Episode 738 | Encouraging Word of Mouth, Educating a Market, and More Listener Questions (A Rob Solo Adventure)

Rob Walling:
Alright. Alright. Alright. It’s another episode of Startups For, the Rest, Of Us. I’m your host, Rob Walling, and in this episode I’m going to be answering your questions. Well, maybe not your particular questions, but if you want me to answer your particular question in a future episode, go to startups For, the Rest Of Us dot com, click ask a question. In the top nab, you could send me an audio, a video, a text question. Today I’m going to be covering more later stage questions. I believe the earliest stage company is seven KMRR and the latest stage has 25 or 30 employees. So this is where it gets fun. I ask for these kinds of questions on X Twitter and folks showed up and delivered, so I’m excited to dig into them today. Before I do that, I want to let you know MicroConf Remote is going live again on November 20th. 

The focus is on early stage marketing. We’re going to do it in single day three speakers plus q and a after each talk, plus our founder by founder sessions microcomp.com/remote to see all the extra bonuses my team is including. If you purchase by November 7th, it’s a hundred percent online. It’s from 10:00 AM to 1:00 PM Eastern, and of course we record the sessions in case that time doesn’t work for you. Microcom remote is our low priced but high value three hour event we do about every six months and usually one focuses on early stage marketing, the other focuses on early stage sales and then one on the November 20th, as I’ve said, is going to lean heavily into early stage marketing. So microcom.com/remote if you’re interested. I hope to see you there. And with that, let’s dive in to our first listener question. 

This first question is from a longtime listener and a MicroConf attendee. I’m going to keep him anonymous per his request, but I did have a chance to meet him at our most recent event in Croatia. The asker says we are a team of 25. Our order sizes vary from about $100 per year all the way up to $75,000 a year. That’s servicing individuals, teams and departments, but we want to add full enterprises and six figure sales, which for us would be a thousand users and above. Should we be looking to offer them higher service at a higher price per user? So like dedicated account managers, product request priority, et cetera, or a lower price per user and just a small degree of extra service. For example, double the number of training sessions even though they have many times more users. And the question asker referenced a link to a Jason Cohen episode called Adjacency Matrix, how to Expand After product-market fit. 

And the quote from there is what might not have been obvious is how dramatically different it is to sell to the enterprise. Often startups claim this as their growth plan even when they’re only at 500 k in a RR. Again, this is Jason Cohen speaking in this essay. This is definitely the wrong strategy at that moment. This exercise makes it clear yet companies often conclude the opposite. They should instead be considering simple use cases at larger companies. So they should be ignoring the complexity of large companies so they can continue winning where they are already strong. So Jason Cohen, I like the way he breaks this down is selling to the enterprise can be done in different ways. You can have simple use cases at larger companies and we can call them enterprise usually. I don’t differentiate between those two things on this show, but a simple use case at a large company versus a true enterprise sale where it’s a quarter million dollars, a half a million dollars, the sales lead time is one to two years. 

Procurement alone takes 3, 4, 5 months. They redline your terms of service. That is different than a simple use case that your selling a lot of your licenses to a very large enterprise. So that’s what the question asker is asking, right? Should they think about getting into these enterprise sales at this point with a team of 25, they already sell up to 75,000 per year. I’m of a couple minds on this one. I’m going to be honest, I hate enterprise sales. And so if you can get away without doing the 6, 12, 18, 24 month sales cycles, I would do that and still grow the business. I would do that. They are nothing but a headache. And enterprise sales is something that a lot of bootstrappers shy away from. They want the self-serve bootstrapper dream, so to speak. But there’s an in between. If you’re selling $75,000 a year contracts right now and you’re not having to deal with all the headaches of true enterprise sales, I think that’s a pretty good business. 

