Startups For the Rest of Us

Rob Walling:
Welcome back to Startups for the Rest of Us. I’m Rob Walling, and in this week’s episode, I talk with John Warrilow, the author of Built To Sell, The Automatic Customer, and The Art of Selling Your Business. John also runs a very successful SaaS company called Value Builder that is aimed at business advisors and brokers. In my experience of this business world, John is one of the most knowledgeable people about real business exits. This is not Instagram selling for a billion dollars in a weekend. This is about software companies, agencies, manufacturing companies, e-commerce, just the thousands or hundreds of thousands of exits that are below the radar that are not on the front of TechCrunch and that are businesses that sometimes sell for multiples of EBITDA, or in the case of SaaS, often sells for multiple of revenue, but these are not 100X revenue. These are those realistic business exits. John has interviewed hundreds of founders over on Built to Sell Radio, if you’re interested in hearing more about that. But today, he and I dive in how to decouple yourself from your business by creating standard operating procedures.
I know you’ve heard this before. You should create SOPs. We know. So we go a little bit into why and how that can increase your exit multiple, but also how it can reduce your earn-out if you do decide to sell your company and how it can make your job as a founder easier while you’re running the company. We don’t just talk about theory though. We actually talk about this tool that he and his team have developed through a lot of iteration and a lot of customer conversations. It’s called VidGuide at vidguide.com. They’ve taken a really novel tact on it, not only how to create SOPs, but how to get your team to consume them. We dive into that topic for the next 30 or so minutes. John was previously on Startups for the Rest of Us in 2021 episode 532, The Art of Selling Your Business with John Warrilow. It is one of the most popular episodes of this show. If you haven’t heard that, it’s amazing.
John, since he is an interviewer, is a good interviewee because he knows what it takes to put together a good show. So without further ado, let’s dive into my conversation with John. John Warrilow, back for more punishment.

John Warrillow:
I just can’t get enough, Walling.

Rob Walling:
It’s so good to have you here, man. Thanks for taking the time.

John Warrillow:
It’s good to be with you.

Rob Walling:
Yeah. Most folks will remember your episode. It’s one of the more popular episodes of the show, came out about two years ago about building and selling an incredible business. I believe that was right around the time The Art of Selling Your Business, which was your third book, came out.

John Warrillow:
That’s right, yeah.

Rob Walling:
We touched on just a little bit of that. So you’re back and it’s to talk more about exits. Obviously, each of us learn things as time goes on and I’m sure you have some new stuff to share with us. The first thing I want to kick us off with is, so you’re John Warrilow. Most people know your name. You’ve written three books on how to sell a business and how to think it through and you have a successful SaaS company, SaaS application for advisors called the Value Builder. In addition, now you’ve launched another SaaS. So this is a lot, John. As someone who runs two companies plus a podcast and writes books, I know how much this is. Why did you need to launch? This SaaS is called VidGuide at vidguide.com. What was the impetus for that?

John Warrillow:
Well, there’s a very quantitative impetus and then more of a qualitative one. I’ll give you the quantitative one first and that is that for Value Builder, again, sales and marketing software for advisors, we have everybody, the business owners who use it take an intake questionnaire. There’s eight questions, talk about recurring revenue and growth potential. One of the questions is this thing called hub and spoke, which measures the dependence the company has on its owner that we’re assessing. It turns out that across all eight dimensions, the one that business owners score the lowest on is hub and spoke, so this idea that they can build a company that’s successful, that’s got recurring revenue, but if they get hit by a bus, the business stops almost instantly. That was the quantitative impetus, if you will. Qualitatively though, I had a more embarrassing story. When we got to, oh, maybe 20 employees for Value Builder, so this goes back three or four years ago now, we started to see problems in our own system.
At 20 employees is where you can’t have everybody reporting to the founder anymore. You’ve got to have some layers, this drip and so forth. I was noticing we were making silly little trivial mistakes all over the place, and oftentimes, they had knock-on effect. One example comes to mind. We use Salesforce for contact management and people would enter people’s names in all capital letters. So it’d be like Rob, capital R, capital O, capital B. So we’d be emailing these people yelling at them. So something that’s just so simple as to no, no, don’t put names in full capitals when you enter them into CRM. Again, that’s a trivial example. So we got the idea, okay, well, we got to create standard operating procedures. We got to create these systems. I actually hired a lady who was a Six Sigma Black Belt and very, very experienced in this concept of SOPs. She made the most beautiful binder of SOPs with flow charts. It was a full 8.5 x 11 binder full of these things.
I announced to our team, “Hey, we’ve hired this person. She’s made these amazing standard operating procedures. I expect everybody to use them.” I put it to bed thinking, okay, this is solved. We got it all cleaned up, ready to go. And three days later, of course, I see the same mistakes rearing their ugly heads. What I hadn’t realized is that the people who I’d asked to consume and use these SOPs were ignoring them. That was the impetus or the qualitative journey that I wanted to go on this and I’m trying to understand why were you not using the processes we wrote in these binders.

Rob Walling:
So you were trying to solve your own problem in software. It’s eating your own dog food or-

John Warrillow:
Scratching your own itch, yeah.

Rob Walling:
… scratching your own itch, which are fine. I think the majority of probably SaaS companies are started that way, but not the super majority. It’s usually like 50%, 60%. We actually surveyed the audience and scratching your own itch is fine, but a mistake I see folks make, especially developer, builder, entrepreneurs is I have the problem, therefore everyone does, or I have the problem, therefore it’s worth paying for and other people will pay for it. So there’s usually a validation step that I ask folks to do after that is, okay, you do have this problem. Can you find five, 10, 20 others who have it? Can you find out how desperate of a problem? Is it an aspirin or a vitamin? Can you find out maybe how much they would pay for it? That kind of stuff. There’s more research or validation beyond that.
I’m curious if you went through any of those steps or if given that you do have audience and you have reach into insights into a lot of companies, where you went from there. We have a problem. I know that I could probably solve this with software, but were there other steps you took?

John Warrillow:
Yeah. We talked qualitatively to Built To Sell readers. Built To Sell has a website and so we have people who’ve opted in to receive communication from us. We went to them and talked to them about, how do you think about standard operating procedures? What are your frustrations about SOPs? Do you use them? If not, why not? So we talked to and did surveys with both qualitative and quantitatively with the Built To Sell audience. We talked to a lot of people, past guests actually I’ve interviewed on Built to Sell Radio. I talked to them, particularly the SaaS founders, people like David Darmanin who I know think you’ve had on this show. I talked to Dave and others about what is it about getting employees to follow SOPs. What we learned was the world doesn’t need another SOP software.
There’s lots of great written SOP software out there. What we came to learn through the research was the problem was slightly different than we’d originally thought it was. What the research was telling us is that business owners knew they needed SOPs, that this was not a surprise to them. The problem they were experiencing was the same one I was experiencing which was they weren’t using the SOPs. They couldn’t get employees to use them, and that’s a slightly different problem than convincing business owners they need SOPs. We have a bunch of downloads on our website and we looked at the most popular. We have this thing called The Definitive Guide for Creating SOPs, I think is what the white paper is called, but it’s an e-book effectively and it’s along with 12 other e-books. It’s the most popular one in our suite of e-books. So that was again another sign that SOPs, in particular, getting them to work in a business was something our universe cared about.

Rob Walling:
All right. So it’s less about the software to build them, it’s getting people to use them. How did you solve that? What did you do different is really… I had a question written down that was like, why build another SOP creations piece of software? Because I can pick five or 10, I can hit Google. So what did you do differently?

