Episode 477 | Assessing Product-Market Fit, How to Find a Mastermind, and More Listener Questions with Brian Casel

Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This week, Brian Castle joins me on the show. We talked about assessing product/market fit, how to find a mastermind, and answer many more listener questions. This is Startups for the Rest of Us episode 477.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing ambitious startups, whether you’ve built your fifth startup or you’re thinking about your first. I’m Rob and today with Brian Castle, we’re here to share our experiences to help you avoid making mistakes we made.
Welcome back to the show. We have a listener question episode today, Brian Castle, who you may know from BootstrappedWeb Podcast. He was also on the show just a few weeks back talking about his experience growing a productized service called Audience Ops. It’s a content creation service that he grew, then had a 40% decline in revenue, and then built it back up through 2016-2017, and then he taught himself how to code and has since launched an early stage SaaS called ProcessKit.
Brian has a myriad of experiences under his belt. He’s still an early stage SaaS founder but he has a lot of productized service experience. He’s a blogger and podcaster. I enjoyed the conversation today. I felt like we attacked some pretty interesting questions in a very Startups for the Rest of Us kind of approach—building the ambitious startups, being meticulous, disciplined, repeatable, taking on these questions in a pragmatic way, and answering in a way that we would approach them.
Before we dive in, I’ve had a few questions about what I’ve been up to lately. I think the biggest thing I’ve been focusing on is TinySeed batch two. Applications closed about a month ago. I know I’m having a ton of conversations with the founders of companies who applied to be part of TinySeed and that’s been super exciting. Moving on that process, it’s super time consuming but it’s critical to making this whole ecosystem work. I’m just really digging in and spending a lot of time on that in addition to working on MicroConf stuff.
In fact, to the state of independent SaaS, the survey that we ran a couple of months ago, that report is almost done. We’re putting the finishing touches in the next week or two. I’m going to be doing a live video presentation of the high-level findings and the most important findings of it here in just a couple of weeks at the end of January.
If you’ve already responded to the survey itself and included your email, we’ll certainly notify you once that’s available. If you’re not on the list, obviously, microconf.com, that would be the place to get on that list. I think it says “[2:42] SaaS report” or something in the header, there’s a landing page where you can find about that. Whether you come to the live video event or not, we will have a full PDF report of that that will be made available.
There’s some crazy, interesting, findings. I’m super stoked to be digging in this data. I have this mental model of how these all shakes down but to actually have data to look at and to sift through, and to see which of my assumptions, and my experiences match up with that, and which are, perhaps, contrary or countered by the data has been super fascinating. I’m enjoying it a lot. I can’t wait for us to share that with you and the rest of the MicroConf community.
With that, let’s start answering questions with Brian Castle. Brian Castle, thanks so much for coming back on the show.
Brian: Hey, Rob. Thanks for having me on.
Rob: Absolutely, man. We’re going to answer some questions today. I think you said the Question & Answer episodes are some of your favorites. Is that right?
Brian: Yeah. I was just going to say yeah. This is one of my favorite types of Startups for the Rest of Us episodes. I’m excited to dive in.
Rob: It’ll be fun. I’ve already reminded people in the intro of your areas of expertise and everything. We have some voicemails to kick us off. We actually have a comment; there’s an interesting one about how to accept payment by check in a clever way that I had never heard about. I’m really interested to hear…
Brian: I saw that one.
Rob: … your take on it. I was like, “Hey, I learned something. That’s great.” Let’s kick us off with our first voicemail which is a question about the product market fit survey.
“Hey, Rob. This is Daniel from [00:04:13]. I’m curious whether you ever come across the product/market fit survey methodology and what your thoughts on it might be or if there’s other quantitative number-based survey methodology you’ve used to assess customer feedback? Thanks a lot.”
