company. It’s a couple data points, but I will say that this is a lot harder than you think.
Going with that in mind, if you still want to do it, go on with that in mind. It’s still definitely doable. I think that nailing the name and nailing that concept like inbound marketing, certainly those words existed in english language before. But they brought it together and they gave it this tight definition, and then they just kept saying that definition over and over in different ways. That would be my advice for it. Honestly, I would consider—if you’re really going to do this—hiring a design firm or a brand agency or somebody to help you with that name. Because if you know what it is but it sounds like you don’t have the name yet, the name may be 80% of the battle. If you get that wrong, no matter what else you do, you’re going to be hosed because it just has to resonate with people and it has to have a deeper meaning and conjure up the meaning in people’s minds. That’s hard to do, it’s hard to come up with that on your own.
Mike: Sounds to me like this is just one of those classic branding exercises. When you’re trying to come up with a brand, I don’t view it as too much dissimilar from coming up with a name for your product or your company. It needs to fulfill a couple different requirements. It needs to be easy to say, easy to pronounce, easy to spell. You don’t want people to misspell it or get it slightly incorrect and end up in the wrong places on the internet.
I think the fundamental thing that is the most important of that is it must resonate with people and accurately describe what it is that they do or what the product category is in a way that makes them affiliate themselves with whatever that term is.
Coming back to what Rob was saying before about micropreneur and why that hasn’t really caught on, I think people feel like I’m an entrepreneur, micropreneur sounds a little bit like you’re couching how well you’re doing in certain things. People want to be viewed as successful. If you say micropreneur, oh, I’m a small entrepreneur. No, that’s not really the whole point of it, so I feel like there’s certain connotations along with that that turn some people off. You need to make sure that you’re cognizant of what those types of things are with whatever the term that you come up with is.
Something else I think about is is there any real value in being known as the company that established this name or created the name? Is there something else that you could latch onto that isn’t necessarily yours or wasn’t created by you but you can then build enough stuff around it. Like Rob said, HubSpot spent millions and millions of dollars and tons of repetitions saying the same things over and over to their customers and everyone else’s customers that inbound marketing and inbound marketing and inbound marketing. That’s how they ended up making that into a term that people affiliate with HubSpot.
You can do the same thing even if you don’t necessarily come up with a term. I’m hesitant to say that there’s value in being known as the company that came up with a specific term, like you said marketing automation and as Rob pointed out, InfusionSoft is not the company that came up with that, it was someone else. It would be very easy for people to misattribute it anyway.
Rob: Yeah, and last thing is given the importance of this, there are people out there who come up with names, they’re naming experts. A lot of them do it for companies, but if you have the resources, since you already have a company that sounds like it’s profitable, the name is a critical piece of it.
Someone who I heard recently on The Tropical MBA Podcast, it was Episode 401, What’s In A Name? Listen to that episode and figure out if she might be a fit for you. I forgot the name of the company but it was a fascinating exercise. Dan and Ian from Tropical MBA are wanting to rename their brand, their podcast. They want to get rid of the Tropical part.
They’ve now renamed twice. They were called The Lifestyle Business Podcast, and then they renamed to Tropical MBA, and then they’re renaming to something else. You can see how hard this is because for them the podcast is part a movement, it’s part of a new term that they’re coming up with. As their careers have shifted and their businesses have shifted, you can imagine that it’s difficult to pick something that’s going to hang around forever.
The cool part is that question and the thought about choosing a niche and name is actually our next listener question. It’s from ov@socialbee.io. He says, “I have a question that applies mostly to Rob, but I’d like to hear both of your takes on this. Your podcast is geared towards solo founders and bootstrapped entrepreneurs, ‘The Rest Of Us.’ As Rob is now part of a larger organization, he’s switched boats a bit. Would you still name the podcast the way you did if you would have to pick a new name and a new niche now? Or to broaden the question, how do you pick your niche and even your name so you’re sure you don’t outgrow it yourself? Or that if your preferences change, you’re not stuck with your initial niche. Thanks, I’m a big fan and I appreciate your open discussions. Thanks for the great show.”