John Warrillow:
Yeah. What we learned is that when we talked to employees and the owners of their companies as to why they weren’t using SOPs, it came down to two things. They were hard to find in the moment and they were hard to read when they accessed them. Hard to find is like my boss put them in a shared drive, which is what we did, by the way. At the time, I think we used Dropbox or Google Drive. I can’t remember. It was Dropbox at the time. We just put them in a folder deep into the file architecture, six layers in, and people just couldn’t find it. When they had a moment, they were actually talking to a customer, they couldn’t find it, and so they skipped the SOP. It’s hard to find. The second problem is that for a lot of us, it’s hard to read. I’m not a great reader. I’m a slow reader. I don’t know if I’m actually dyslexic, but I think I have a slight orientation towards dyslexia, which means that a written document for me is hard to follow. I can do it, but I need a lot of time.
So those were the two things we found out. So the idea that we came up with was to create Loom for SOPs. You think about Loom, we’ve all used it for sharing videos and so forth. Again, we came by this idea honestly, because in my own company, what I found out is when people had a problem, they weren’t referring to this giant manual that we’d spent a lot of money creating. They were recording a quick Loom video and just shooting it to the employee who needed it to know how to fix the problem. So here we are spending all this money on SOPs and yet we were bypassing them to ship little Loom videos. We thought, okay, if Loom works, people want video, it’s easier to consume and digest and metabolize video than it is written SOPs. So video works. What’s the problem with Loom? Well, Loom’s a great tool and it’s perfect for some things. However, what we found was that when you’re sending a Loom in an email, finding that Loom video weeks later when you need it again to watch back was difficult. It was, again, sifting through email.
So what we built is this thing called Flightpath, which means that you can tag a video to a piece of software. For example, if you’re trying to convince or to explain to your employee how to send an invoice out of QuickBooks as example, you can tag your VidGuide to QuickBooks, quickbooks.com. Then when your employee logs into quickbooks.com, the video pops up in front of them. It’s like right in front of them, which is what we’ve heard again and again, is that people value the in context idea of seeing it in context when they’re doing the work. So if you need to figure out how to send an email at a Drip as an example or build a lead page, whatever, you can tag the instructions to the actual software people are using. So that’s how we solve for and made it different than [inaudible 00:12:17]. It’s also got Step Builder. You’ve interviewed Arvid Kahl on this show, have you?

Rob Walling:
Mm-hmm, yeah.

John Warrillow:
Yeah. I interviewed Arvid for Built to Sell Radio and he was describing to me the sale of his company and to transfer FeedbackPanda, he had a one-hour video he shot for the buyer of the business, Kevin McArdle, and basically described how all of the code worked, the code base, how it all stitched together. I showed Arvid VidGuide and he’s like, “Man, if I had this, it would’ve been so much easier,” because the other thing we built is Step Builder, which allows you to basically take a one-hour video that you can shoot and break it into little mini bite-sized videos, create a process. So it’s, again, built from the ground up for creating and sharing SOPs.

Rob Walling:
Right, and it’s a video-first platform-

John Warrillow:
Video [inaudible 00:13:09], yeah.

Rob Walling:
… that focus on that, yeah. See, that’s super interesting. I remember you and I had a conversation at dinner at one point.

John Warrillow:
In Minneapolis, yeah.

Rob Walling:
Yeah. You were explaining VidGuide to me and my question honestly was, there are so many out there, how are you different? The spark moment for me was when you said, “If you’re teaching someone QuickBooks and they go to QuickBooks…” Because it’s a plug-in, right? It’s like a Chrome plug-in or-

John Warrillow:
It’s a Chrome plug-in, yeah.

Rob Walling:
It just says, “We have a VidGuide. We have a company VidGuide for this site.” That is the genius moment because then, I don’t have to ever think, where’s the Dropbox directory? Where’s the binder on my shelf, right?

John Warrillow:
Exactly, yeah.

Rob Walling:
Super interesting. So I’m curious. A lot of times, innovations like this, because you’ve obviously created a novel solution to this, so there’s two things that can happen when you think of a novel software solution. One is it’s ahead of its time, and people are like, “We’re used to doing it this way, and you’re asking us to change behavior.” Let’s talk about that first. I’m curious if that’s happened. Second thing that happens is the moment people say, “Oh, my gosh, that’s a great idea,” competitor copies it. Then you’re stuck with, okay, now I’m competing against them on brand and other things. It’s not that you can’t outcompete them, but a novel feature is only a novel feature until it’s replicated, right?

John Warrillow:
100%.

Rob Walling:
On the first one though, have you found that folks are resistant to it because it’s maybe different than the ways they’ve done it in the past?

John Warrillow:
Yeah, which is why we’ve moved to live onboarding. You can get a big guy to count for as low as 29 bucks a month. There’s different stages, depending on how many employees you have and so forth. But we assumed, okay, for that price point, we’ve got to do everything electronically. It’s got to be all digital onboarding, it’s got to be videos. Again, ironically because it’s a video platform, we really have found that it’s worth investing the time and doing a live onboarding. What I mean by live onboarding is basically a human being scheduled into a scheduling software where there’s a point in time where someone from our team jumps on a call with somebody else and says, “Tell me about your business. What are you trying to standardize? What are you trying to create processes for?” And it’s that, to your point, it’s the change in behavior. It’s the change of way of thinking of SOPs that’s required more heavy lifting than we thought.
It’s got us thinking right now, and I know you’ve talked about this on Startups for the Rest of Us a ton, it’s like do it analog first. Figure out how to get the onboarding right in a very high-touch way, knowing that it doesn’t scale forever, but it’s better to do it right upfront. We’d moved to full white glove concierge onboarding, which is expensive and time-consuming, but I think it’s working to solve the first problem. The second problem you raise is another good one we think a lot about, which is what happens when one of the other SOP software out there does exactly what we’re offering, which of course they all have resources to do, money and their venture back. Couple things on that. Our vision is to really be Loom for SOPs from the ground up. Everything we think about is really about internal knowledge sharing.
Unlike some of the other platforms where they might serve dual purposes, might be a sales enablement tool or for sharing things with your customers, we’re really saying, “No, this is designed for the ground up for employees.” What that means is that we’re always optimizing for that. So yes, somebody could knock off Flightpath, which is the little pop-up inside a Google Chrome browser, but we’ve got four or five other features that you wouldn’t really build unless you were building it for SOP. Again, I mentioned Step Builder, which allows you to take a long video and make it into little steps, swap it, [inaudible 00:16:48] re-record another video. All these things you probably wouldn’t do if you were just a screen recording software or just that SOP software.
Another one we thought about is, you have somebody new join your team. You want to instantly grant them access to all of the SOPs that correspond with their job description. So basically you swap out your bookkeeper for bookkeeper A to bookkeeper B. You want bookkeeper B to have all the stuff that bookkeeper A had access to, or you have someone new join your sales team, you want that new person to instantly have access so you can basically flip a button and then they’ve got access to all of the VidGuides that correspond to being a new salesperson in your company, for example. So it’s like departmentalized, which is again, something you probably wouldn’t do if it was just screen sharing software. Those are some of the ways that we’re trying to, I don’t want to say stay ahead of because I think they’re just different products and different use for different reasons, but if we just stay really focused in our lane, which is really about sharing standard operating procedures with your employees, then I think we’ll be okay even if other people match us on certain features, if that makes sense.

Rob Walling:
Yeah, and that’s how I’d be thinking about it too. Early stage entrepreneurs will come on this podcast and I usually ask them, “How are you differentiated?” Brand is included in that. Do you have a brand that’s strong enough to hold it? I feel like you being ahead of the market right now, we’re in a pretty good spot to defend that. We touched on it a little bit earlier about why SOPs, standard operating procedures are so important for a business, both while it’s running to keep the founders sane and if you go to exit. It makes such a difference. In terms of having a business that is just I have a SaaS business that’s doing several million a year and I have no SOPs versus one that is completely not reliant on the founder, do you have any experience or examples of someone who you’ve heard have a great success story because they were so SOPed up so to speak, or someone who had a really bad story because it was just completely reliant on them? Just any thoughts or examples. I know you’ve interviewed hundreds of founders.

John Warrillow:
Yeah. A couple come to mind instantly. Again, Arvid Kahl, who you’ve had, started FeedbackPanda. Many of your listeners know Arvid is a prominent guy in the community. He built FeedbackPanda and as I mentioned, recorded a video that basically showed the new acquirers how to run the business. I think if you ask Arvid, it was really more about how to get through due diligence, take a letter of intent to closure. Because of course when a prospect or an acquirer is at the due diligence stage, that’s when all the red flags get raised in their mind. It’s like, how will I be able to run this? How will this thing go when Arvid leaves? Is it going to continue? It really, I think, allayed the acquirer, got him to close on the deal and actually consummate the deal. I think that was helpful for Arvid. Another person, have you had Jodie Cook on the show?