Rob: To give listeners a little bit of an idea, I’m pretty sure he’s talking about the Sean Ellis’ product/market fit survey which is one question and then with a follow up and it’s, “How disappointed would you be if this X product went away? You’re no longer able to use X product.” The answers are: Don’t care, mildly disappointed, really disappointed, somewhat disappointed. It’s four or five different options. If someone selects the top two of being really disappointed or incredibly disappointed—the topmost severe disappointment—if at least 40% of your current customers select that then Sean Ellis said that’s when he deems you have product/market fit.
I like this survey. I respect the hell out of Sean Ellis; he’s a great growth marketer. I like this survey because it gives you data and information. I think one of the cons is I don’t see the product/market fit as binary. This makes it look like, below 40%, you’re not; above 40%, you are. I feel more like it’s a gradient where it’s a spectrum of having product/market fit with certain audiences and often times, you have a little bit of a product/market fit but not a lot. When you start getting a lot, you really, really, know it.
With that context for the listeners, I’m curious, Brian, to hear your thoughts on this.
Brian: I definitely, completely, agree about what is product/market fit and that is not binary, 100%. We don’t have a lot of context in terms of what the questionnaire wants to use the survey for. What’s its current situation? Is it a new idea? Is it doing customer research to validate it? Or is it an existing SaaS with 1000+ users and maybe considering doing a pricing change or something? What is the goal for using that sort of survey?
I think the usefulness of it really depends on different situations. Without knowing that background, I have a couple of thoughts on this. I really do like using surveys in general. I’ve seen that one. I’ve seen different versions of it. There are all sorts of good questions that you can include but I always want to really stress that it’s really important to couple pure data from surveys especially if you can have enough responses to have meaningful data with actual conversations with customers. You’re really going to find much more real information from actual conversations or just understanding the language that people use or their body language and things like that.
One thing I do a lot in all of my products, especially early on during the validation stage but even ongoing, I even put this into an automation flows that happen all year long where a person gets a survey, asks a few questions like that like, “How did you hear about this? What’s the problem you’re trying to solve? What are the current solutions that you’re currently using for? Currently paying for?” A lot of those I actually have free form text answers. I could use multiple choice and you can get harder data that way. But I like freeform because it gets them at least typing. Then I can read those responses then I’ll handpick the ones that just gave a lot of information. They seem really into this problem and they want to answer questions about it. Then I’ll personally invite them to call us. That’s usually the flow—survey to reading their responses to picking out people then talking to them.
Rob: Yeah. I think that’s a really good way to do it. I agree with you that talking to customers is going to get you so much more contacts than a survey. With that said, I should’ve Googled this survey before, so I wasn’t stumbling around describing it. The question is, “How would you feel if you could no longer use the product name?” There’s only four choices. I remember there being five maybe it changed over the years. But it’s very disappointing, somewhat disappointed, not disappointed, not applicable, and no longer using the product. It’s a 40% or more say very disappointed.
I’ve run this survey with three and maybe four different products. I remember it being harsh. HitTail was growing very quickly. Everything was working. It was a smaller scale app. It peaked in low-mid six figures of annual recurring revenue. But it was growing and it seemed like people were using it. When I did it, I didn’t get 40% that were very disappointed. I think it was 25%-29% range. I remember being pretty shocked by that and also disappointed. I remember running it with Drip. I’ve run it with two others before that. I have no memory of what the answers were.
I remember running with Drip. This is when Drip was really starting to take off, it was starting to grow very quickly, and I knew we were onto something. People were coming in, and churn was really low. I think we might’ve hit negative at that point. We sent this out. I remember being just like, “Oh. This is going to be a 70%.” I think it was a 43%. I remember being shocked. It’s a harsh judge. I guess what I’m saying is this, it really is a high bar that if you get near 40%, you’re probably doing pretty well with your product.
Brian: Yeah. Especially, since it’s just one question, it’s sort of like jumping off point to go dig in deeper. It’s like, you do the survey, you get the data back. It’s below 40% or above 40%. “What does that mean?” I don’t think that should mean, “Let’s go change everything and the product now.” I think that should mean, “Let’s go talk to customers.” Then understand what the underlying issues are that leads to that number.
Rob: Yes, indeed. All right. Our next question is from a longtime listener and many time MicroConf attendee, Andrew Connell [00:10:10].