I’ll insert a little bit here, Mike, just because he asked that part about me and then you can come in with your thoughts. What’s interesting is I do work for a larger organization but I actually don’t feel like I’ve switched boats. I’m still a bootstrap founder at heart. This is the thing, you get into this mindset of if someone has raised any type of funding, are they still a bootstrap founder? Look at Jordan Gal with CartHook, look at Justin McGill with LeadFuze, look at Churn Buster, yes, they each raise small rounds. Are they still bootstrap founders? Yeah, I guess by a technical definition, they bootstrapped to a certain point because they all had revenue and then they raised a small round. Maybe, technically, they’re no longer bootstrapped but at heart, they’re still super scrappy, super cash efficient, and they’re not doing the $100 million company or bust, they’re building real businesses.
That’s the bigger difference I see, it’s partly a mindset thing and it’s partly how you approach problems. Jason Cohen who’s writing WP Engine, I’m an angel investor but I have no inside information. They’re either going to get acquired by a massive company or they’re going to have an IPO here. Big time stuff. He still talks about bootstrapping in a higher level than most of us can, still he’s given the best talk I’ve ever seen on bootstrapping. He bootstrapped WP Engine to a lot in revenue before he bought on any outside funding.
I guess I would probably push back on that a bit to say that since I am working inside a company of 150 people or whatever, that I’m no longer a bootstrap founder. Every problem I approach, I still approach it that way. I guess all that to say is I still love the name Startups For The Rest Of Us. I feel personally, not just because I’m attached to it, it embodies a different way of thinking about startups. Everywhere you look, even as much as I love the Gimlet Media show Startup, it’s just the same stuff. It’s all about the Y Combinators and about these big companies. It’s really well told and I enjoy the story, but it gets old. I feel like on this show, the ‘for the rest of us’ part is really saying this is for people who want to build a real business instead of building slide decks.
I think that’s my initial thoughts. What are you thinking, Mike?
Mike: I think I agree with you for similar reasons. I think that I would stick with the name Startups For The Rest Of Us, I still really like the name. The downside of it is of course that it’s really long. If you have to spell it out or come up with an acronym, it doesn’t suit it very well. I think that the name itself, it resonates really, really well with most people. Here’s why, and I don’t think that we really considered this back when we named the podcast this.
I picked up startupsfortherestofus.com back when I read a PolyGram article about them with Y Combinator and really targeting people who were fresh out of college and didn’t have any expenses and they can send $6,000 to them and basically invest in some of these startups. The expectation was you’ll move to this location for three months and that $6,000 per person is going to get you through. I’ve read it and I was like well, what about me? What about the rest of us who can’t do that because we’ve got a car and a mortgage and family, and we can’t just up and leave for three months.
Honestly, it really irks me at the time. I look back at that and I realized that the gorilla in the startup space is really the funded startups. Those are the ones you hear about all the time, they’re the ones that get all the media attention and love. They’re the ones that get the massive news articles and press coverage that we would like to have but we just don’t.
Really, what that does is it puts people like us and listeners of this podcast into this bucket of people that we’re the misfits, we’re the crazy ones, we’re the rebels, we’re the trouble makers that are going out and building stuff that are not playing by the rules, we’re not doing things by the book. I think that’s why the Startups For The Rest Of Us really resonates so well with a lot of people in the audience, because they can affiliate themselves with that. They’re like I’m not following the script that the Silicon Valley people are putting out there and I’m still being successful at it.
Rob: Yeah. I also think there’s a turner phrase. ‘For the rest of us’ obviously existed in the English language, which is why it came to your mind. It means for those of us who are not privileged or who are not going after what the crowd is doing and what everybody is talking about. Now, there are a bunch of podcasts with similar names, which shows you that that concept resonates with people. There’s Money For The Rest Of Us, Minimalism For The Rest Of Us, Theology For The Rest Of Us, Quitting For The Rest Of Us, Music Appreciation For The Rest Of Us, Success For The Rest Of Us, on and on and on.
I think, to be honest, we may have gotten a little lucky with it. I remember when you…
Mike: Oh, we totally got lucky.
Rob: We didn’t actually know what we were doing. I remember you presenting it and being like, “I have this domain name.” I was like, “Oh, that’s a great idea. This totally fits what we’re doing.” It’s just one of those times when it fits.