On the flip side, one could say, well, do you want to maximize for growth or do you want to maximize for how much you enjoy running the company? And I think that’s a question to ask yourself is maximizing for growth would imply you would go wherever the money is, and so you would dig into these extremely complex sales. But the second thing is what do these companies want? We’re thinking about it right now from your perspective as the founder, but how do these companies want to buy? How do they buy today when they buy something else that costs a hundred, $150,000? Do they want higher services at a higher price or do they want a lower price per user and a small degree of extra service? If I were you, I would try to charge a higher price per user to enterprises. It’s not always possible, but that is, we talk about the perfect pricing. 

Typically it starts at like $50 a month and then it doubles and doubles, so it’s 102 hundred a month, and you have this dual funnel also where you’re selling 10,000 or $50,000 a year. I’m just laying out ideal pricing. If I were to build a company from scratch today, in addition, enterprise would pay a higher price per user, not a lower price, and that’s because they need things like custom terms of service. They need to be able to redline everything. They need to be able to have invoices and pos, which are probably already doing at 75,000 a year. They might need single sign on, which I know has traditionally been an enterprise offering, but has recently almost started drifting down into cheaper tiers. They need a dedicated account manager, as you’ve said, dedicated support SLAs in terms of uptime and support response times. You have product request priority, et cetera. 

That’s where I would lean towards is your team is at a size of 25 people where I feel like you can support that kind of true enterprise plan. So if I were in your shoes, that’s the direction9I would lean. And then his second question is, for our first product, we were lucky and had time for people to start organically talking about it at professional associations, trade shows, et cetera. But for our second product, it’s ai, so we don’t have as much time. What are your favorite examples of encouraging word of mouth marketing in B2B SaaS? I get this question once a month just from maybe a TinySeed founder or in some type of q and a or conversation. The bottom line is word of mouth is a great marketing channel because it’s free and it happens on its own. And word of mouth is a terrible marketing channel because it happens on its own. 

And trying to encourage word of mouth marketing is something I have never seen B2B SaaS do well, I’ve never seen a silver bullet is more of what I should say. There are ways to encourage it, and I’m going to run through a few of those here, but there’s no way to control it. You could control your ad spend if you have pay-per-click marketing work, you could control cold outbound. You can control even going to events if that’s working. It’s fairly repeatable. You go to more events, you meet more people, but word of mouth feels like this perpetually elusive marketing approach that so many of us want to encourage. And it’s usually we try a few things and it kind of does, but you never really are in control of it. I don’t know of a single, again, I’m invested in 191 b, two B SaaS companies and I don’t know of a single one that has kind of a silver bullet of like, oh, just do that and it accelerates it. 

However, with all that said, first I want to define word of mouth marketing. There’s a semi-private Facebook group or a Slack channel or Reddit. These are things I call hangouts. And if you see a question, what is a great source of funding for Bootstrappers? And you might see people weigh in with, oh, check out TinySeed, check out MicroComp, check out Rob, Walling. That is a form of word of mouth because it is people that are not you chiming in on a, it can be public, semi-private, fully private conversation and effectively bringing up or endorsing your product. So that’s one way. There’s another way which is a direct conversation where it’s at an event. I’m having an in-person conversation. Someone says, what’s the best CRM today for B2B SaaS? And I say it depends on what you need, but I really like close.com and we still use Pipedrive and there’s one called Adio and we can kind of talk through, so that’s a similar but different form or even a direct email or a direct text. 

If a friend texts me and says, Hey, what’s your recommendation today for email marketing automation? And I’d be like, oh, well if you’re SaaS, then it’s user list. And I’ve always liked Active campaign and their beehive if you’re doing X, Y, Z. So I group those into kind of two different things of Direct one-on-one and more like public, semi-public. Then the third is virality. And this is where it’s not really word of mouth, but it’s like slack. There’s two depths of virality in B2B SaaS. You can actually read ’em out in the SaaS playbook, but one is strong virality and that’s like Slack has where, hey, in order to use it, I have to invite someone from my team. So the virality is very strong. It’s a very high viral loop when you have weak virality and B2B SaaS, that’s more like a powered by link. 