“Hey, Mike and Rob. First, kudos to Mike for being so open and honest about Bluetick and what you’re working through. Hearing what and how someone else is working through the issues that you’ve got such as what you’re doing is one of the most hopeful resources for the rest of us. Thanks a lot, good luck, and keep it up.
Now, for a bit of a show feedback, and questions, I love the new format. Change is always good and it’s nice to see the change. From a fellow podcaster who’s been doing this for six years on my show, I like that listeners develop a connection to the host. A change in the format is just like moving houses; it’s still in the same family, but the environment has changed. Well done and keep it up.
This podcast, this community, and MicroConf has done a lot for me since discovering it six years ago. However, I now feel like a fish out of water. My business is in info products. Mostly, one-time sales but some description stuff. It’s not something I’d call SaaS though. This is an awesome community and dominated by SaaS businesses, topics, questions, tactics, etc. MicroConf even feels more like it’s microSaaSconf these days and that’s coming from a four- or five-time attendee. I’m sure there’s plenty of stuff that applies to different businesses, but I suspect you get my point. I don’t want you to take that as a complaint or a gripe. It’s just an observation. Maybe it’s unfair but I’m a firm believer in doing your thing. You guys keep it up and do what you’re doing. I’m curious on what you would think about this.
My question is more about advice on other communities to explore. Over the last year, I’ve been looking into the different conferences trying to find other podcasts and communities niching down to just the info product world. Info products and non-SaaS businesses have some very specific challenges. There had been other challenges that SaaS businesses have. From the last few years of MicroConf, I suspect that there’s a pretty good tight of community because we bond together and have a pretty good side of meetups and dinners of considerable sizes. Maybe I’m wrong or maybe there are other listeners who hear this commoner question who may identify with it as well.
I guess I should have told you who I am, I forgot to mention at the beginning, this is Andrew Connell from [inaudible 00:12:10]. Keep it up and just curious to hear what you guys think about this. Thanks.
Rob: What do you think, sir?
Brian: Yeah. A few things, I think within the MicroConf community, people might be surprised even though it clearly has the emphasis on software and SaaS. That’s certainly true from the speakers and the overall themes of these conferences. I can personally say for sure that I’m friends with multiple people who return to MicroConf every year and they do not own SaaS businesses. They ran ecommerce businesses, I know some info product people, and those who are in that community. I think that’s a really good thing. I think you can still find those people within MicroConf.
Outside of that, one to consider would be Dynamite Circle from Dan and Ian from the Tropical MBA podcast. I was active in that for a while; not so much recently. That community is pretty sizeable similar to the MicroConf community as well. It has a wider variety. There are some info products stuff. There’s ecommerce folks in there, some stuff related to travel, and working from anywhere. That’s a good one to look into. I don’t know about info product stuff specifically in terms of communities, that could be hard to find, but those are my thoughts.
Rob: Yeah. Tropical MBA or Dynamite Circle is what I was going to suggest as well. Good community. I’ve always considered them like a sister podcast to us. They’re more about being a digital nomad but also have a nice variety of e-com and content websites. There’s a lot of Amazon and ecommerce sellers. There have been some WordPress folks and even some SaaS folks who straddled both lines. Like that community. I spoke at their event at Bangkok in 2014, I believe. It had been a long time. I admire what they’re up to.
There is a Rhodium Weekend or Rhodium. The Rhodium community from Chris Yates is very authentic community similar to MicroConf in the sense that Chris has just groomed it over the years. There’s just a lot of good people. That’s more of a buying and selling website but there are definitely folks there who do info products.
The thing is that then you get into the internet marketing stuff. You can look at DigitalMarketer and the digitalmarketer.com from Ryan Deiss. That’s an online training. I believe they run traffic and conversions. You can go to that conference. It’s more about marketing and less about the product. That’s where software and SaaS are pretty unique. We do get together and geek out about our products in addition to other things. The product is the thing that unites us.