I think to address Ov’s broader question, as he says how do you pick your niche and even your name so you’re sure you don’t outgrow it yourself. The niche you pick, you can always outgrow. You can always go from one vertical to a neighboring vertical. You can go from freelance designers to freelance developers. That is not that hard, I’ll say. Or going from a single vertical to going horizontal. We’ve seen people do it. BidSketch went from proposal software for designers to more generalized proposal software for agencies. There’s a number of examples of land and expand, of coming in and serving a single market and then going out.
The niche part is not the hard part, it really is the name. If Ruben had named BidSketch Design Sketch or Design Proposals or something like that, you limit yourself. You have to strike this balance between having a name that’s tight and having one that is so broad that it has no meaning to people, and you’re then inventing your own term and having to educate on that.
With that said, if you look at a lot of the names of big startups, they really aren’t specific at all. They did that by design. amazon.com, this is a very smart guy. I have a sinking feeling that he named it Amazon for a reason. He knew that he wasn’t just going to do books forever, he didn’t name it book website or cheap books or any of those other things. He named it Amazon because he knew he’s probably going to sell some DVDs and some furniture one day. Maybe he didn’t know about Amazon EC2 but EC2 fits under the hat umbrella as well and it’s a completely different thing.
Look at Uber. What does Uber mean? Super, is that right? In German?
Mike: Yeah, something like that.
Rob: Yeah, it’s like above or beyond or super. That fits a lot of stuff. I think the founders of Uber probably knew that they weren’t just going to be a taxi service, although early on they were called UberTaxi and they removed the taxi because they were being regulated as a taxi, and so they changed the name. Now, they could do self driving cars, they can do food delivery. There’s UberEats, you just add the little thing to the end of it.
A lot of startups, when they actually name their startup, they are using these dictionary words or even just nonsense words that have a nice ring to it. There’s a reason for that, they don’t want to get pigeon holed. If you’re naming a company, you may want to lean towards that. Again, that Tropical MBA episode that I mentioned, 401 I think it was, she talks all about this stuff and she has an ebook that is phenomenal if you want to hear more about naming companies. I highly recommend it.
If you are talking about naming a podcast or a blog or you can’t use a nonsense name, I would have some serious brainstorms and then I would try to strike that balance between being so wide and so narrow.
Mike: Of course there’s a danger here, there’s actually a couple dangers. One is if you’re so broad, then you have to spend a lot of time and effort educating people about what the name is. I think the other major danger is that you spend so much time figuring out a name that you don’t actually do anything. Those are other gotchas to be aware of.
Something else that comes to mind is you can always run into a time down the road where you suddenly decide that you don’t like the name. It doesn’t matter that it’s doing well or the customers are resonated with it, you may just decide one day that you don’t like the name. There’s almost nothing you can do about it.
One that comes to mind is FogBugz, from Fog Creek Software. The last I knew that they did not like the name and they felt like hey, if we can change the name to something that made more sense, we would. But at this point, it’s too late. There’s tons of people using it, they’ve got thousands of customers, they’re just not going to change at this point because it doesn’t make business sense. Even though they don’t personally like the name anymore, it doesn’t matter. The reality is the product is still making money, it’s making really good money. They’re just going to stick with it.
You may be stuck with a name you don’t like. If it’s working and then does it really make that much of a difference? The answer is probably not.
Rob: You know, Ramit Sethi with iwillteachyoutoberich.com, that’s the name, he says it’s too long, he says it sounds like he’s a pyramid scheme or whatever. He wishes it was less grandiose. I’ve heard Tim Ferriss talk about how 4-Hour Work Week was really a blessing and a curse. It sold a lot of books but now he has this reputation and he wished he didn’t. There are interesting connotations to it.
And then we can look to Tropical MBA that used to be a lifestyle business podcast. They’ve, again, changed once already and they’re talking about changing their name again. It’s not impossible to change. It’s harder to change a product or a company name, it can be easier to change a podcast where you still have the same subscriber base and RSS feed. You’re not going to lose people. You need to rebuild the brand over time, but it’s totally doable.
That was a good question. Thanks for sending it in.
Out last question for today is from Eric, thanks for sending this in, Eric. It’s about small business banking. He says, “What options would you recommend for small business banking? I’m looking around for a local bank like Wells Fargo, Bank of America, etc. to start with a basic checking account. Would love to hear your thoughts.”
