Episode 691 | Freemium, High-touch vs. Low-touch, Selling as an Introvert, and More Listener Questions

Rob Walling:
If I’m competing against big, entrenched incumbents, I usually don’t care because I know I can outmaneuver them, but there are some exceptions to that. If there’s a network effect, like a two-sided marketplace or where everyone being there means everyone stays there. Think about eBay and Craigslist. These sites that so many people have tried to copy, including Amazon, tried to copy eBay, they had their own auctions. So, I mean, there’s been all these things that have tried to unseat eBay and Craigslist and they couldn’t because even though the sites didn’t change, it didn’t improve. They have tremendous network effects. And so, if the legacy trade organizations and associations you’re talking about have network effects as a bootstrapper, I personally would be very wary of trying to unseat those. 

Welcome back to Startups for the Rest of Us. I’m Rob Walling. And if you want to see one of the worst hair days I’ve had in years, go to twitter.com/startupspod and check out the clip from today’s episode. In today’s episode, I am going to be answering a handful of listener questions ranging from having a free version with an honor system to pay for it, how to gain traction against entrenched competition, doing sales as an introverted founder, and how to proceed if you don’t have time for the stair step method of entrepreneurship. Before we dive into today’s questions, if you haven’t checked out my YouTube channel, it’s at microconf.com/youtube. I’m putting out 52 YouTube videos a year with topics ranging from new SaaS ideas that you should build. Looking at acquisition funnels, high touch, low touch, talking about sales, talking about the SaaS sheet codes, pulling some things out of my book and expanding on them. It’s free and it’s easy to subscribe. microconf.com/youtube if you’re interested. And with that, let’s dive in to our first listener question, which is a voicemail because voicemails go to the top of the stack.  

Speaker 2:
Hi Rob, and thanks for the show and books. I recently launched my first product, a vulnerability scanner, available at opalopc.com. It is a desktop application. It is free for non-commercial use and for commercial use only for small organizations. The rest need to buy license to use it. I currently trust users to buy licenses if they are not eligible for free use. The program does not do any license checking itself. My reasoning behind this is that those interested can freely test the product, and the target market consists of very large organizations, and I doubt they will take the risk of breaching the end user license agreement. What do you think of this? Should I remove the free plan? How would you continue? Keep up the good work. Thanks.  

Rob Walling:
So, I’ll be honest, I struggle with this ’cause it feels like just one step above a tip jar of saying, “Hey, if you like us, support us.” I know that you will have a license such that big companies won’t want to break that license, but I’ll be honest, there are a bunch of people, individual contributors at big companies that will download it and just never say anything. You’re going to lose out on revenue, and I’ve never loved the model where I get a small bit of money from a very small percentage of my audience. I feel like if people get value out of my software, I want them to pay for it. 

Now, the exception of course is freemium having a free plan, and in that case, we look at our four, I don’t know, rules or rules of thumb around freemium, which of course were swiped as most of my good ideas are from Ruben Gomez of SignWell. And one of them is there a tiny bit of virality such that another user using it can potentially refer a separate user. Is it low support? Is it low onboarding? And is there almost no cost to you for them to use the software? 

And my guess is the last three are accurate, probably no virality for you. So, I guess the question is does it need to truly be free forever? Or could it be a 14 day, a 30 day, a 60-day free trial that then stops working at a certain point? That’s probably a default way I think about it or having your version so limited to where if it’s a vulnerability scanner, maybe there’s 500 types of vulnerabilities and it only scans for 50 or 100. And so, to actually get value out of it ’cause if I’m an individual user, a consumer, and I want the full value, shouldn’t I upgrade? And enter a license key such that it unlocks those. I don’t know. 

It feels to me like having a true free consumer version. I know that’s how WinZip made their money back in the days. “Oh man, that’s a throwback. Remember WinZip?” And there was that old Winamp player thing from Microsoft, I believe. I mean, but it is Microsoft. They have infinity money and can do whatever free they want. If I was bootstrapping this and actually trying to make money on it, freemium pushes out your revenue, right? It pushes out that revenue line, and if you have a bunch of funding, that’s okay. And you can play the long game like Dropbox did. And the other freemium players that we could mention off the top of our head, Figma, that was one, right? But if you’re bootstrapping, you’re trying to get to the point where you’re quitting your job. While I may have a free version, I personally would kind of want there to be more impetus than just honor system for someone to pay me money because my gut is even of the people who should pay you money, it’s going to be one in 10, one in 50, just some tiny, tiny number. 