Whereas Dynamite Circle, it’s not the product you have. It’s more of the travelling and going against the standard script of the rest of the world. That’s the unifying factor. Whereas with eCommerceFuel—and other community—they are more like us where they unite around ecommerce. I would agree with you that I still think that we do get info product questions. I have a course although I took it off of Udemy because Udemy, I don’t know if you’ve seen it lately, but it’s kind of a train wreck as a seller. They just keep changing the terms. It was more headache than it was worth.
I had a course on there about hiring BAs. I have multiple books. I’m a big believer in info products especially in that stair step—that step one to get you to the point of quickly buying out your time. I think they’re fantastic. For me, personally, long term, that recurring revenue, that growth, that high sales multiple, if you just had to sell, that’s the beauty of SaaS. That’s why I think so many more people aspire to run a SaaS company than aspire to run an info product empire. I also think there’s a lot more opportunity and there’s just a lot more people successfully doing it.
Obviously, there are folks, yes, can you make a $100,000 or $200,000 or $1,000,000 in an info product launch? Of course. We see people doing it. But they’re really few and far between. It’s a hamster wheel of content creation. Again, it doesn’t have the sales multiple that SaaS do and all of that stuff. I think they’re fantastic for a certain purpose, but I haven’t come across a whole community that is united around just building and aspiring to do info products.
Brian: Yeah. I’ll just add one shameless plug here if you don’t mind. I run the Productize which is a course but it’s also a community. We’ve got a pretty good Slack community in there now. It’s for people who are primarily consultants and they’re looking to step up to running a business with the team and a productized service business. There are folks there who coupled that with training program. There are some software people, WordPress people in there too. You’ve got a good little chat going in there in the Slack group for people who are going through that transition phase, so that’s another good one.
Rob: Glad you mentioned it. productizecourse.com is where you’ll go to find out more about that. Thanks for the question, Andrew. I really appreciate it. I hope to run into you at the next MicroConf.
Our third voicemail of the day is an interesting one. It’s about building a very similar app and making it more stable. He’s wondering if that’s competitive advantage worth pursuing.
“Hey, guys. I want to start by saying thank you for the work that you put into this show. I find it to be truly inspirational so keep up the good work. I’m working on my first SaaS app. I’m a web developer by day. I work on it on nights and weekends. The idea for the product actually came from my wife. She works in a totally separate industry and interacts with a certain SaaS app on a pretty regular basis. One day she was describing to me how frustrated she was with this app. It was slow, unintuitive, and sometimes experience downtime during the middle of the day.
I sat down with her to take a look at it. It really seemed like it was on a shaky foundation from a technical perspective. However, it’s the only product that meets the specific needs that it solves which is why her company uses it. Our current working hypothesis is that if we build a more stable, intuitive, and functional version of the app that has feature parity, we will have enough differentiation to break into the market. What’s your take on this? Do you think functional superiority with the same set of features is enough to differentiate us? Or should we be thinking about extra features that would set us apart from them? Thanks, appreciate it.”
Rob: Mr. Castle, what are your thoughts on this one?
Brian: Yeah. It’s a good question. I like the fact that your wife is a user of this other software so you have that really close used case where you can get that personal research into how she and the other members of the company use the product. That’s always good. You probably want to expand beyond that and maybe talk to her coworkers or other people who are using it. I also like the fact that there is this solution out there in the market. It proves that some people do buy the solution, but it’s not overcrowded from what it sounds like.
I would also just have the question in your mind to understand how easy it is to reach that market. I don’t think you mentioned what type of company it is or which industry it is. Even though you might be able to build something for that market, how easy it is to go find other people who are in your wife’s position in other companies throughout the world or throughout the country or the region? I think that gets to that question of product founder fit.
Sure, you might be able to build the same product or achieve feature parity, but do you have the inroads or the communities or the channels to be able to reach those people? I know there are enough of them. I think that’s something you can certainly vet out over the next few months.
