Episode 565 | Correlation vs. Causation, Focus, Sharing MRR, and More Listener Questions

Rob: I think there are two tracks that people wind up on. There is the lifestyle track where the idea is to maximize revenue with minimum work, and then there’s the growth track which is to build something that you’re willing to work and invest in, maybe only work 40 hours a week; that’s perfectly fine. I’m not saying you have to work crazy hours, but you’re trying to build something worth millions or tens of millions of dollars.
Just between you and me, this is Startups For the Rest of Us. It’s episode 565 where I’m going to answer some listener questions. I’m going to be honest. I had a guest lined up to answer the questions with me. They had to cancel for a very legitimate reason.
I was going to try to rebook someone, but my editor’s going out of town for a couple of days. In order to get this to you on Tuesday morning—like we have every week for going on 12 years—I have to record another solo episode.
This is going to be a listener question episode, which is good because we are way backed up as I said on the last one, and of course, you can send in a voicemail by email to questions@startupsfortherestofus.com. You could put a Google Drive or Dropbox link, or you can head to startupsfortherestofus.com. There is a ask a question link in the top nav and we have video ask set up now directly from your phone or your computer. You can record voicemail or just record a video that gets sent directly to me.
Before I dive into the questions, I wanted to let you know that there are still tickets available for MicroConf local in Portland, Austin, and in Boston. I’m going to be at those three events and then in Croatia the week after. We’d love to see you there. The local tickets are about I think $130 now, so it’s an easy way to come to a MicroConf. It’s only a six-hour event and we’re making these one-day local events and trying to bring more MicroConf to more people.
The other thing I wanted to talk about is a tweet that I sent out today as I’m recording this, and this is regarding a podcast I was listening to last week. To quote my tweet, “I heard a podcast host talking about successful people throughout history. One sentiment was that those folks didn’t eat very often. It’s an interesting fact—may be true, maybe not—but do you think that has anything to do with their success?”
Then I go on in a subsequent tweet, “Using the same brand of typewriter Hemingway used will not make you a great writer. Based on the successful people I know, my assertion is that their quirks or their quirks, but the secrets to their success usually come down to a combination of hard work, luck, and skill.”
Then later on in the conversation, I think I actually pointed out that some people ascribe Steve Jobs’ success to his ability to build great products, his ability to stare at people with his eyes open, wear black turtlenecks, be barefoot, and vegan.
I don’t know. This is the cargo cult thing. If you have never heard that phrase, you should google it because it’s a fascinating story of how that phrase came about, but cargo cult is when you see results, and you assume the inputs are something but they’re actually not. There’s no causation even though there might be a correlation between the two.
There’s a really good article that Manuel Figero posted in the response thread, it looks like he wrote it back in 2018. The title is One Simple Rule to Figure Out Which Advice You Should Follow, How to Separate Correlation From Causation. It’s basically a couple of thousand word essay just walking through that humans are hardwired to seek causation. Like you’re not Elon Musk, how not to be stupid goes to that quote from Charlie Munger and Warren Buffett where they say, “It’s remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
It’s a good article and I think just as a reminder, I have tended to see this—not always—in kind of the hustle culture where people are trying to over-optimize (I would say) their inputs, over-optimize their routine because Tim Ferriss does XYZ and he drinks this brand of coffee, this is someone who gets up at 5:00 AM and they do this routine, Seth Godin writes using this word processing software.
Those things are interesting tidbits. They’re interesting facts. They’re fun to learn. If you’re doing it for entertainment, do it for entertainment. But if you really want to know what makes people successful, usually it’s the fact that they work their ass off, that they build up skills over time, that they push a snowball up a hill until it gets big and rolls down the other side. It’s that they invest years and years, and some get a little lucky. It comes down to hard work, luck, and skill as these fundamental attributes.
We don’t want to hear that. It’s like when I say, oh, I’m getting fat, and someone says, oh, you need to work out and eat less sugar. I don’t actually want to hear that. What I want to hear is some secret tidbit about how this person lost weight eating the ice cream diet.
I think we fool ourselves oftentimes into thinking well, I can be as successful as that person whether it’s looking back at industrialists and tycoons from last century, whether it’s looking at tech magnates from the past 20 or 30 years, or whether it’s looking at real personalities like Tim Ferriss or Seth Godin (whom I’ve already mentioned), trying to look at the little quirks they have or the little things they do and trying to correlate that or make it in our mind, make it a cause of their success, when in fact my assertion is it’s not. That’s both, I think a reminder to myself but also to you as a listener.