So like Savvy Cal or Sewell, their customers share a link to get someone to sign a document or to get someone to book their calendar. And so that’s weaker. SaaS virality powered by Drip link was another form of weak SaaS virality. It’s still virality, but I separate that from word of mouth, not the same. It’s not someone making a recommendation, it’s just as they’re using the tool, they’re doing it. Alright, so I’ve defined these three types, right? The public word of mouth, the private word of mouth, and virality with strong and weak. So favorite examples of encouraging, let’s say the public word of mouth. I like to monitor forums, Facebook groups, Reddit, podcasts. I used to use Google alerts and I found that Google alerts is, it just doesn’t work anymore. So there’s a couple of tools I use, one’s called F five Bot, the other one’s called sen, S-Y-F-T-E-N. 

And the third is Arvid calls Pods scan fm. And I use those three tools to monitor any mention of any of my brands. So TinySeed, MicroConf, SaaS, playbook, startups, For, the Rest, Of, Us, my own name, start small, stay small, just whatever you can imagine. I like to sometimes participate in those conversations and sometimes not. But I do like to hear and see how often people are mentioning it and in what context and sometimes I have to jump in and correct someone. They’ll say, oh, TinySeed offers this much for this percentage of a company. And I’m like, no, that’s not what we do. You’ve misunderstood, but thanks for mentioning and I’ll correct it. Other times I’ll just jump in and say thanks a lot for the mention. Really appreciate it. Usually someone will mention, oh, Rob Walling said this in a YouTube video, and then I’ll go out and find the YouTube video and I will link it up because like, Hey, thanks for the mention, here’s the direct link to make it easier for you. 

So that’s a way of encouraging engagement. It’s a thing that doesn’t scale, but I find that things that don’t scale work better than you might imagine even at later stages. So that’s for the more public interactions. Participating in those conversations. Once you’ve been mentioned to me, it’s fair game. Now I don’t come in posting a bunch of links. Here’s a discount code to the things you mentioned. I genuinely either say thank you, I correct stuff. If I find there’s maybe a misunderstanding or I provide direct links or even additional recommendations like, oh, you recommended that YouTube video. I actually talked about it more in depth in this podcast episode. There’s a transcript if you just want to read through it. Now let’s talk about the more refer a friend word of mouth. I know people who have refer a friend or affiliate programs and refer a friend, you get a month free. 

They get a month free. That’s fine. That works well with B2C. I find that it works perhaps less well with B2B. I’m not saying you shouldn’t do it, but a lot of B2B folks are just less motivated by a free month of service or by a $50 Amazon gift card. If you have something that you feel like will motivate your people to refer it, then you could certainly do a manual email to all of your customers and just try it. And whether it’s free service, Starbucks gift card, Amazon gift card or something else, you can totally try this. I will also say that with my last SaaS company and I recommend to others do this, is there’s a certain point where customers love your product, certain point in their lifecycle where they love it and they don’t take it for granted. Usually it’s 60 to 90 days, it’s just past that. 

It’s where your churn plummets it. So you might have 8% churn, 10% in your first month, 6% second month, and then it’s like 1% from then on. And what that shows you is that folks who’ve entered a credit card are using their first paid month as an extended trial. And so I know that if my churn plummets in the third month, probably about day 75 to 90, I want to send an email that’s like, Hey, I’m Rob. I’m the founder of X, Y, Z company. We are a bootstrapped software company and one of the ways that we grow is when folks who love this tool spread the word and to encourage that, I’d like to offer you this X, Y, Z reward. If you haven’t otherwise, just ask it as a favor. I would really appreciate if you are loving our tool, getting a lot of value out of it, if you would forward this email to a couple people who you think could get value out of it. 