Rob: Yeah. I like the pros you pointed out. I think the fact that they proved the market out by having this app is good. I’ve mixed emotions about this one. I think you need to ask more questions. The first question I have is we can all, with our high standards, and our impeccable taste in UX, and usability go use an app and say, “Oh my gosh, that app sucks. I could build it better.” Do their users care at all?  Do they care at all? Do they care one bit?
An example: I was a contractor/contract developer for a consulting firm that was redoing an app for the Los Angeles County. They spent a million bucks and they paid us to build all these stuff. The old app was literally a main frame, it was a terminal app that they would log into. The UX is typing. It was just wasn’t particularly fun, it was hard to train people, it was a pain in the butt. The delete key didn’t work, command this didn’t work, there was no undo, there were all these things you couldn’t do.
We built a modern, quick web front end on it and a bunch of the users were either so used to the old UI that they were like, “Oh, I used to like type this and then hit three tabs and it got me to the other thing and this doesn’t do that.” I’m like, “Yeah, you don’t need to do any of that. You just do one click and it auto populates from this XML import.” They’re like, “Oh well, this just seems complicated.”
Change is hard—I guess is one thing—and also, a lot of people just don’t care, and they’re used to using something. That’d be the first thing I would really try to stress out is like, “Does everyone at your wife’s work, are they complaining about this software and just dying for a better solution. Do they really, really need something better or do they not care?”
Second thing I would ask is, what are switching cost? Because without knowing that, if it’s just an export of a CSV and an import of CSV and everything is set up, awesome. But if its switching cost is to retrain someone or retrain your whole team on it and move a bunch of data and do a bunch of other stuff, that’s tough. If everyone’s on annual contracts, that means you only have a once a year when you can basically get to those prospects because they can’t just cancel for the next month. Once they’re on a year contract, they won’t get there. Think about switching cost and I would inquire about those.
The last one is one that Brian brought up, and it was a first one that came to me is you build a better product, can you get in front of the users? What are the traffic channels? How expensive are they? Are these people online? If they’re not online, you’re talking about customer pain. I’ve talked about competitor pain and customer pain, in this case, you probably won’t have competitor pain. You’re going to be the pain to your competitor because you’re going to build a better product. But you will have customer pain. Or could feasibly have customer pain if it’s more of a brick and mortar type business where you can’t just run some Facebook ads or do some content marketing and generate a bunch of leads where it’s literally cold calling or going to the events or whatever.
Since you haven’t told this about the industry, we’re just completely conjecturing here. I’m not saying you shouldn’t do it, but these are the three yellow flags or the three big questions I would have with just doing this approach. But can this approach work? Absolutely. Look at what Xero has done competing against Quickbooks, most people don’t like Quickbooks and Xero built a web-based admin or a web-based competitor to it. I think the fact that there was Infusionsoft and then Drip and ConvertKit and all these other tools were able to come in and do similar things, that’s what we were doing. We’re trying to build easier-to-use, more modern with the integrations we wanted, just a more pleasant experience overall and it worked. It can definitely work but I think you need to answer some questions before you dive in with both feet.
Brian: Yeah. Just one quick thing to add–kind of a low hanging fruit. First thing to do on that last point to figure out how could you actually reach this market. A question to ask your wife is to understand how her company bought the software that they’re currently using. Whether she bought it or a manager or somebody else was the decision maker. Did they go through an enterprise sales process or did they just Google and find the website and buy it that way? Did they pay monthly, did they pay annually? I think those are better questions to understand than even how the product works, to understand what you’re actually getting into.
Rob: Totally agree. That’s a good point. Thank you for the question, hope that was helpful. Our next question is not a question, but a comment from Kenneth Caw and he has written in a few months in the past. He says, “Hey, Rob, enterprise sales guy here wants some help,” and he has actually written in when I had David Heller on the show to do a hot seat about enterprise sales and he had written in with a bunch of good suggestions. He says, “A lot of people don’t know this, but Stripe actually released a way to receive payments by paper check this year.” This was a question that I believe in the Laura Roeder Q&A episode. We were asked, “How do you manage paper checks and how do you keep track of them and this and that?”