Rob Walling:
Mm-mm.

John Warrillow:
Okay, Jodie Cook would be a great… She wrote a wonderful book called The Ten Year Career, but she would be good to get on the show at some point. But Jodie built a company called JC Media, Jodie Cook Media. The early days, she was a digital social media agency and it was all her and all the clients wanted her, a classic story of a service business where all the clients wanted her. She is a very independent woman and was like, “I don’t want to be the bottleneck here. I don’t want to be the client’s best friend for all of these clients.” So she started creating standard operating procedures and she got an offer to acquire her company. I believe, again, I’m going by memory a little bit, but I think the offer was somewhere around seven times earnings, but 60% of it was in an earn-out, meaning that Jodie was being asked to stay on in the future and hit targets in the future and so forth.
And Jodie’s like, “No, no, you don’t understand. I’ve created standard operating procedures. I built this business so it doesn’t depend on me.” The acquirer didn’t buy it, but she just doubled down on SOPs and she leaned even further into it creating a whole library of standard operating procedures such that she was really, at the time of her ultimate exit, not working in the business at all. She got an offer, premium offer, 100% cash at closing. The reason she was able to close without an earn-out is her standard operating procedures. Again, an earn-out is the enemy of any entrepreneur. We’re all entrepreneurial. We’re all independent minded. An earn-out is where you have the golden handcuffs and you have three, five years where you’re working for a company and it’s horrible and it can be horrible, I should say. Standard operating procedures can help alleviate, minimize the importance of an earn-out. It may not eliminate it completely, but certainly reduce the proportion of your proceeds that are at risk. It worked for Jodie and I think she’s another example that comes to mind.

Rob Walling:
Folks listening to this podcast love to hear about validating ideas, early experiments or mistakes that someone might make because we all make them. You and I emailed a little bit in preparation for this and you talked about, “Hey.” Look, John, I’ve made this exact same thing where it’s like I have an audience, people know who I am. I’m going to launch Drip at the time. This is 2013. Then I launched it and it did fine and then it just plateaued really quick. It turns out people were buying because they wanted to make me happier, they wanted to help me out, and we really hadn’t built something people wanted and it took about another 10 months of building-

John Warrillow:
Isn’t that interesting?

Rob Walling:
… yeah, before we launched automations, found product market fit. So I call it actually the curse of the audience where it’s this counterintuitive thing of I have 50,000 people, however many I have on an email list. If you email them and said, “Hey, I’m going to build this thing, would you use it?” a lot of people will say yes, a lot more than would otherwise say yes if you didn’t have that audience. So you can get these noisy or just incorrect signals from your own list and then you have to start sorting out what’s real, what isn’t, who really needs this, how long will they stick around and all that stuff. So with that said, early validation of VidGuide, I’m sure you went to your own Built to Sell list. You want to talk us through how that’s gone?

John Warrillow:
Yeah, for sure. I’ll share with you two different experiences. One validates your point, one maybe provides a different perspective. The first that provides somewhat different perspective is when we first launched VidGuide, we really wanted to set this up as its own company. We didn’t want this to be SOPs by Built to Sell, for example. We really want it to be an independent brand in part because Built To Sell has its own shtick. VidGuide has a different offering and so we wanted to be separate. We created a sequence of landing pages as you do to test the site. We were getting terrible conversion rates. Our conversion rate on a landing page was hovering between 2% and 3%, really bad. So we were driving all this traffic and we tried obviously our own list. We tried some SEO stuff, some PPC stuff, and we were just getting really bad conversion rates.
When I looked at the landing pages through the lens of what would a business owner see when they see this, it’s a URL they’d never heard of, VidGuide. It’s a product that they’ve probably never used or maybe have thought about something similar, but not exactly the same. There’s no immediate corollary unless they’re a big user of Loom, for example. There’s just no brand equity there at all. There’s no trust and we’re saying, “Hey, sign up for a seven-day free trial,” and they’re like, “No” and they bounce off the landing page. We made one very important but subtle difference to the landing page. We put the cover of the book on the landing page. We said, “The folks behind VidGuide are the same folks that are behind the book Built to Sell, which has been endorsed by Seth Godin and Tim Ferriss and blah, blah, blah.”
That one change, having the book on the landing page, boosted our conversion rates from where they were two to three, were up around 18% right now and have not really made any material differences other than the book on the cover. Now, I would agree with you by the way, Rob, that we have had some customers who are like, “I like the book. I’ll sign up for anything that has the book on it.” There is a portion of the market that like the brand and therefore be like, “Yeah, I’m not really in the market recipes offer, but I like the brand.” So it does come with that as a caveat. What I would also tell you is that what we’ve learned is that an endorsement, and probably because it’s relatively new category, an endorsement from an advisor or just a trusted source is a big deal.
We’ve tracked conversion rates to paid on people who sign up through our own list, the Built to Sell list, versus when one of our value builder advisors makes a recommendation to use VidGuide. In the latter case, our conversion rates are much higher. Again, it makes sense. It’s someone you trust, someone you know, someone you’ve worked with in the past saying, “Hey, you guys should use VidGuide.” It’s a huge endorsement and that really does spike our conversion rates from trial to paid. Actually later this month, I’m not sure when this pod will go live, but we are launching it officially to the Value Builder Advisor community and looking to mobilize that community as well because it’s a really important issue for them. This hub and spoke score is one of the big reasons that the businesses don’t reach their full potential because they’re just too dependent on the owners. We’re singing from the same hymn book there, but that was a learning for sure. Have you had April Dunford on the show?

Rob Walling:
Yes. April’s spoken at MicroConf and I definitely had her on MicroConf On Air, which is a livestream show. I’m pretty sure I’ve had her on this podcast.

John Warrillow:
Yeah. She’s great, by the way. Folks should check out her book if they haven’t already done so. But she’s great and she talks about positioning a lot. That is her shtick for sure. We went through April’s methodology for VidGuide and before we did, we were talking a lot about the importance of standard operating procedure. Our messaging was like, “Hey, you need standard operating procedures in your company.” What we came to learn through the April Dunford messaging exercises is that that’s actually not the message. Because again, most people listening to this, most business owners know they need SOPs. They’ve all read the E-Myth. It’s not a big revelation to them that they need standard operating procedures. What they do need though and what we pivoted early in the process, again thanks to April, is this idea of what your real pain point is getting your employees to follow the SOPs you’ve got or getting your employees to follow what’s in your head.
Many entrepreneurs say, “Well, I’ve got an SOP.” You get them to point to it and they’re like, “Well, no, no. Everybody knows it. This is the way it’s done.” What they realize is it’s in their head and they haven’t ever actually articulated it or recorded it or whatever. April was super helpful in getting us to pivot from here’s why you need SOPs to the problem that you need an aspirin for, which is getting your employees to follow the SOPs you already have.

Rob Walling:
See, that’s interesting too because you could use a lot of tools to create SOPs, but how can I find a tool that helps my employees use SOPs? It’s like, I don’t know. So if you are able to do that, which obviously you are with the Chrome browser and the Chrome plug-in and how it pops up, that is a much more difficult problem to solve. Because again, a lot of listeners at this show know how to build tools. A tool can help you build SOPs, but a tool on its own, I think, might struggle to get people to use them unless you have a deep understanding of your customers, the fact that you have this Chrome plug-in and the fact that you have the organizational structure that you said where everything can be tied into the different applications. Without focusing on that, on getting employees to use it, as you said, I guess it’s super easy to have them not, to create them and just have them [inaudible 00:28:40].