And unless I get a cajillion installs of this thing, you need hundreds of thousands of installs of this in order to make any type of real money. And that’s tough ’cause you’re getting tens of thousands or hundreds of thousands of anything is hard if you’ve built it. So that’s my take. I mean, I’m more of the SaaS mindset rather than the old school. You’re almost talking Shareware is what you’re talking, and that model is not one that I personally would return to. So, thanks for your question. I hope that was helpful. Our next question is from Zach.  

Zach:
Hi Rob. My name is Zach and I’m a new listener to the Startups for the Rest of Us podcast. I’ve already listened to a few episodes and bought The SaaS Playbook and read it in two or three days, and it was a fantastic read and would recommend it for anyone looking to start a software company. My question is in regards to competition and maybe some use cases that I just haven’t heard before, I’ve tried to search online, but my niche is in the local government space and the competition would be dominated by legacy trade organizations or associations. Curious if there’s been a product or a company that has gone up against these behemoth legacy companies who, in my opinion, aren’t innovating and aren’t providing a valuable product, but it’s well known throughout the industry. So, curious if you’ve had that before or if you have any suggestions, I would love to hear it. Thanks so much.  

Rob Walling:
Okay. So, this depends on a couple of things. Realistically, I don’t quite understand what your businesses or exactly how you’re competing, but when I think about it, if I’m competing against incumbents, big, entrenched incumbents, I usually don’t care because I know I can outmaneuver them, but there are some exceptions to that. If there’s a network effect, like a two-sided marketplace or where everyone being there means everyone stays there. Think about eBay and Craigslist, these sites that so many people have tried to copy, including Amazon, tried to copy eBay, they had their own auctions. Did Amazon try to copy Craigslist too? I mean, there’s been all these things that have tried to unseat eBay and Craigslist and they couldn’t because even though the sites didn’t change, it didn’t improve. They have tremendous network effects. And so, if the legacy trade organizations and associations you’re talking about have network effects as a bootstrapper, I personally would be very wary of trying to unseat those. 

The second thing is switching costs and switching frequency maybe ’cause if folks, let’s say big construction firms and often governments will sign two, three, four-year contracts for their software, and if you’re trying to get people to switch, they literally cannot without eating a bunch of money for years. So, a, if there’s a lock-in there in terms of duration of contract, but beyond that, switching costs are brutal, right? Imagine if you are like Planify, which is a TinySeed company that builds software for construction firms to run their business on their entire business system. The switching costs to or from them is huge. You have to train all of your employees, everybody out in the field, everyone in the office, and you have to get everybody up to speed and on one day just flip it over and you just hope it works. 

And these are not… It’s not tech-savvy people, right? You’re not dealing with the people who work at TinySeed, right? Or the people who work at MicroConf where we all know how to use Trello. And so, moving to Notion wasn’t that big of a deal and building something in Airtable, we just kind of figured it out. You’re dealing with folks who I’ll say like my dad who worked 42 years in construction, he kind of knows how to use a computer. I mean, that’s about it, right? He’ll call me and say, “I can’t find where Firefox is.” ‘Cause the shortcut from the homepage got deleted and he doesn’t know where to find it, right? So that’s can be the level you’re dealing with. And so, switch and costs are a big deal because the retraining and getting people up to speed is tough. So, I’m not saying don’t do it if they’re a big switching costs, but if they’re big switching costs, like I would want to enter a space where new people are coming in all the time, right? 

Let’s say I build trip email service provider competed with Mailchimp. Switching costs are not that high, but in mentally people think they are, but there are new people coming in all the time just getting started and new people with kind of email lists that want to move it to an official ESP or whatever. So, while there were switching costs, there was also a lot of opportunity each month for new people who were looking for a solution. If you don’t have that and you have high switching costs and you’re literally trying to pull them from entrenched competitors, it’s going to be tough. I’m not saying don’t do it, but those are the two headwinds I’d think about. The third one is brand, right? Do they have a strong brand and does everyone love them? Then there’s no reason to switch unless people are complaining or there’s an actual problem like, “Oh, they’re so expensive. They don’t actually do anything for the money. Oh yeah, we all hate them, but we’re just with them because they’re the only option.” 

Well, now I start thinking, “Okay. How hard is it to switch?” And if one person at a time or one company at a time switches to my software, do they get the same value or do I need a hundred or a thousand to switch out once because there’s a network effect, right? Again, coming back to if it was a network effect thing, I probably wouldn’t do it or I would seriously consider not doing it. Now, if you weren’t talking about trade organizations and associations and city governments, local governments, I guess you said it’s a whole different story, right? Because if we’re going into MarTech marketing technology where the switching costs are low and there are no network effects, and there are some big brands in the space, but people don’t like, I mean, there is huge opportunity in my opinion, but that’s not the question you asked, so I answered it with the information given. 