So you just ask for it. Are you going to get a 50% uptake on that? You’re not. Are you going to get more than 0% uptake? You are? So that is something that we did at Drip and it performed to the tune of single digit percentages in terms of people forwarding and signing up. But the nice part is you can put a referral link in that email and then you’re able to track it. Last thing I’ll say with strong virality and weak virality is strong virality. You can’t really just engineer that into a product weak virality. You can’t think about where can I put a powered by link? Where can I put some type of weak viral loop and give that some thought? Again, I don’t consider that word of mouth. Some people just confuse virality and word of mouth. And so that’s really why I spent so much time defining those. So thanks for those questions anonymous. I hope my answers were helpful. My next question is a voicemail and of course audio and video questions do go to the top of the stack as well as later stage questions go to the top of the stack.  

Speaker 2:
Hey Rob, it’s Flores. Thanks in part to your content, we managed to grow our radio ad platform to about seven KMRR and it’s actually a complete new way of working with radio ads. And we find that when we speak to customers extensively by phone or at events, many of them become customers. But in online marketing for example, the traditional view of radio seems to work against us. How would you approach acquisition if you’re fighting against such a traditional view of your products, which is simply not true anymore? Thanks.  

Rob Walling:
Talk about a voice for radio. Wow, I’m envious of Flores’s voice. Thanks for the compliment. At the start he said thanks. In part to my content, we managed to grow our radio ad platform at about seven KMRR and that’s really cool. It’s always good to hear. So you’re facing what’s called an education problem. And of course as a bootstrapper, do we want to educate our market or do we want to go to the people who already believe it? We want to go to the people who already believe it. There are the five stages of awareness from Eugene Schwartz and it’s unaware, problem aware, solution aware, product aware, and most aware, in a perfect world, you only sell to most aware. The problem is in any given market, there might only be dozens of most aware people in the entire world looking for your solution this month. 

So you inevitably have to go up that chain to the stage four of product aware or just the problem aware people that are searching for how do I solve this problem? And you see companies like v.io do that really well, especially if that problem is searched for in Google and has high search volume. You can cover things like how do I add transcripts or subtitles to a video or captions or how do I resize a video? Again, if you go to v io and look in their top navigation, you’ll see they have 20, 30 different use cases. All of those are very obviously SEO plays. And so that’s a great way to go after folks who are problem aware but potentially not solution aware. And that of course is where a freemium funnel works really well. So if I’m being honest, my advice is don’t educate the market. 

Now, is that realistic? I don’t know. Is the market of people who understand the value of traditional radio advertising big enough for you to build a great business? I don’t know. But if you need to educate them, then no one’s searching for this, right? This is not an inbound product. It is truly outbound. And my entire premise would be to fight against that traditional view. So we saw Salesforce do this with their campaign back in the Ts where they said no software, right? The traditional view of CRM software was that. It was like what? PeopleSoft, I don’t even remember what the CRMs were back then, but they were like a million dollar implementation and usually they didn’t work and it was all on-prem and it was a pain in the ass. It was consultants and it took two years and Salesforce said no software, right? 

They had the circle with the line through it and software in it, and they became the anti software company. Now they are software today. That’s the funny thing is software at that point was considered, it was desktop or installed or on-prem. These days we think of SaaS as software, but there was a differentiation at that point. There was cloud-based software, right? Application service providers. Their whole education plan or their whole education approach was to educate the market and to take a real strong stance. HubSpot did the same thing. They invented this term inbound marketing. I had talked to Dharmesh at one point. He said it took millions of dollars. It might even have been eight figures and several years to kind of define that term. And it’s expensive and it takes a long time. With Drip, we took the same approach, obviously at a much smaller scale because we were bootstrapped, but the headline that I’ve mentioned on this show many times is lightweight marketing automation. 