John Warrillow:
Yeah. It’s also one of the hidden little secrets of VidGuide is that I think a lot of us as entrepreneurs, a lot of entrepreneurs I talk to on my pod, in the essence, we’re control freaks. There’s a certain way we want it done and it’s probably why we’ve been successful to some extent is because it’s like, “No, this got to be this good. It’s got to be done this way.” What we built is the ability to just basically snoop on your employees. When you share a VidGuide with an employee and you say, “Hey, this is how I want you to do it,” and you tag it to QuickBooks or whatever software you want them to use when they’re doing the activity, then you can actually see through reporting console like, have they watched it? How far into it did they watch it? Did they rate it? Did they provide comments? So you can say like, “Hey, I sent you this VidGuide, but you didn’t watch it, and so the reason you’re making this mistake is because you haven’t done what I told you to do.”
So it gives owners a little bit of snooping ability, which I think some have told us that that’s super valuable for them. It’s not the most progressive way to manage a team, but some people like to inspect what they expect.

Rob Walling:
I say less snooping. I say more about accountability.

John Warrillow:
All right.

Rob Walling:
How about that?

John Warrillow:
You’re saying it in a nicer way.

Rob Walling:
Potato, potato. If I give someone a binder, you’re right, you just have no idea.

John Warrillow:
You’re right.

Rob Walling:
Did they look at it or not? If I send them a video and they don’t watch it and then they do it wrong, that’s a problem. If they don’t watch it and they do it right, fine. I’m not going to micromanage you. But if you don’t watch it, then you do it not the way I said to do it,-

John Warrillow:
Making the same mistake, yeah.

Rob Walling:
… yeah, that’s a real problem.

John Warrillow:
Yeah, for sure.

Rob Walling:
John Warrilow, thanks so much for joining me today. You are John Warrilow on Twitter and of course vidguide.com if you want to hear what we were talking about today, as well as your three books, Built To Sell, The Automatic Customer, and The Art of Selling Your Business. We’ll link all those up in the show notes. Thanks, John.

John Warrillow:
Thanks, Rob. It was super fun.

Rob Walling:
Thanks again to John for joining me. Thank you for coming back every week. If you keep listening, I will keep making these episodes. This is Rob Walling signing off from episode 667.

Rob Walling:
Welcome back to Startups For the Rest of Us, I’m Rob Walling. Today, I sit down with SavvyCal founder, Derrick Reimer, and we answer listener questions, questions about how to validate when entering a competitive space, we give book recommendations for SaaS founders, we talk about whether a non-technical founder should outsource development or try to find a co-founder, and there even might be an appearance from Rob GPT. So without further ado, let’s dive right into the questions.
Derrick Reimer, thanks for coming back on the show.

Derrick Reimer:
Thanks for having me.

Rob Walling:
Got some good questions today, man, handpicked to fit your expertise, it’s almost like people knew you were going to be on the show or something.

Derrick Reimer:
Excited to dive in.

Rob Walling:
Yeah, it’s going to be good. Our first question is an audio question from Gabe about idea validation in a competitive market.

Gabe:
Hey Rob, my name’s Gabe. I’m listening each week from Denver, Colorado. I’m a developer, and I’m looking into getting into SaaS foundership, and I find your podcast and YouTube channel just incredibly helpful. So first off, big fan. Thanks. My question today is around idea validation, I think I’ve got an idea that might have some value, and I’m in the validation stage right now. I want to build a CRM tool for a small and medium-sized business niche that I’ve identified. And the space that I’m looking into doesn’t have any huge incumbents, nothing like Salesforce or anything like that, but there is still a fair amount of competition. How do you think about idea validation when exploring a space where there’s already clear competition? There’s definitely an established market here. And when that’s the case, what do you see as the validation goals I should be working towards? All right, thanks again. Bye.

Rob Walling:
It’s a good question, I bet it’s a pretty common one. You want to kick us off? What are your thoughts?

Derrick Reimer:
Sure, yeah, and I can definitely relate to this one a bit, I myself are in a decently competitive space, so I would say my biggest piece of advice is to start with a clear hypothesis about why the market needs another alternative, right? If it’s crowded already, then clearly buyers have a lot of different options, and it’s a tough road to try to just head into that and mostly have a set of undifferentiated features. So I think one, coming up with that hypothesis of what different needs to be out there? What is there demand for? And then try your best to disprove your hypothesis. Rather than trying to seek validation for it, try to seek the opposite. Try to find reasons why people don’t need this or why what they’re using right now isn’t just good enough.
I would recommend reading The Mom Test by Rob Fitzpatrick. It’s a great primer on how to have these types of conversations with customers without picking up too many false signals, because people will want to be supportive of you, they’ll want to tell you what you want to hear, and that’s exactly not what you want to hear. You want to hear the raw truth from them.

Rob Walling:
Yes and on this one. So I think that if you enter a competitive space, the biggest question you have to ask is what you said, how am I going to be different? Because if there are other competitors, you not only have to be different, you have to be different enough and better enough that they will switch. So the big question I’d be thinking is if people are already using a CRM, switching costs are relatively high for CRMs. Now, that’s good once you have customers, it means your churn is going to be low. That’s bad. And you’re in a competitive space, it’s a hurdle to overcome. And so the biggest probably one or two questions I’d be thinking about is what do people hate about the bigger players? And I know you said there’s no massive incumbent, but there are competitors. I would be digging in everywhere, Capterra, Cora, private Slack groups, Facebook groups, wherever anybody hangs out in this space.
And I would be trying to suss out, just by the conversation, maybe by questions. You don’t want to come out being too obvious, “Hey, what does everybody hate about this one?” And people are like “Ah, building a competitor.” But the idea is that if no one has an issue with your current competitors, why would they switch? Price isn’t enough, but if you want to do price, you’re going to get a lot of cheap demanding customers with high churn, right? Now, you can get some customers that way. Can you build a business doing that? Sure. Are you going to build a business that I would want to run that way? No. And so that’s what I’d be looking at, is what do folks hate about those larger competitors, or at least where… Maybe hate is a strong word, but what did they dislike? And then I think the other two things I’d be thinking about is I’d want to get some sense of the size of the market.
Depends on how big of a business you want. And we don’t need $10 billion markets like Adventure, but there are some markets that are literally $10 million or $20 million, some SaaS markets. And that’s a really small market. I guess it also depends on your goals. If you want to build a $100,000 a year business, okay, 10 million is enough. I think most of us want to build that million dollar, 5 million dollar business. That is going to be really tough if the market is that small. So I’d be thinking, I don’t don’t know, 50, 100 million a year. There’s some number, I haven’t given it a ton of thought, but you don’t want to try to have to capture 50% of the market to achieve your goal. And you’re not going to get an absolute market size. Don’t go into MBA mode. Just get an idea of it. Who are the biggest incumbents? And do some Googling to see if they’ve ever said their revenue at any point, and then just add it up and multiply it by two.
Just take a guess, and it gives you kind of an order of magnitude. Then the last thing I will say, it’s the question that everyone forgets, is how are you going to get customers? It’s that when Ruben Gomez went to do SignWell. He started SEO a year, at least a year before they launched the app. He got a domain, he started building templates for contracts. Or whatever he did for his SEO stuff, he had tens of thousands, if not more uniques a month before that app ever hit the ground. And SEO is just one play. If it’s going to be cold outbound, why not try cold outbound today without any product and just start doing the cold outbound, and saying, “I don’t have a product but I’m trying to solve. Does this pain point really bother you?” And if no one will reply to you today, why are they going to reply once you have a product? What do you think?

Derrick Reimer:
Yeah, no, that’s all really good stuff. I recall one app that I was trying to validate back in the day was for realtors. This is a common thing that a lot of us do. I was buying a house and realized how bad so many parts of the process seemed, to me at least. And I did. I made a spreadsheet of a hundred realtors and called them up. And it was a grueling process, and I got a lot of useful insight about the market, about how they think about things. I think I was thinking about a website builder for realtors or something. So I was like, all their websites suck, and they don’t hook an MLS and the prices are always out of date. And I learned why many of the things are stuck the way they are, and I learned about how realtors actually think about the value of their website. The answer is not very much. And so tons of things that I wouldn’t have learned if I had just assumed that they were thinking about the value of a website like I did. So I think those are all good points.