Let’s dive into listener questions today. First question is a video from John Doherty.
John: John Doherty, founder, and CEO of Credo here, where we help companies find and hire the right pre-vetted digital marketing agency for their needs at getcredo.com. My question for you, Rob is about focus. Credo has done well. Over the course of the pandemic, we’ve doubled revenue. We have a team of about six core people, not everyone full-time but working on the business every single week.
I have a business partner in the business and he also owns another company. He got involved with credo around the time, about half of where we were currently are in revenue. His business is currently about there and I’m starting to get involved in that.
He and I do have a parent company that we’re 50-50 partners in as well. We’ve worked together for about four years now. My question is really about focus and when you counsel founders that just to focus down on one core thing, or kind of the idea of working on multiple products at the same time. Instead of one business becoming a $2 million a year business, have four businesses that between them become that, or two, or three, or whatever, just not one. I’m curious as to what you would kind of counsel someone in our position to do there.
Also, if I can stick in one other quick question. I own an affiliate site in a completely unrelated industry—I’m in the outdoor gear space—and it’s just completely outside of what I normally do—two side businesses which I’m good at starting and growing, et cetera. It does about $1000–$2000 a year in revenue and I’ve been thinking about selling that. I’m curious as to your kind of thinking, kind of going in with the multi-product strategy, would you recommend selling that? If you were me, how would you think of that?
Thank you, Rob. As always, love the show. Thank you for MicroConf and appreciate your advice.
Rob: Thanks for those questions, John. John and I have been in person at a few MicroConfs. He’s at getcredo.com if you want to find out what he’s up to.
The first question is about focus. To be honest, I think there are two tracks that people wind up on. There is the lifestyle track where the idea is to maximize revenue with minimum work, and then there’s the growth track which is to build something that you’re willing to work and invest in, maybe only work 40 hours a week; that’s perfectly fine. I’m not saying you have to work crazy hours, but you’re trying to build something worth millions, or tens of millions of dollars, or hundreds of millions, frankly.
I’m just talking in the kind of bootstrapped and mostly bootstrap space. We can get into the idea of taking over the world with our software and building Facebook or Google, but I’m not even going to address that here because it’s not relevant to any of us.
Of course, there’s more nuance than I’m giving it here, but realizing that being on the four-hour workweek track is where I was from 2000. Well, I was aspiring to be that from 2006. I achieved it right around 2008–2009, and then I got off that track when I decided to build Drip in 2012. I loved it while it lasted.
There were multiple years when I worked 10–12 hours a week and made $150,000 a year, some years $200,000, some years it was $100,000, but it was certainly enough to support our family, make our house payment, and live in, at the time it was Boston and then Fresno, California.
Those are great days, I have fond memories of them, but I do remember personally for me, I was getting bored, I was getting restless, and I wanted to do something bigger. After 3–4 years of working part-time, I kept saying to myself, what’s next? Because I’m an ambitious person. That’s where the ambitious bootstrap startup comes from at the beginning of a lot of these episodes when I talk about that.
All that to say, with those kinds of two frames in mind of going from making (let’s say) a few $100,000 a year, or maybe making half a million, maybe even making a million a year and most of its profit. You’re not working that much, that’s a great life.
I also think that is akin to retiring, which for many people, if you don’t fill your time with something else, then you either get bored, or you just wind up watching a bunch of TV or doing something else. If you can fill it with family or other things, that’s great. I do know some entrepreneurs who have done that for an extended period of time and I think that’s great. I think it depends on your personality a lot.
For others, the growth trajectory of hey, I want to build a business. I want to do as quickly as possible. I want to build something to $1 million, $5 million, $ 10 million in annual recurring revenue that is then worth $6 million, $30 million, $50 million, maybe I sell it, maybe I don’t, maybe I’ll just make it profitable, or maybe I have a life-changing exit and then realize well now I can make even bigger bets.
Again, those I think are the two paths. I think if you want to go down that growth path and you want to build something big and that’s your desire, then in my opinion you need to focus, but there are honestly ways around that a little bit.
If you can hire senior people that are expensive, meaning they have high salaries, and they kind of run the company for you, in which case, you’ve almost step back and become an investor or an advisor. If you’re working day-to-day or week to week in a business setting direction, setting strategy, and even getting involved to push things forward, in my opinion, if you want to grow, you should focus your energy in one place.