I don’t think of those as local banks, I guess they have local branches but those are large, national banks. What are your thoughts, Mike, besides the sentence that ‘small business banking sucks’? Is that what you’re going to lead with?
Mike: I was, but national banks suck too. Pretty much all of banking sucks.
Rob: It does. You have a ton of experience with it. Do you have any key takeaways of advice, or is it really just go with where your personal stuff is just so it’s easy to transfer money between the two?
Mike: That’s probably the best advice in most cases. Most of the business offerings are going to be pretty similar from one provider to the next. It really matters more along the lines of what services you really need from the bank. Do you actually need to write checks? Do you need to visit a branch? There’s a lot of things that you can do completely online.
Obviously, if you open up an account, at most places, this applies specifically in the United States which I believe he’s writing to us from, you’re going to have to fill out a lot of paperwork that essentially validates who you are because of all of the security laws and SCC things that came along after 9/11. What you’ll need to do though is you’ll need to provide proof of who you are before they’ll let you open a bank account. You can do that online for certain types of banks.
Silicon Valley Bank for example is one where you can do that completely online. Their backend interface kind of sucks, it’s not the greatest in the world, but they have two branches. One of them is on the West Coast, one is on the East Coast, and that’s it. They’ll give you a debit card, you can use it at most places, and that’s really most of what you need. As long as you have online banking and you can take a picture of a check and just deposit it, it probably doesn’t matter. Any bank in the world, you can just order checks from a random checking service where they print out your checks and send them to you. They’re all basically the same thing.
It really comes down to what are you paying for in fees and those types of things. Across the broad spectrum of your business, probably don’t matter much because you’re going to be spending less than $25 or $50 a month on your banking needs, especially if you get over $10,000 or $20,000 from your bank account. At that point, it doesn’t cost you anything. They say you’re a valued customer, you’ve got a minimum amount of money in our account, so we’re not going to charge you for having this account.
At that point, what difference does it make which bank you have? I would say that it absolutely does not. It’s just which national bank do you hate the least?
Rob: Yup, I think those are good thoughts. If I were to do it all over again, I would probably do this mostly the same way I’ve done it which is personal banking is at a particular national bank. I’ve started up a couple business accounts at that same bank. There’s Bank of America and there’s US Bank and there’s Wells Fargo and any of these are going to be so similar. Unless I was extremely cash strapped, m that’s what I would do. You can get a business checking account at any of those banks for $10 or $15 a month if you’re not doing anything fancy. Often, it comes with a savings account for free attached to it.
That’s what I would do, keep it simple. $10, $15, $20 a month, don’t spend so much time doing stuff. The one mistake I’ve made in this banking stuff—well I probably made more—but the one that really comes to mind is I was being super cheap one time trying to set up this account, I didn’t want to pay anything for it, and I set it up with a purely online bank of the internet or something like that. It was just a fiasco, it took forever to get stuff through. Once I had the account, it was fine. But as you said with Silicon Valley Bank, the interface for the one I was using was just awful, it was very limited. Yes, I saved myself $12 a month and I regretted it every time I had to do anything with that bank. I wished I just paid, even if it was $20 a month, to anybody where I could go to a branch or call. It just all fit my other workflow. I would encourage you to not try to save a few bucks.
Maybe there’s a local credit union, I’m not saying don’t use a local bank, because that could be great too. If you can go in and get personalized service, local bank, local credit union, no issues with that. I always try to get the clever solution, I’m gonna hack this and do a really good job. Thus far, it’s backfired on me with banking.
One thing that we will link to in the show notes is a nerdwallet article. This is finding a free business checking account by state, because they’re regulated by state. You could look at this for your state and look through it and see if these places look legit that are in your state, there’s only a handful per state that are listed here. I don’t think there’s any silver bullet here.
Mike: A lot of banks will give you a business account for free for 12 months just for signing up with them. Then after that, they’ll charge you, $10, $15, $25 a month if you don’t have that minimum balance. That’s something else to keep in mind if you want to be able to save some money in the short term until your business gets up and running and you’re able to get cash saved away in there.
I think that about wraps us up for today. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