That doesn’t suck. So my big thing was marketing automation tools suck. They’re too expensive. The sales process is awful. Don’t use them, use us instead, we’re less expensive. Great ux, we’re not clunky, we’re not buggy. I was basically being very deliberate about going against the things that people hated. And these were all words that customers and potential customers had told us that they didn’t like about the competitors, right? The Infusionsoft, the Marketos, the Pardots. And so that became our entire positioning. That’s probably what I do here is be very opinionated about it and come out swinging in terms of you think traditional radio doesn’t work, this is where you’re wrong. This is not your father’s, it’s the old Oldsmobile ad campaign. This is not your father’s Oldsmobile where they tried to reposition, rebrand. That’s kind of the approach that I would think about and I would probably have a long conversation with Baird or chat GPT around this of how do I develop positioning and branding around this such that as long as I’m being genuine about it, and I’m not exaggerating claims, I’m basically saying, if you are not doing this and you’re this type of business, you are missing out. 

You are losing out. Stop paying $40 a click on Google when you can do radio ads and get people for a fraction of the price, right? So that’s how I think about it’s be super opinionated, don’t sell from your heels. I’d go in pretty hard. And so all that said, appreciate that question because in a perfect world, you don’t have to educate the market, but sometimes you find that you have to. So I hope my answer was helpful. My next question is from Sean Matthews.  

Speaker 3:
Hi, Sean Matthews from Left Hook. Currently we are a services company that builds integrations for software companies, bootstrapping our way to trying to build a software product that helps deliver the same thing using and leveraging pretty highly our open source framework called Frig that delivers and developed integrations. So what we’re looking for a question we have as we look at our ideal customer profile, it’s basically B2B SaaS, founders, companies, product people, partnerships. And we are curious as to how, and I haven’t heard you talk about this on the show before, what’s the general census about approaching accelerators, incubators, VCs, portfolio companies, and trying that as a channel to essentially sell your product into? And for us it would be approaching them and saying, Hey, look, we have this open source framework that you can use to build your integrations quickly and easily. And obviously we have some services on the side that we can sell them to do that, and we have a product we want to help manage that process for folks, but the core of the tech is open source and they can run it themselves. 

So the question is, is that a valid approach? Can we go to VCs? How should we go to VCs and say, Hey, we have this solution that could fit your entire portfolio, you should recommend it. Same thing with accelerators, same thing with incubators. I’m guessing this has been a thing that’s been attempted many times. So is it a frowned upon thing? Do people like it? How would you go about doing that? Obviously I do think having a direct relationship with VCs makes sense if we want to go get funding ourselves. On the flip side, I can imagine it becomes just a no-go. They get bid or sold that all the time. So why would they even talk to us? So curious, your thoughts. You have a more of an inside track than we do, and you probably heard people attempt this before. What’s your thought?  

Rob Walling:
Thanks for that question, Sean. Yeah, so there’s a couple approaches you can take here. One approach that you should not take is to scrape the portfolio companies from a website and cold outreach them one at a time because it really pisses people off. We get this about, let’s see, how often does it happen? Once a quarter, once a month within TinySeed. And the founders recognize it very quickly. They post in the private founder SOC channel and they say, is anyone else getting this outreach? And it becomes real obvious real quick. And then oftentimes we will reach out to someone and say, yeah, don’t do this. It’s bad form. You might say, well, it’s just cold outreach. Why wouldn’t I do that? Because it makes people mad because they don’t want to be sold to. That’s not the purpose of why they’re listed on a portfolio page. 

And it’s especially bad if you are leveraging my name MicroConf Tiny Seeds name and saying like, oh, I worked with another TinySeed company. And then people get in and they’re like, have they worked with anybody? Oh, are they lying? Or if they have, they’re kind of using our brand as if we’re endorsing them in this cold email. It’s a problem. So I would say don’t do that. If you’re going to do it, you want to, I think partner with the VCs, the accelerators, whoever. Now the thing you have to think there is, so what’s in it for them? Because the way you’ve described it, you have a tool and a service that could sell to these companies. So you get a lot out of this. You get sales. What do the portfolio companies or the VCs get out of you selling to them? What special deal, special service, significant noticeable discount. 