Rob Walling:
That saved you at least six months of building. You were going to build a Squarespace type, like a striped out Squarespace for realtors. And I remember it was pretty obvious. You’re like, I did these a hundred cold calls. And however many people you talk to, you’re like, “Yeah, this is… No, this is not going to work.” It was one, I found out it’s a market I really don’t want to work in, but two nobody’s going to pay what I need to be worth it.

Derrick Reimer:
Yep.Yep.

Rob Walling:
So thanks for the question, Gabe. I hope that was helpful. Our next question is another audio question from Michael, talks about when it’s worth it and how he’s stressed all the time.

Michael:
Hi Rob. Thank you so much for your podcast. I really enjoy listening to it, especially the Rob Solo Adventures. My name’s Michael. I’m a full-time student, and I created my own SaaS product like 16 months ago, and it’s currently hovering at about 1200 bucks a month. So my current problem is that I’m very anxious about everything, and I’m really stressed out about it. So every time I find new competitor or new competitor gets on the market, I like completely losing it. Or whenever somebody drops comment somewhere and the person isn’t completely satisfied, I’m also completely stressed out about it and worrying about it. So my question to you is, how do you know that it’s worth it? And when would you consider moving on to a new project or a new product? Because the thing is, if I’d made like 10K a month, it wouldn’t be a problem. I think so. I don’t know, but I think so.
But currently, I’m only making like 1200 bucks a month and that’s not worth it for me, but the goal is that it’s worth it sometimes. So very interested in your opinion on whether to move on or not. Thank you so much in advance, and keep up the good work.

Rob Walling:
So Derek, as two people who definitely do not struggle with anxiety at all, nor have we in our life…

Michael:
Never.

Rob Walling:
Can you relate to Michael? And then do you have any advice for him?

Derrick Reimer:
Yes, I certainly can. Something that Michael said, I think this is paraphrase, “If I made 10K a month, this wouldn’t be a problem.” And I totally understand where the inclination is to feel that way, but afraid to say that’s probably not true. In fact, there’s probably going to be more anxiety once there’s more traction and you’re more on the radar of your competitors and you’re more in the game. It only gets more stressful. It’s not hopeless. You can learn to manage that. So it’s not like you’ll be stuck with crippling anxiety the entire time on your founder journey, but it’s a process and it’s one that I’m certainly going through all the time. I’m still constantly dealing with stressors in my business and having to try to… I think the big thing is trying to separate my anxiety or the way I feel about certain aspects of the business from my actual rational decision making.
So I think this question is kind of centered around I’m feeling this anxiety. How do I know when I should quit? And I think I would not view anxiety in and of itself as a reason to move on from your product. Your mental state’s going to fluctuate a lot as a founder, and I think a big part of the game is trying to not be reactive to these emotions, but to separate, separate your rational decision making from how you’re feeling about things. And so I guess that’s encouragement to stick with it if this is what you desire. If you feel like you’re playing in a space that you’re optimistic about and you want to keep forging ahead, but you’re feeling anxious, this is my encouragement to you to stick with it. I would also say if you take a step back and really analyze your business and feel like you don’t have that drive or you’re just not interested in it, then that’s okay too, if you decide that that you’re done with it and if you’re struggling to get traction or whatever, whatever you’re contending with here.
But yeah, I think in general I would just try to separate the anxiety from the rational side of things.

Rob Walling:
Yep, that’s it. And it’s easier said than done, but so are most of the hard things that you’ll do in life, especially as an entrepreneur. There’s an entire book written on this very topic called The Entrepreneur Guide to Keeping Your (beep) Together. It’s like $4 on Kindle. And my wife Dr. Sherry Walling wrote it. I contributed a small part of it as well, a lot of anecdotes and such, and it basically is around this topic. I absolutely have struggled with incredible amounts of anxiety most of my adult life. I figured out how to tame it about 10 years ago, took me a long time. And actually, I didn’t work on it before then. I just ignored it and pushed it down. Have I evaluated being on anti-anxiety meds? Yeah. Should I probably have been on them in my thirties? Yeah. I never did, but I think my quality of life would’ve been higher, in all honesty.
I think that there’s a couple ways that I would think about this from a practical perspective. When I first listened to the voicemail and it said, if I was making 10K, it would be worth it, same thing you picked up on. I was like, record scratch. Nope, it’s only going to get worse. Not going to get better, period. If it was 10K, if it was a 100K, you would still hate it. Trust me. I’ve literally been there. Then I actually played this for Sherry just to say, “Oh, what do you think about this?” Right? She’s a psychologist. She’s a founder coach. Right when it hit the 10K line, she said, “Stop it.” And I paused it, and she said, “Yeah, that’s not going to fix it.” So it’s obvious the money isn’t going to make it better. The three things that I noted in my head are doing inner work to figure out how to deal with your own psychology, right? More than being half of a successful founder is managing your own psychology.
That can mean seeing a therapist, which I have done for on and off for years. That can mean getting in a mastermind. It’s only every two weeks, so I might not carry you through, but it’s a sanity check. And then another way is to have a co-founder. And that’s easier said than done also, but I think having a co-founder who is the exact opposite… Don’t look for someone else anxious and stressed you. I will admit that being a co-founder with Einar on TinySeed, he is the exact opposite in those terms. He doesn’t get anxious about anything, which has its own issues, right? But early on, when we were trying to launch TinySeed, I’m like, “Oh my god, the terms, the thing.” And he is like, “Yeah man, we’ll figure it out. We’re really smart and we know what we’re doing.” In so many words, it’s like, “You need to chill out.”
And pretty soon I started kind of modeling that in my own head, right? I was already doing better with all this, but being around someone day to day who I saw, oh, he just kind of shrug (beep) off and it always works. And then I thought to myself, so I don’t shrug (beep) off and it always works in general. I’m exaggerating, but it’s the same thing. So why the (beep) am I dealing with this anxiety every day when we are getting to the same outcomes? We are both having successes, yet I’m in this mental battle in my own head of someone said something negative about me on Twitter, someone, whatever it is. I get it. I still experience all that. Actually, I had someone post overnight on my, I think they DM’d me on my Kickstarter with kind of a rude entitled comment about how I didn’t understand da da da da.
And I was just like, all right, I get to get up and I get to take this with me, I get to be angry or I get to be stressed, or I get to pick what I want to do, and that’s how I deal with it these days.

Derrick Reimer:
The point about masterminds, that just reminded me that this is something I’ve observed about myself. Honestly, I’m going through some things with my business right now that are really challenging, and I’m feeling, at times, low on energy or just frustrated and trying to figure out how to problem solve at a high level. And I often find that when I’m having conversations with fellow founders who may be struggling with maybe not the exact same thing, but something similar enough, and I start to think about rationally. I can remove the emotions a little bit more when I’m thinking about their problems, and I start to share some perspective. And then I realize that, oh, a lot of this perspective actually applies to me as well. I need to get out of my own head and just think step by step. And so I think there’s a benefit to being in community and sharing what you can to help others problem solve. You can often give yourself the gift of some clarity on things just by nature of helping other people.

Rob Walling:
Yeah. I like it. So thanks for the question, Michael. I hope that was helpful. Good luck too. I know it’s a tough place to be in, so I’m glad you wrote in. I’m sure there are a lot of other folks listening who share your sentiment. Our next question is from Greg about whether to find a technical co-founder or to outsource development.

Greg:
Hi, Rob, I’m Greg, and I live in Johannesburg, South Africa. I’ve been listening to your podcast for about five months now. Aside from enjoying it, I think it’s adding value to the way I think about startups. I’m a chartered accountant, which is equivalent of your CPA. And I’m not technical, so I’m not doing any development myself. So my question, and I know there’s a good chance you’ve answered this before, is do you think it’s better to get a technical co-founder or to outsource development? My gut says a technical co-founder because I feel like ongoing development in particular would be easier and more efficient, but I don’t know, and hence the question. But if you do recommend a technical co-founder, how do you find that person? Thanks for any advice, Rob.

Rob Walling:
So Derrick, technical co-founder or not, you are a developer, founder, so you don’t have to make this choice, but in his shoes, how would you think about it?