He’s pointing now Stripe can do it. He said, “This makes things so much easier since they provide your customers and the address for the check to be sent to, receive and process it on your behalf.” That’s crazy. “Coincidentally enough, we used to do the same thing as you did with Drip, which is to set a discount code to the customer in Stripe and then put reminders in and then check it. When payment is due, once a year, we deal with six figure checks sometimes, so this has been a total efficiency improvement since Stripe deals with the invoicing, follow-up reminders, analytics tracking, repayments, etc. Best of all as a remote company, we don’t need to depend on someone making a trip to our company’s PO box to look for the check.”
I’m not sure why Stripe doesn’t advertise this enough, but you should let your listeners know about that. Since all one has to do is simply enable a checkbox—pun intended—in Stripe, which saves us bootstrappers precious time and resources managing this. Plus, it gives you an additional reason to deal with enterprise customers that want to do pay by checks.” Big smiley face because Ken is of course an enterprise sales guy.
Thank you so much, Ken, for writing in. Did you have any idea about this, Brian?
Brian: I had zero idea about this.
Rob: I never heard of that. That’s a great service. When he said by check I thought he was going to say, and his subject line is this payment by check, use Stripe. I thought he was going to talk about e-checks where it’s like just an ACH thing where you get the routing number. But I mean literally, an address the mail to check, that is bravo, Stripe.
Brian: That really is pretty incredible. I knew about the ACH thing. I kept promotional emails from Stripe. I have not received anything about this feature. It seems like a pretty killer feature.
Rob: Yeah.
Brian: I’m curious about your thoughts on accepting checks in general. I’ve seen this in my business in Audience Ops, I’ve had quite a few leads actually, ask for the ability to purchase our service using a check or having us invoice them and then them paying us like a more traditional agency or consulting model. I’ve refused those. We only stick to credit card and debit cards through Stripe subscriptions. I know for a fact that I have left some money on the table because of that, but I opt that way because I just don’t want to deal with chasing people down for checks in the mail.
Rob: Yeah, that’s the tradeoff. At Drip, once we started accepting checks, it was late, it was after we had a much larger team. There were salespeople that could manage it. That really is what it is. It’s like putting something on your calendar to remind you to check in with someone. But the bigger thing we did is we just said we had a minimum for a check. If I were in your shoes, I would only accept it for annual prepay. I would not do it on a monthly basis. It’s like, “Hey, if you really want to pay via check, then you gotta pay 12 grand all at once or 24 grand or whatever the price point is.” That would be how I would approach it at your scale because it’s not a requirement.
But yeah, once you get up in the 25K and up, maybe even 20K and up annual contract value, you need to start doing that at least in the B2B SaaS base. It’s great that Stripe accepts it. Obviously, it’s enough of a pain point that they started doing that. They wouldn’t have done that if people weren’t asking for it. But I also think then I wonder it says, they’ll take care of all the reminders and all that stuff that’s pretty fascinating. I’d like to almost investigate this a little more because again, we had to hand build something that reminded a salesperson to reach out and make sure that the check came through.
Brian: Yeah, for sure. The other thing that I would at least keep in mind for my business is that we’re a recurring service and that’s part of the reason why we don’t do checks is that we need the payments to keep coming in so that our team keeps working. If there’s a delay, then we would need to know to pause the service for a period of time. I guess if this works automatically through Stripe and then Stripe can just mark it as unpaid or paid, then that can be your indicator.
The other question that I would wonder about is international payments. Because that’s sort of a headache that we’ve seen just because credit cards internationally tends to decline, especially for higher dollar amounts more often than like US-based for whatever reason. We’ve had to fix failed payments more often with international. I wonder if this could somehow help that. I’m not sure.
Rob: My guess is no. I’ve not even Googled this, but international checks are so complicated with the banking that I would guess that would be a V2 if they were going to try to tackle it. There’s also big fees attached to it with sending checks and trying to cash them. If you send a US check to a Canadian or vice versa, there’s this big fee they charge to do that internationally. We experience all the same stuff you’re saying with the international credit cards being declined more often than that. I don’t think this would help.