This is where you can think about maybe offering to be part of their perks. Pretty much every accelerator I know has a perks page with free AWS credits and all kinds of stuff. The thing there is it has to be significant. It’s not a 10% discount that doesn’t get you on perks pages. You’re talking 25, 35, 40 5% discount, like something noticeable or free for the first year. Something that really gets people’s attention because everybody wants to be on those perks pages for exactly the reasons you would imagine. But the perks page is probably the most standardized way of thinking about it. Another thing to consider is does the VC R accelerator, do they have anything you can sponsor? Do they throw an event? Do they have a podcast or YouTube channel? Do they have a newsletter? They have anything that takes sponsorships? Because that can be a nice way to get into conversation with them and sponsor it, see how it goes, see the support, and see if there is room down the line for some type of partnership. So thanks for that question, Sean. Hope it was helpful. My next question is about profit sharing.  

Speaker 4:
Hi Rob. This is Johannes longtime listener and co-founder of leady. We are a SaaS helping marketing agencies onboard their clients by getting them access to their clients’ accounts such as their Facebook page, Instagram, any advertising accounts. In just a few clicks, we have grown lei over the last four years into a profitable business and we would like to share some of these profits with our employees and freelancers. Of course, there are a few questions that we have to answer. For example, what percentage of our profits are we going to give away? Do we differ the compensation for each employee or freelancer by how many days they work for us or even where they’re based? For example, we have people from the Philippines and people from the uk, or do we make a difference also depending on how long they have been with us. We’d love to hear your thoughts on these questions and if you’ve seen any bootstrap companies doing this for their employees and even maybe freelancers without creating too much overhead. So keeping things simple as well. Thanks so much and keep it up.  

Rob Walling:
I appreciate this question. I get this every so often. In fact, so often that I wrote about it in my book. This has playbook sa playbook.com, quoting from page 138. The nice thing about profit sharing is that it doesn’t require you to sell your business for employees to make money. So in this section, this is a team chapter. I talk about equity, stock options, profit sharing. I even cover bonuses and I say consider structuring profit sharing as a pool rather than a committed percentage to an individual. For example, instead of telling early employees, they get one, two or 3% of profits have all key employees share in a 10 or 15% profit sharing pool. I go on for another few paragraphs. Obviously 10 bucks can get to the PD for the Kindle, or what is it, 12 bucks on Audible for to hear my dulcet tones read it to you. 

But the best explanation and examination of bootstrap or profit sharing that I know is from Peloni founder and CEO of Balsamic. So if you type in balsamic profit sharing in Google, you will find his article. And essentially they started with a pool of 10% of the profits, and that’s probably where I would start. You can always go up, you kind of don’t want to go down. He distributes it each quarter and at some point years into the company where he felt more comfortable, he increased it to 15, and I believe he’s now at 20% of the profits get distributed quarterly and it is allocated to full-time employees. Only 25% is split equally, and 75% is based on seniority. Then it’s weighed by the cost of living for each employee because they have salaries based on cost of living because they have 29 employees all around the world. 

And he notes they do quarterly because monthly was too much paperwork and yearly kept some unhappy people around longer than they should have stayed, which I really liked. That is by far the best breakdown. If you go read that full piece. I love the way he does it. I have seen some other bootstrappers write about their profit sharing, and I think some of the advice they give is really bad. So I would, without throwing particular people under the bus, I would look at PE, eagle zoning, balsamic, and I would ignore any other bootstrapper profit sharing that I see because I believe there was someone who was giving away more than 50% of their profits are their employees and that it makes your business, I’ll say almost inviable. It’s just if you ever go to sell, it’s just not a great way to structure a profit sharing. It’s too much. So with that said, it’s a short answer to a question, but hopefully that is helpful. And with that, we will wrap this episode. Thanks so much for joining me this weekend. Every week, this is Rob Walling signing off from episode 738.