Derrick Reimer:
Yeah, and I’m curious to hear your perspective on this too because thinking through some different angles here. I would say if you can find that technical co-founder, I think that’s clearly the best option. It’s good to have someone who’s fully invested in the product and in the business and has that expertise, and can look over that side of things, for sure. I think there is kind of a big practical challenge in finding one of those. And so I wouldn’t be hesitant to play it up so much that to say that you have to find a technical co-founder, or else you shouldn’t proceed with starting your business. So a lot of things to consider if you are vetting someone as a technical co-founder. Do you work well together? Do you like each other? Do you know this person, or have you just met you want to give it some time first before you decide to partner up and go into business?
Do you share the same goals? Are you aligned on what you want out of the business? And do you want to sell it? Do you want to run it for a long time? There’s so many things to consider, how do you split the equity, all of that. So I wouldn’t recommend rushing into any kind of co-founder relationship, and certainly there are other paths if you can’t find one. I would say if you don’t end up with a technical co-founder, then I would probably recommend working with an agency as opposed to just hiring and managing your own developers. I’ve seen this happen in multiple cases, where non-technical founder goes and finds their own developers, hires them. And if they get lucky and they happen to be really good at architecting a sound code base, then you might be fine.
But if no one’s on team kind of looking over that, then you could find yourself in a place where you actually have a lot of spaghetti code, and you not being a developer, just aren’t able to keep tabs on that the same. So perhaps an agency where they can provide some oversight over the development process of your first version would be wise.

Rob Walling:
Yeah, it’s a marriage if you’re going to get the co-founder, right? And it’s hard to meet someone and then decide to start a company together right away. So it takes time. All things being equal, you’re going to give away the most equity to your co-founder. You could be a hundred percent and hire an agency. You could be 50-50 or some number in there. The problem is, I believe… I’m forgetting what the exact number is. I should look it up because I keep referencing it here, but the percentage of TinySeed companies that we have funded without a developer co-founder is somewhere in the 10 to 15% range. It’s very, very small. And even the number in the broader that about matches what’s in the broader MicroConf ecosystem based on the state of independent SaaS, and there’s a reason for that. It’s because just getting something built and getting it far enough to revenue without a technical co-founder is very expensive.
And once you get there, as you said, almost always, I will say that this code is (beep). And I’ve seen it a dozen times at least, maybe 30 times. It’s a large number, where even today, as a former developer, if I hired an agency to build a product for me, I wouldn’t be able to QA the code quality. Now, I’d be able to QA the app quality, the functional layers and see when it’s breaking, but it’d be very time consuming for me, and it’s a tough one. I see the companies who don’t have a technical co-founder, where it’s just a subject matter expert, or a subject matter expert and a salesperson, for example. The number one issue for them constantly ongoing sometimes for years is the product. And then they try to find a new developer, and then well, “Ph, we hired juniors, so now we need a senior. Oh, and now the original agency that did it did this and they messed this up, so now we have to rewrite the whole code base.”
I had a friend who rewrote the code base twice because the first agency screwed it up, and then he brought a senior contractor and who wrote the whole thing and then they had to rewrite the whole thing again once he then raised around and then had enough to hire. He was non-technical. So I’m telling the horror stories. I can’t tell, “You you should give away 50% of your company to someone.” I can’t give you that advice. What I can say is the people who don’t have a developer co-founder, over and over and over, I see the same thing, and they just struggle with the product side. Even I quote Craig Hewitt, non-technical founder of CAOs, which he has said is doing seven figures.
And his biggest takeaway is if I did this again, I would either have a co-founder, or I would have enough money to hire someone that I basically know, that I would pay him a full salary, that I would swipe them away, a senior that’s in my country, or really close to me, in my time zones, and I would do it. And that’s been his learning from doing this for six, seven years. It would be tough

Derrick Reimer:
And I think that’s actually a good point. Another option, as opposed to the agency is if you have the cash or the ability to raise it or have, borrow it, or whatever to pay basically a senior level developer who you can even have someone who’s more technical help vet them, help interview them and see if they have good chops. So if you can hire that role, that might get you in a better spot as well

Rob Walling:
Because it’s ownership at that point. When you say outsource, it’s someone who just doesn’t care about your code or your business, in almost all cases. I’m generalizing. Of course, there are some contractors who are really good and really conscientious. A lot of them are dollars per hours, and they’re just trying to get the things shipped and get the money. I say this to someone who was a contractor for many years. And I always tried to be as conscientious as I could. I did have other priorities competing sometimes, and I worked with a lot of people who just didn’t care and were there for a paycheck, as with a lot of jobs. So that’s where outsourcing is, I think that’s going to be tough. But the moment you get someone who it’s like, “Hey, you’re going to be here with…” Even if it’s not 50-50, but it’s like I’ll pay you salary and you’ll get enough equity, few percentage points, whatever that number is, where they do have that “ownership” of it and they want to keep the code base really sparkling clean.
For the second part of his question, which was, if I look for a co-founder, where do I find them? I went to ChatGPT. And not only did I ask ChatGPT, but then I took its answer and I ran it through the voice simulator in my own voice. So we’re about to roll that here. I want to caveat this in advance. I asked ChatGPT four of the questions from this episode, and a lot of the answers were just very generic, unusable. And I would turn them into audio and I was falling asleep because it was just boring and like, “Oh, and do this, and then test, and then…” Whatever. So for this clip, I took the best 800 word response. And these are the best 200 words, so let’s not assume that our job, Derrick, will be obsolete anytime soon.

Derrick Reimer:
Yeah. All right.

Rob Walling:
If you decide to pursue a technical co-founder, here are some approaches to finding the right person. Number one, networking. Attend industry events, meetups, or join online communities where technical professionals gather, cough, cough, MicroConf in-person events and MicroConf Connect, engage with potential co-founders, share your vision and look for individuals who align with your goals. Number two, co-founder matchmaking platforms. Platforms like Co-Founders Lab, Founder Dating, or AngelList can connect you with potential technical co-founders who are looking to join startups. Remember that finding a technical co-founder involves building a relationship based on trust, shared values, and a common vision. Take the time to evaluate potential candidates and ensure that they bring the necessary skills, expertise, and dedication to the table. All right, so first of all, amazing that ChatGPT did the cough, cough MicroConf thing. Isn’t that great? Totally, definitely did not add that in.

Derrick Reimer:
Yeah, that’s hilarious.

Rob Walling:
But here’s the thing. What was the trip is I was going to say go to in-person events and go to online communities. And of course, I was going to mention, since I run both of those for exactly this audience, go to an in-person MicroConf that’s a local air flagship and go to MicroConf Connect. And that really I think was the first point that ChatGPT made. The interesting thing is I didn’t know there were co-founder matchmaking services. Of course there are. Now that I’ve read it, I’m like, yeah, of course that should exists, but ChatGPT just whips it out, so to speak.

Derrick Reimer:
That’s good stuff. Yeah. And it’s a little bit of uncanny valley with the rob voice.

Rob Walling:
That’s creepy.

Derrick Reimer:
Yeah.

Rob Walling:
Figured you’d get a kick out of that. It’s like, is there a Rob really… Rob’s in front of me and he doesn’t have a cold today, so he doesn’t sound that way.

Derrick Reimer:
Yeah, that’s good.

Rob Walling:
I think the other thing, really the issue I have with the matchmaking services, I would love to believe that works. We’ve been asked to do that at MicroConf, to do… Because we do mastermind matchmaking. Why wouldn’t we do founder matchmaking? I’m just skeptical. It’s like matchmaking people for marriage.

Derrick Reimer:
Yeah.

Rob Walling:
It’s really hard to do.

Derrick Reimer:
I was going to say the same thing. There probably should be Hinge for founders, and maybe that probably exists, honestly…

Rob Walling:
What is Hinge?

Derrick Reimer:
… swiping on…

Rob Walling:
Is that like Tinder?

Derrick Reimer:
Hinge, it’s like Tinder. Yeah. You swipe left, swipe right.