Also, one other thing to throw in is, I wonder how much Stripe charges as a fee for doing that. This is something to think about. If you’re signing a $30,000 annual contract, a 3% fee on that is $900. That’s where it starts to make sense to maybe take a check because you can basically cash that for free. If Stripe’s still charging 3%, you have to think about that, but if it’s more like ACH where it’s half a percent or 1%, this could totally be worth it.
Thanks again for the info, Ken. Always appreciate your insights. Next question is from [Mereck 00:29:46] and he says, “Hey guys, great show. Would love to get your thoughts. I’m a cofounder in a small software house.” I think he’s an agency. Because they’re consulting from their hired hourly or by project. “The issue is that my cofounder doesn’t help company anymore. He made some significant contributions in the early days including his know-how, some money investing directly and working for free. But right now, because of an unplanned change of direction in the company, and a change of the market situation, we can’t find paid work for him. Not because he does not have value to give to the market, but for now the company is too small for two founders/CEOs.
He was upfront about his expectations about work and skills in the company and he still help out a few hours a week for free. No hard feelings between us, we aren’t looking for a legal resolution. I’m wondering if we should wait for the company to grow, if we should return him the money he invested, buy out his shares, or what you think? Thank you so much for your thought.”
This is an interesting one. We don’t often get a lot of too many consulting questions. But I feel this could happen with a SaaS startup. Skills no longer and neither might be an interesting one. I guess if you’re a salesperson, co-founded it and then you decide to go way down market and not need sales, that can be something. Curious if you have thoughts on this, Brian.
Brian: This one is tough. I don’t know all the details on this. One thing that stuck out to me is that he talked about refunding the money that he invested. I guess the partner’s actually put up some of their own cash other than just putting in their time. If it were just time and you’re talking about giving him compensation for the time that he spent, that’s a tricky one because you should have some agreement going into this thing that, “Hey, we’re all investing in this idea. We don’t know if it’s going to go anywhere. There’s no promises.”
Then there’s the question of, how was the initial partnership agreement drawn up, if there was any, which there really should, generally speaking. And there’s the concept of vesting and a vesting schedule. One model that I think we’ve seen recently is the user list. You spoke to Jane about this, is that right? They sort of paused her vesting so that her initial time was still–that value remained, but then from a certain date going forward, she’s phased out a bit. That’s one model to look out.
Rob: I think consulting firms don’t normally vest, but in this case that would’ve been super helpful. If he was above a certain number of hours per week or whatever he was vesting and then at the time that he leaves then yeah, you do, he either leaves it in until it grows. It’s up to him. If he owns 10, 20% of the company and he only vested that much, then he could say, “Hey, please buy me out.” And then you have to figure out, “Hey, we can buy it out over a year or two. We can pay this much per month out of cash flow.” Or if he wanted to grow, he could gamble and leave it in and expect the company will grow and it’ll be worth more when you get there.
I believe our consulting firms, obviously, there’s going to be a range, but I think valuations are around one times annual revenue. I don’t know if it’s looking ahead or looking back. I’m not exactly sure. But someone in the community might have more info on that. But I know the multiples compared to SaaS is pretty low because it is just hours. It’s a […] for hour-type thing.
Brian: Recurring contracts can help improve that.
Rob: Exactly. But assuming that he’s fully vested, and he owns a third or half of the company, I really do think it’s a conversation. I don’t think there is anything you should do here. I think it’s up to the two of you. With consulting firms, they can have pretty good profit margins. The cash coming off could be used to buy him out. I think that’s probably the long-term play. Say, you don’t have someone with stock who really isn’t working on the business.
The hard part is how to value if he’s doing all this work for free. I don’t know how you guys figure that part out. It’s just what’s fair there? Do you agree on hourly rate and try to estimate? Or is that just what created the value in the company and his stock reflects the value of that in essence.