As someone might ask me, well, Rob, you have a podcast, you have MicroConf, and you have TinySeed, that seems like a lack of focus. I would say two things to that. Number one is, we have really good people, very senior people who basically head up MicroConf and TinySeed. You’ve heard them both on this podcast. You’ve met them at MicroConfs. Producer Xander and Tracy Osborn, essentially, are the folks driving those two businesses forward.
While I’m obviously more of an advisor. I’m more involved than someone who was just on the outside. Those three things that I work on are essentially in the same ecosystem. MicroConf is a community that sprang out of this podcast. It’s the same audience, same focus, and they feed. People come to the podcast, and then find out about MicroConf. People come to the MicroConf and then find out about the podcast and people come to MicroConf, learn about TinySeed.
TinySeed is essentially the fund we launched out of MicroConf, seeing the need for bootstrappers wanting to raise a small amount of funding, who didn’t want to go the venture route. Really, if you think about it, it really is one company with one mission, but there are just separate parts to it that I’m involved in.
I would actually say my focus these days is more on a single goal and mission than it ever has been in the past. Back when I was running Drip, had a blog, had HitTail at the time, had MicroConf, and the podcast, switching context from running Drip as kind of CEO, hiring, driving things for building a SaaS product, back to the MicroConf mindset of building a community and talking to other entrepreneurs was difficult. These days, I don’t have that.
All that to say, John, if your goal is to build something into the millions that more of that growth path, I would say the focus is critical, but you can also build if you’re on that lifestyle spot, and you want to get to $2 million in ARR across three companies, or four companies, and they’re kind of on autopilot.
I guess that’s the other thing I’ll say is, I see folks that think that they can grow multiple companies or multiple products at once. I’ve never been able to do that. I’ve been able to grow one and then autopilot it in the sense of, hey, it’s SEO, it’s a flywheel. The funnel’s in place. It’s self-serve to do $23,000 a month, and I don’t really have to do much work on it.
That is the point where I can then shift my focus and work on something else because my focus at that point is all really on one thing. It’s on the new thing. What happens is you can’t have autopilot businesses that are autopilot forever because eventually Google’s max you down, you get some competitors, you have server outages, code needs to be rewritten. Something happens every I’ll say 6-18 months that derails it. Someone quits, maybe you have a team of two or three that are running it, one of them quits and now you’re pulled back into that when your focus is on this new thing. That’s the trap of thinking that you can have multiple businesses. It’s like spinning plates, one of them’s going to fall eventually, and are you in a position at that point to turn your focus back?
Case in point, HitTail was doing close to $400,000 a year in annual recurring revenue with very little expense. All of it was going essentially to my bottom line and I was using that to fund Drip. Drip starts growing, starts growing, it becomes successful, it was also stressful, and a lot of work. Then Google changed some API that basically broke HitTail.
I had to shift my focus back and try to repair it. It took a ton of time and effort. That was the moment—it was in early 2015, I believe—where I said I’m done with this, and I need to sell this app. I have to get it off my plate. I think to your point, John, you have an app doing, I think he said it was $2000 a year. Whether it’s a month or a year, both of those are relatively small numbers in the scheme of things.
In your shoes if it’s a hobby, if it’s something you want to do on the weekend, if it’s a little site that you’re content for, maybe you’re hooked into an API, and you do stuff, and it’s fun, and you really want to do it. You’d rather spend that time, than watching Netflix, or going paddleboarding, or hanging out with your family if you have one, then cool, it’s a hobby.
But if you have this thing that’s making a little bit of money, and it’s going to take your focus away from your other bigger drivers where I think you have more leverage. Personally, I would sell that. At that small revenue amount, I believe you’re going to have to probably find a buyer privately through, like MicroConf Connect would be an example, or through a site like MicroAcquire. The founder Andrew Gazdecki was on this podcast just a few weeks ago. If it’s only doing $2000 a year, I don’t know of a broker who would be able to help you with it. If it’s $2000 a month then someone Quiet Light Brokerage would be (I think) your best bet there.
Good questions, John. These are questions I have asked myself and I’ve seen a lot of entrepreneurs ask themselves over the years, so thanks for that.
Our next question is from Davis Bher and it’s about sharing your revenue with new employees.
Davis: Hey Rob. My co-founder and I are probably going to be hiring someone in the near future. It’s going to be our first hire. I was just wondering when you hired in the past, would you share financial metrics like MRR with employees or would you keep that just between you and your co-founder? I’m just curious to hear what other people do in this situation.