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Next question is from Bavesh, and I’m answering this one even though it’s a written question because it is almost 11 months old, and that sometimes happens with these. So Bavesh asks, “What makes a SaaS product a low-touch strategy? If all the competitors are undertaking a high-touch sales strategy, can a low-touch sales strategy be possible?” So, the answer to the latter question is yes, it can. The answer to the first question of what makes a SaaS product a low-touch strategy, there’s a couple of things, right? So, if you aren’t charging very much, it kind of has to be low touch, but you really have to do the touch strategy to support the way that your customers buy. If they all want demos and they all want high touch sales and onboarding, then that’s what you do to get the most customers. That’s just what you do. You adapt to what the customers want. 

Here’s the kicker. If they all want high touch, but they’re super cash strapped, let’s say they’re a school or a library or a nonprofit and they need the high touch, but they’re only willing to pay $30 a month, that’s a tough business. I don’t say bad business, but I would never start that business because you’re going to need a lot of person hours that aren’t justified based on the average revenue per account per month or the lifetime value or the annual contract value. Whatever you want to say, you’re just not making enough money to justify it. So, usually I look at how do the customers want to buy, and in some spaces like construction firms buying their business system, I was just talking about with Planify, they’re not going to self-serve, always going to go through a really long sales process. 

I think most lawyers like if you’re serving legal, they want to do usually there’s at least a demo or a conversation. If you’re selling to developers or marketing technology or to entrepreneurs, there’s a split. Usually with developers, there’s more low touch, no touch. With entrepreneurs there’s a subset who are not as technical, but I think of the startup founders, I shouldn’t say entrepreneurs broadly, but more kind of technical, semi-technical startup founders. The more technical they are, oftentimes they want that lower touch, but that’s a generalization. And so, once you enter a space, it’s like getting to know your customer, right? Getting to know your prospects, how they want to buy, and then realizing, can I charge enough to make it worth that level of effort? And to go back to your second question, which is if all the competitors have a high touch strategy, can a low touch strategy be possible? 

The answer is yes. If your customers are willing to buy on the low touch, and in fact, if you can then charge a lot less and have a great product and make it simpler because there’s a certain subset that don’t want high touch. I’ll give you an example, Infusionsoft, which is now known as Keap, I think it’s spelled K-E-A-P. They did high touch only and their marketing automation, by the way. They did high touch only and they were like three or $400 a month and up, so they were priced high, and they did this sales strategy. When I launched Drip, we had a decent subset of their functionality once we got automations and we had, you could say 80% of their marketing automation functionality. Now they have other stuff built in a shopping cart. We weren’t going to build affiliate management, blah, blah, blah. But just in terms of email marketing and marketing automation, we had enough of their functionality that a good chunk of their users could use us. 

And I went with a low touch strategy, frankly, a lower no touch, and I think we did have a book, a demo, and it was only if you were over $100 a month or whatever, we would do a demo, but otherwise you could self-serve, and our pricing was way cheaper because the sales model supported it. And so, we got a ton of Infusionsoft refugees that didn’t like the sales strategy, they didn’t want to buy that way, but they were being forced into it. And so, there was opportunity. The hard part is figuring out how do people want to buy if I’m not in the space? How do you figure that out? And that really is the question. It’s by talking to people, by being in forums, by being in the Facebook groups, by being in the Slack groups, hearing people complain, “Oh my gosh.” At the time Infusionsoft requires a one-year annual commit and a $2,000 onboarding fee, and their support is crap. 

They don’t let you see the product before you buy, and it’s a heavy sales process, and dot, dot, dot, dot, dot. So, I looked at that and said, “Our product is a lot easier to use, therefore, we don’t need all the onboarding and all this other stuff. And I know that we can make money charging starting at 50 a month and that there will be expansion revenue.” Which there was. And that frankly, we could have net negative churn if there’s enough expansion revenue which there was. And therefore, I knew that we could undercut them on price and change the sales model and really take a lot of their disgruntled customers away, which is what we did. So, thanks for that question Bavesh. Hope it was helpful. My next question is about doing sales as an introverted founder.  

Jordan:
Hey, Rob. I’m Jordan from the Netherlands. I’ve been listening to the show for about six months, and I absolutely love the show. So, thanks a lot. I’m a developer myself and have a question about introverted versus extroverted founders. So, on the show, you mentioned founders doing the sales up to a certain point of the business, and to me, that makes total sense. But as a more introverted person, I’ve always found sales to be difficult, perhaps more difficult than for more extroverted people, or yeah, at least that’s my assumption. So, I’m kind of curious where you see yourself on the extroverted versus introverted scale and what advice you have for founders that are more introverted when it comes to sales. Thanks a lot, Rob. Bye-bye.  