Brian: Again, we don’t really know all the details here, but if it’s purely consulting and the work that he was involved when the work existed was just consulting project that started and finished, then I think that the question is, “How much does his contribution to those projects live on after he stops working in the company?” I think the simplest view is split whatever revenue came from those projects 50-50, whatever your partnership agreement was, and then new projects going forward that he’s not involved in, he doesn’t really have a part in those. That would be a simple way to look at it.
The other thing to consider depending on how big the numbers are that we’re talking about here and everything else, you might want to just talk to a third party. I know that there are professional arbitrators, but there are people in this community who…
Rob: It’s like mediators. That’s a good way to think about it is to get someone, other party, to just give you guys some direct advice knowing all the details because that’s the problem is, I think there’s some gaps here. Hope that was helpful, [Mereck 00:35:03]. Wish you the best of luck figuring that out.
Our next question is from Fred Myer and he’s asking for some advice for finding or starting a mastermind. He says, “Hi, I’m a web developer and owner of two lifestyle businesses looking for a mastermind to start or join. The easy to Google options don’t seem attractive. Do you have any advice on finding or starting a good mastermind?”
I’m going to assume that since he’s a web developer, he’s looking for a software-oriented mastermind. My recommendation is always Ken Wallace’s mastermindjam.com if you really have no network. My first recommendation is always, go to your network, go to events, be part of the Startups For the Rest of Us and the MicroConf community and you’ll find people. But if you haven’t done that, can’t do that, whatever, MastermindJam is a good alternative that Ken matches people up. What do you think, Brian?
Brian: Yeah. Totally agree. I recommend MastermindJam all the time. I also recommend going to conferences like MicroConf, like the upcoming MicroConf locals, that should be a good one too for this. Yeah, just getting into communities like that. In the past, when I was really early on in this industry and I didn’t know too many people, I had a bit more focus on my local community. I would go to local meetups. At the time I was into web design and WordPress, I went to local web design and web development and WordPress meetups. I met some really good friends through that. That turned into local mastermind groups.
These days, I’m not in a weekly mastermind currently like I was for a while. But my mastermind group now was borne out of the MicroConf community where we do TinyConfs a couple times a year. We all fly to one place and have a deep dive. We chat on Slack throughout the year. I find that that’s a good format for me right now.
Rob: Yeah. I think that makes a lot of sense. Sir, we are all out of time for today. If folks want to keep up with you, they can head to, let’s see, there’s productizecourse.com, there is audienceops.com which is your productized service where you and your team create content for content marketing for folks on a subscription basis, and castlejam.com, is that your personal website?
Good. Good call. Are you still @casjam on Twitter?
Brian: Yeah, my teenage AIM screen name lives on through Twitter.
Rob: I know. I registered software by rob.com in 2004, 2005 and started blogging. It’s like, “Why didn’t I just registered my name?” Maybe it was taken or maybe I didn’t think about it, but years later—it was literally in the past, probably 18 months—finally, I bought robwalling.com from the previous owner and redirected in it. It’s just so much easier. It’s so much more memorable. It’s like once people remember your name they can find you versus trying to remember this derivative of your name.
Brian: My whole life I’ve had people mispronouncing and misspelling my last name because they think it’s like the word castle. But then in recent years I’d have people mispronounce or not understand even what casjam even means which it doesn’t really mean anything. I just got sick of explaining that whole thing. It’s my name. That’s where my blog and newsletter and links to my podcasts and products and all that’s on there.
Rob: That’s the center. Very cool. If folks, they listen to this podcast, they will like the Bootstrapped Web podcast where you and Jordan Gall chat every week or so about this kind of stuff. I’m a long-time listener, long time first time; long time listener, first time caller. Anyways, alright man, I’ll let you go. It was a pleasure having you.
Brian: Yeah, good time answering these questions. Thanks for having me on, Rob.
Rob: Absolutely. That wraps us up for the day. If you have a question that you want answered in a future episode of the show whether by me or a guest, you can leave us a voicemail at 888-801-9690. You can email questions@startupsfortherestofus.com. Obviously, you can have just plain text in there, you can attach an MP3 […] Dropbox link to an AIFF. You know the drill.
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