Rob Walling:
How do you know what Hinge is?

Derrick Reimer:
I have a single friend.

Rob Walling:
Sure you do.

Derrick Reimer:
Yeah. That’s actually one of my favorite hobbies because she doesn’t like the process of online dating, and I love going through and swiping on profiles because…

Rob Walling:
That’s funny.

Derrick Reimer:
Yeah.

Rob Walling:
Yeah, finding co-founders is hard.

Derrick Reimer:
But yeah, it’s hard. Just finding a life partner, finding a co-founder is similarly complex and difficult. So it’s like, yeah, I guess in that sense probably try multiple different things and kind of see how far you get.

Rob Walling:
And what do you bring to the table. And in your case, you are an accountant in South Africa, so I think you have some budget. Subject matter expertise is, it’s a little bit, but that’s not much compared to a developer who’s going to put in hundreds of hours. Are you going to put in hundreds of hours too? That’s the thing when you start talking about this is if you don’t bring, “I know how to market. I have an MVP built in no code. I have 20 people on a wait list who told me they would buy that.” These are valuable things saying, oh, I know the business problem. I could do customer interviews and find that out. I’m not trying to downplay it too much, but I could talk to 10 accountants and probably find a problem. So it’s not worth, again, hundreds of hours of my time that I would otherwise be billing at 50, 100, $200 an hour. So thanks for the question, Greg. I hope that was helpful.
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Stop burning money, hire Dev smarter, visit lemon.io/startups. Next question is about what to double down on a game that this caller built, or to launch a SaaS app.

Speaker 6:
Hey Rob, this is [inaudible 00:28:26] from Budapest, Hungary, longtime listener and first time caller. I’m facing unique dilemma and [inaudible 00:28:31] sites. Last year, by working a full-time developer job, I accidentally entered the web team business by creating a simple movie team daily game just for fun. To my surprise, attractive clinic daily visitors and generated in of revenue to match budget salary, leading me to reside. Currently, the Dean’s popularity is gradually decreasing along with the whole daily trend, but I still have 10,000 daily users. Simultaneously, I’m excited about building a SaaS product and have some promising [inaudible 00:28:57] ideas, such as real feedback, ChatGPT conversational user feedback that I designed based on my own needs. So I’m at the decision point now. Should I take advantage of my current web game audience and explore related opportunities, or dive into the SaaS word, even if it means starting from zero? I will greatly appreciate your advice.

Rob Walling:
Derrick, as someone who has always longed to build a game to 20,000 daily active users or whatever he said, what are your thoughts on his predicament here?

Derrick Reimer:
Yeah. Well, first of all, congrats on getting something off the ground like that. That’s pretty cool. I would say though that I’m still always going to advocate for B2B SaaS over an ad-based website for consumers. And I think the big thing here is that is just… Games especially are so inherently like hype cycle driven. Even you look at some of the biggest game makers in the world kind of wildly fluctuate on their ability to even stay in business because it’s just so hit based, and it’s very difficult to engineer that, versus B2B SaaS, we have so many different playbooks and resources for identifying, validating marketing, growing your SaaS business, and honestly, most of those just would not apply to trying to build and get traction with the game. So I think for those reasons, I would strongly advocate SaaS over a game.

Rob Walling:
You wrote into a SaaS podcast, what’d you expect? Yeah, I can’t imagine building a game into a revenue stream. Hit based, which is what you said, is exactly how I think of games. It’s kind of saying, “I’m going to write songs for money.” It’s like cool, hope you get lucky. Talk about hard work and skill. To be good at writing songs, do you need a tremendous amount of hard work? Usually, you look at anybody, ed Sheeran, you look at the Lizzo documentary, Beyonce, whatever, there’s a bunch of Netflix documentaries I’ve been watching of them backstage, and they work their ass off. And these are hardworking people. Do they have skill? Hell, yes they do. And as someone myself who’s been in bands and played the guitar for 20 years and sang in bands, and still cannot stand how that my voice is not where I want it to be and these people are there, I know that they have some skill that I personally don’t think I will ever have.
So they have hard work, they have skill. And guess what? They still need a (beep) load of luck to get where they are, and then to stay where they are, right? Because we hear so many people, you’re who come in with a big hit or two and then that hit base nature is tough. I think of games as the same thing. I love games. I play games. I never want to build games as a business myself. So I would be thinking about, how can I sell this thing to give me some runway? I know it’s not monetized, but 10,000 daily active users, that’s a number. It’s not zero. It’s like is there value here? Is there any type of strategic that would buy it? Because if you can get any type of money for it, I would be using that to try to propel me forward on my journey of SaaS. Now, is SaaS as interesting or exciting as building games?

Derrick Reimer:
No.

Rob Walling:
No, no way. But I look for repeatable, relatively predictable ways to build incredible businesses. And I could imagine myself building 50 games, and maybe zero of them working out. I think of the numbers are that bad. And my personality is one that I think if I build even starting out three, four, five SaaS apps, I think one of them can catch if I like… I’m not going to just build three and spray and pray. I don’t like that approach. But if I really follow them through, I think I’m going to catch something eventually that’s going to get me to a place where I quit the day job.

Derrick Reimer:
You look at some of the indie hackers right now, indie makers who are selling into consumer space, your Pieter Levels, Danny Postma, like doing the AI headshots type of stuff. And it’s fascinating to watch their journeys. And a lot of it is propelled, I think off of kind of decently large audiences on social media that you’re able to get big exposure that way. But still, the amount of revenue they’re able to retain is quite low. Churn is crazy high. And they’re constantly having to kind of reinvent what’s the next product, what’s the next little mini hype cycle to try to ride? And it honestly looks so exhausting. I’m happy that they’re achieving some success doing it, but I think it’s a really hard thing to replicate.

Rob Walling:
Yeah, a hamster wheel is what comes to mind of like, I got to build. I got to build. Ooh, and then I product hunted, and I need product hunt, I need Reddit, I need Hacker News, I need whatever other viral pop Twitter, because I have a hundred thousand, 200,000 followers. And then the moment that does down, it’s like, well, I can’t really SEO this. The average revenue per account is too low to do pay-per-click ads. I guess I’ll tweet about it again. You know what I mean? That’s the thing that I think about in terms of building those types of tools. That doesn’t mean you shouldn’t, but it’s certainly not for me. I always wanted… I shouldn’t say always actually… From 2005 till about 2010, 2011, I built little tools like that, and it was cool. I didn’t do it on the hype cycle thing like that, but that’s certainly the way to do it today.
But then I matured or graduated into another form of thinking, which is I want to build a business that’s maybe five or 10 times bigger, but that’s sustainable, right? I want to build something that can be around for years and years and have true enterprise value, not just throw off a ton of cash. Cash is good, but I want to think about the next decade, not about the next 10 months. So thanks for the question. I hope that was helpful. Our next question is from anonymous, and they ask, “Do you have tools or techniques to track how much traffic came from which sources and what the conversion rates were?” Also, any for tracking results of AB testing. So let’s answer the first part of his question and then we will let ChatGPT weigh in one more time on the split testing tools.
The reason I asked chat gpt on this when I asked the whole question and the first part, the answer was generic and stupid and it just wasn’t worth it, but I wasn’t sure these days what are the AB or split testing tools that people are still using and they’re still around because I haven’t done it in a few years.
And so I looked at it and I was like, well, assuming it’s not an AI hallucination, I actually like its answer on this one. But what are your thoughts on that first part, which is how do you track? How many people are coming from where, and if they’re converting?

Derrick Reimer:
Yeah, and I think those are pretty standard features of pretty much any website analytics product. And there’s tons of those on the market today. There’s kind of the old standard of Google Analytics. I know that Google Analytics is going through a major upgrade cycle right now and people are losing their minds.

Rob Walling:
I’ve heard bad things. GA4, I still have… I keep getting emails because I have it on our media sites and TinySeed and all that and I just can’t bring myself to upgrade, and I heard it’s kind of a mess.