Rob: That’s a good question, Davis. I think the way I would do it is the way that I did it with Drip. To be honest, it felt weird to me to not share MRR. MRR was our KPI. It was the key performance indicator that drove the business and if MRR was growing, then the business was successful, I’ll say.
That was the number one, and of course everything flows out of MRR. I want to be clear, obviously happy customers, happy employees. There’s a bunch of stakeholders, but if you were to boil it down to one number, to me it is MRR. It tells so much about your market share, about your enterprise value, if you were to sell the company about how much profit you could potentially have all these things. Everything flows from MRR, then it’s like the lower your churn, the faster MRR is going to grow. Without telling, let’s say, my marketers, or my customer success people, or even my developers where we were, it would have felt weird.
I think people will likely, if they’re working for you, and they don’t know your MRR, they’ll probably think it’s a lot more than it is and that can sometimes lead to issues in terms of why am I not getting paid more? Why are we so stingy with our Amazon hosting? Or why are we not paying more for XYZ service? Why don’t we have better benefits or whatever versus if they start and it’s like, yeah, we make $30,000 a month.
You can do the math here. There are four of us. We’re pretty much at breakeven, which is in essence, what I would tell every employee I would hire at Drip, obviously, before we were acquired because once we were acquired, we venture-backed in essence. I would tell them, you’re going to learn what our monthly recurring revenue is. I’m going let you know that we spend all of that every month, sometimes more to grow this company.
What I was trying to do was level set. You see that number that’s $40,000, $60,000, $100,000 whatever a month, that is not going into my personal bank account. This business is, in essence, a growth business, and growth costs money.
Fast-growing businesses are rarely if ever profitable. In my opinion, I think since MRR and MRR growth is that pinnacle KPI and everything else feeds from that in terms of number of trials, trial-to-paid conversion rate, average revenue per user churn, just everything flows from that. In my opinion, it’d be tough to have a company where the revenue is not communicated.
We had an admin dashboard built into the Rails app that showed all of our numbers in real-time, in essence. It was not just showing the revenue, but it was showing how many trials were in the pipeline, what the current, I think it was the last week or last 30 days trial-to-paid conversion rate had been. It was all this stuff, it was our pulse on what the business was doing, and if we had (again) hide some of those, I think it would be just kind of odd.
Then post-acquisition, when the company grew from the 10 we were at during acquisition up to 100–120, by the time that I left, we had a monitor with all our key performance indicators of the company. That was a much larger team, it was a venture-backed team, and there was a monitor in the office that showed all these metrics.
Some of them were metrics like number of emails sent, total number of customers, number of trials, whatever, but the revenue was visible for everyone to see because again, that was such a Northstar metric.
Those are my thoughts on that. Thanks for the question, Davis. I hope that’s helpful.
Our next question is from Matthew and this one is a voicemail, but still goes to the top of the stack, and then if we have time, I will dig into some text questions after that.
Matthew: Hi, Rob. You may not be the right person to ask because you seem so driven, but I’m wondering if you have any advice for folks who struggle with motivation and consistency? I’m a bit of an all-rounder when it comes to UX design and fullstack web development. I have several ideas for apps to serve the industry I’ve been a part of for the past 11 years.
I think my biggest problem is consistency. I have a long history of enthusiastically starting projects, making good early progress, learning lots, and then losing interest before actually […]. I’ve tried various strategies to overcome these tendencies, including shrinking the scope, trying to know a little bit every day, or making public commitments. So far, nothing has worked and each time I feel like even more of a failure.
I’m starting to wonder if it would be healthier for me to let go of the dream of building a small sustainable software business and instead find a team I’m happy to be part of. I’d love to hear your thoughts.
Rob: I think almost without exception, everyone suffers from this at some point or another. Some of us struggle with it more often and more consistently. There are probably some people out there, maybe Elon Musk, who never struggles with this, but I think most of us do.
I absolutely have and do I have unfinished projects sitting on my hard drive like the book I started talking about 9 or 10 months ago. I’m at the exact same boat as you are, Matt, where I have gotten to a certain point and just got stalled. It’s not a lack of interest. It’s a lack of focus. There are some hard parts to be written, there are excuses. It comes down to procrastination, at least in my case.