Rob Walling:
I like this question. So, to answer, I think it was your last one first. Where do I fit on the scale? So, I’m introverted. And there’s a reason that I talk to a microphone and a video camera instead of hanging out with a bunch of people. While I do this, I enjoy thinking and talking one-on-one or alone, frankly, as you all have heard me do for however many hundreds of solo adventures that I’ve recorded. I’m an introvert. And so, I definitely get drained when I go to big events, even though I run them, I get drained, and I get drained when I have to do sales calls ’cause it’s just outside of my wheelhouse. It’s something I can do. It’s not something that gives me life. 

So, here are my thoughts for you. I would read a couple of books that are focused on this topic. That’s exactly what I would go for because there are a lot of introverts, and I don’t know what the numbers are, but is it 50% of the world? I mean, it’s certainly some percentage that experience this kind of stuff. And so, there is information out there on it. So, one audiobook that I actually have in our audible library that I believe Sherry bought, I’ve not listened to, but it’s called Quiet: The Power of Introverts in a World That Can’t Stop Talking. And I think as a general book, just to learn more about how you can make introversion a superpower, I think that would be interesting. 

And the other book that I have not read, but I have had recommended to me, and it’s by Matthew Pollard, it’s called The Introvert’s Edge: How the Quiet and Shy Can Outsell Anyone. And that’s $11 on paperback on Amazon, and it looks like there’s an audio version or whatever. I mean, frankly, go to Amazon and type in sales as an introvert or go to Google and type in sales as an introvert book and just pick one with high reviews. And I think the one that I’ve heard recommended the most is The Introvert’s Edge, but someone is going to have a book’s worth of info about this and a thought process and a framework, and a here’s how you take sales and turn it on its head. If you’re introverted, that’s actually an advantage. 

So, here’s one thing I do ’cause I’m introverted and so I’m a little anxious about sales. So, I would get on a sales call when I was doing it for Drip, and I would say, “Hey, I’m Rob. I’m the founder. I’m really not a salesperson, but I know that you wanted a demo and I’m here to show you what we can do and try to figure out if we’re a fit for your use case, if we can help you and maybe save you some money ’cause I know you’re on Infusionsoft. Talk to me about your setup today.” Right? And I would kind of get them walking into it, and then I would be evaluating my head, “Are they actually a fit? I only want to sign them up if they’re a fit.” I didn’t want bad customers that are going to churn or are going to be a bad use of our time. 

And so, I would just be pretty honest with them and be a human upfront about this is who I am and this is the goal, the call rather than trying to talk them into it or trying to act like someone that I wasn’t, right? I didn’t try to channel some fake extrovert in order to do sales, but that’s just my experience. I hope you can find more help in one of the books that I called out. 

And my last question of the day is from Jake. Jake asks, “Thank you for the amazing content and insights you share on the podcast and the blog. My question, what if your idea is time sensitive and you don’t believe you have the time to do the stair-step approach to learn? I’m working on a site to test the idea and see if it has traction.” Thanks, Jake. I would probably just go validated then. You know what I mean? The stair set method is I don’t have any ideas, and I’m going to go try to do it in a repeatable, predictable fashion that I have a decent confidence that I’m going to build it up over time, and I’m going to have some moderate successes over time that build and build and build. If you have an idea that you really want to build, you’re just very passionate about, then go validate that, right? You can do the 5:00 PM idea validation framework to kind of do a first pass at it, and then do some type of validation. 

I’ve talked about this. There’s the high-touch validation where you’re actually having conversations whether via email or Zoom or Looms. And then there’s the low touch validation where you build a landing page and you can send traffic to it, either just by talking about it to your audience or running ads or SEO or whatever. There’s a bunch of different ways to do that. So, there’s kind of two, there’s more validation modes than that, but those are the two that I think about. I would certainly not go build this because I didn’t have time to stair-step, but to skip to validation on something that you think there’s a real need for and you believe that you’re excited to build it. There’s no rules in this, right? It’s just recommendations, it’s frameworks, it’s best practices to try to help get you to success faster and more often and more predictably. But none of this is set in stone. It’s all just the insane ramblings of some guy who has been starting companies for 20 years, has a few million-dollar companies under his belt, and has been talking on a microphone for 13 years. 

Thanks so much for joining me today and for sending in your questions. If you have a question for the pod, go to startupsfortherestofus.com. Click ask a question at the top of the top nav and audio and video questions will go to the top of the stack. This is Rob Walling signing off from episode 691.