You and I are obviously in different places in our career. You’re trying to launch your first app. I imagine there’s a lot of doubt as to whether something can even work, if this thing is for you, if you have what it takes. These are the thoughts that I had when I was in your shoes, so I want to speak to your situation rather than going into how I’m thinking about the day-to-day, or how I will eventually get over the hump with these projects I’m working on.
In your shoes, I think you need a win. I think you need to launch something and get that positive feedback loop. That something maybe is a free course, or it’s a free email newsletter, or maybe it’s a paid course that’s quick to produce and doesn’t cost a lot. Maybe it’s an ebook that you write. What are your areas of expertise that you could potentially spend 8, 15, 25 hours on and have something that is shippable.
Again, maybe you charge for it, maybe it’s free, but you get something out in public and you get past the terror of firsts. This concept of the first time you do anything, it’s going to scare the […] out of you. First time you publish a blog post, the hairs are going to stand up on the back of your neck. The 10th time, you’re going to be over it.
First time you record a podcast, it’s going to be terrifying, and the 565th episode you record, you’re just going to be talking very naturally to the camera like you’re talking to your best friend. First time you speak on stage. First time you ship a product into the wild. First time you push a landing page, marketing something live. The first time you make it to the top of Hacker News.
All these things are super scary and exhilarating the first time they happen. The more positive feedback you receive from those, where you make it to the top of product time, you sell $500 worth of a course, you get a thousand downloads of that free ebook that you put out and people email you saying this is amazing, thank you so much, I’d love to see your next ebook. That positive feedback loop is what you can then build on. That’s the snowball that you add on to over time, and you compound it. And that motivation builds.
But if you’re trying to build something huge, and it’s hundreds of hours sitting in a basement, or nights and weekends coding a SaaS app, I think there’s an easier way.  Whether you follow the stair step approach to bootstrapping directly, where you are launching a pretty simple product with one marketing channel, maybe it’s a Shopify plug in, maybe it’s an ebook like I said, maybe it’s a course maybe to WordPress plugin, an add on to some ecosystem, or whether just in your head, you’re trying to get something out into the wild, doing things in public creates opportunity.
What I think you’ll find is the more things that you ship, the more high quality things you ship, the more people will take notice. To be honest, the worst part of shipping something, well, there are a couple of worst parts. One is it’s scary, but the worst result is not that someone doesn’t like it, it’s that no one cares. That’s honestly the most likely occurrence.
The first several things I ever launched into the world, first several essays, the pieces of software, the websites, no one cared, and it was frustrating because it felt like a waste of time. I had major imposter syndrome of, is this even possible? Because back in 2002 when I started launching these, there was no model for this. There was no model.  You took venture funding, if you want to do anything on the web and I didn’t know of anyone who was just trying to write software, sell it, and just build a real business selling a real product to real customers.
At least you know, that part’s not true. It is possible. You see it. You see it with guests on this podcast. You’ve seen it with what I’ve done. You’ve seen it with the MicroConf videos. You see it if you’ve been in MicroConf Connect or if you’re just paying attention to the bootstrapped and mostly bootstrap community. You know this is possible.
Then the next question is, can you do it? My guess is you can, because I see a lot of people with a lot of different skill sets come at this a lot of different ways and achieve success. This is a really good question, Matt, and I think a lot of people likely struggle with it. Again, I struggle with it from time to time on specific things.
Before I wrap this question up, there are other ways around this and it’s to have accountability like to be in a mastermind. It’s to have a co-founder, it’s to have some external force that you have to report to on a daily or weekly basis that drives you to keep going. Maybe that works for you, maybe it doesn’t. I know some people, accountability just doesn’t matter to me.
If you kind of know yourself in terms of whether that’s going to motivate you’re not, but I definitely know folks who don’t work out when they’re on their own, and when they go to a gym they work definitely hard because there’s that social interaction. I know founders who have a tough time shipping until they’re in a mastermind group, or until they have a co-founder, and then they’re pushed and motivated by that.
Thanks so much for that question, Matt. I hope it’s helpful.
That’s it for this week’s episode. We didn’t get to the written questions, but will definitely circle back here in the next month or so and I will do my best to have a guest on to share their insights as well.
There are just some really good questions and questions that I don’t think have ever been asked on this podcast before. I appreciate everyone who sent theirs in. Again, you can email questions@startupsfortherestofus.com. Put a Dropbox or Google Drive file in there, or add to our video ask form, startupsfortherestofus.com. Look for the ask a question link in the top nav.
Hope this week is treating you well on your entrepreneurial journey and I’ll be back in your ears again next Tuesday morning.