Derrick Reimer:
Yep, that’s what I hear. And every founder needs to decide how much they want to try to optimize their experience while also remaining GDPR compliant if that’s something that’s important to you. So there are kind of a set of tools out there that are kind of supposed to be more privacy centric. And the part I like about them is that the way they’re architected, you don’t technically have to put a cookie banner on your website if that’s the only thing that is tracking on there because they’re using technology that doesn’t require cookies and stays within the boundaries of GDPPR. So Fathom Analytics is the one that I use for that. You do give up a little bit of fidelity of data because they can’t remember who a visitor is for very long in order to remain GDPR compliant. So there are some trade offs there, but there’s a number of tools out there that you can explore in any website analytics tool worth their salt will have sources tracking and conversion rates and goals and all that kind of stuff.

Rob Walling:
I thought in three levels of kind of beginning table stakes, intermediate, and advanced. And beginning table stakes for me is a Google Analytics or a Fathom, as you just said. So we’re on the same page with that. The intermediate is more funnel tracking, which is mixed panel or heap. And there’s others, but those are the two that I hear about, a lot of TinySeed companies use them and then the kind of a really advanced platform that is built not only for tracking who comes from where and how they convert, but then it will track them all the way through their life as a customer. So it’ll literally say, “People who came from this particular Facebook ad in this two week period a year ago churned higher than this.” Really deep stuff that even… We didn’t have that at Drip. I couldn’t tell it all the way through. I always was guessing it averages, but SegMetrics. And it’s segmetrics.io. It’s a TinySeed company, and he built it for this reason, for people who are running…
You’re running a hundred grand a month, 200 grand a month, million a month in ads. You have to track that because you can’t just go on averages, right? And it’s worth paying for it. So that’s my mental model, kind of the beginning, intermediate, and advanced as stands today.

Derrick Reimer:
Yeah, I’ll throw one more out there too, June for product analytics, there’s sort of a newer option, but trying to be what Mixpanel was back in the early days, I think Mixpanel has gotten a little, it’s an older product. It’s kind of grown in complexity over time, and June’s trying to breathe new life into the product analytics space. I’ve been enjoying that one.

Rob Walling:
And so for AB testing, also known as split testing, let’s hear from Rob GPT.
On the topic of AB testing tools, when conducting AB tests to compare different versions of your website or landing pages, tools like Optimizely, Google Optimize, or VWO, visual website optimizer, can help you set up and track the results. These tools allow you to create variations, split your traffic and measure the performance of each version based on defined goals. You didn’t ask, but allow me to be obnoxiously verbose as AI is inclined to be. And talk about heat map and session recording tools. Tools like Hotjar and Crazy Egg provide heat maps and session recordings that show how users interact with your website. Heat maps visually represent where users click, scroll, or hover on your pages, while session recordings capture actual user sessions. The interesting thing I thought with ChatGPT is we really didn’t ask about heat mapping.
I actually think that maybe with analytic, I kind of went a step further. I wouldn’t have brought heat mapping into this conversation. And maybe it’s more advanced, but I do think that the to… What do they say, crazy egg and Hotjar? It is good suggestions. Again, I handpick the best parts of a seven part answer. So what did you think? You agree with Rob GPT there?

Derrick Reimer:
Yeah, it seemed pretty on point. I was actually pleasantly surprised that the tooling I… Because haven’t done a lot of marketing website AB testing in the last couple of years either, and those tools are ones that I kind of recognize. Seems like the old standards are kind of still kicking out there.

Rob Walling:
Yeah. I think until… I just don’t know that there’s room for another player right now, until one of those kind of becomes crapified. Aged tools to usually do that, or they go to private equity or whatever, or there’s like enough, there’s enough room for innovation, or man, the UX is really bad, someone just needs a better UX version. It’s like it’s not there yet, but I do think we’ll get there eventually.

Derrick Reimer:
I feel like something like AI generated split test variations or something that might be what the next iteration looks like.

Rob Walling:
Yeah. And there are tools out there that do that. Actually, I was screwing around with one about a year ago before all the ChatGPT stuff.

Derrick Reimer:
Shouldn’t be surprised.

Rob Walling:
He grumbles under it, grumble, grumble. I know, I’m as tired of hearing about as everyone else I’m going to admit. All right, so thanks for the question. Hope that was helpful. Last one of the day, Derrick. I was going to cut a short, but man, books. I just can’t not talk about books, right? I have 843 books in my Audible account, and I’ve listened to at least all the grownup ones because there’s kid books in there. So this question is from Jessica, “Thanks for the great podcast… Someone who’s six months into the first startup has been a great resource and recent episodes. You’ve mentioned a few times that you are the type of person who likes to read whole books on new areas or skills as you’re trying to adopt them.
The last example I can think of is marketing. Have you kept a running list of your favorite books on different topics related to SaaS startups? As an avid reader, I would probably read all the books on such a list. So why don’t we do this? We haven’t coordinated on this, but I’m going to assume you brought a list. So why don’t you go first with one book, and then I’ll do one, and we’ll just go back and forth until we’re out.

Derrick Reimer:
Cool. Yeah, so I’ll caveat that I just picked some books that are sort of on specific subject matters. And I am definitely a proponent of just in time learning, so I would say… I try not to just read 10 different books all on a bunch of different topics, and then hope I can apply them down the road. I would say do yourself a favor and read the book on positioning when you’re working on positioning for example. But that being said, since I just mentioned it, I’ll give this one as an example. Obviously Awesome by April Dunford. I heard her speak at a MicroConf a couple years ago, and she’s awesome. And that was around the time that she published her book, Obviously Awesome, on all about positioning and she has experiences ranging from… I think she worked at IBM or it’s a large database company or something, and has tons of experience kind of doing this at a smaller scale and at a really large scale. So highly recommend that for learning how to position your product.

Rob Walling:
And I totally cheated on this one because not four days ago of YouTube video that I recorded went live on the MicroConf YouTube channel microconf.com/youtube. The title was 12 books Every SaaS Founder Should Read this year. So I actually had already done a bunch of research for that. And what I did was I went to the books that I felt have really stuck around and impacted me over the long-term as a SaaS founder. Then I went to Twitter, because I have blind spots, and I asked. And I probably got 50 different suggestions for books. And some were great, and some were just not right. Some, I’m not going to recommend to people. And I combined that and called in, I called it down to 12 because I kind of thought once one a month for a year. I won’t go through all 12 here. We will obviously link that YouTube video up in the show notes.
It’s a quick watch you can get through all, but the first one that I want to talk about is all… I almost guarantee this on your list too, but it’s Traction by Gabriel Weinberg and Justin [inaudible 00:42:38]. And it needs an update. The tactics in it are now outdated because it’s almost a 10 year old book I think. But it just gives you a way to think about when you have no idea how to market a B2B company. It’s a bunch of… It’s 20 chapters-ish and 20 marketing approaches. And they interviewed an expert in each one, and they said, “How do you do pay-per-click advertising or Facebook advertising?” Noah Kagan, who at the time was growing up absolutely with that, and he just weighed in with a bunch of things and asked him questions. They wrote the chapter. They asked me about growing your business through in-person events, because I was running MicroConf and I just know a lot about them.
But it’s just continues to be a mainstay, maybe not for the details of how to do everything, but almost like a buffet of like, oh, so these are a bunch of the approaches that I could feasibly do. And then there’s more detail on those from a B2B SaaS perspective that I have added in a book that I will suggest in a second. I don’t want to go two in a row, but Traction by Gabriel Weinberg.

Derrick Reimer:
Yep, definitely on my list. And that’s one of the ones that sits on my shelf and I will revisit it every six to 12 months, as I’m thinking about has the nature of my business changed? Should I revisit some traction channels that maybe I experimented with a year or two ago, and now I should take another look at them? So yeah, it’s a great one. I think my next one is, I mentioned earlier in the episode, The Mom Test. This one came to me at a moment where I was just coming off of a failed product because I failed to have customer conversations that weren’t tainted by people wanting me to succeed but not giving me accurate information.
So I was feeling quite disillusioned after that. And when I read this book, it sort of opened my eyes to all the different ways that you can ask questions of customers or potential customers in the wrong way, and then ways to think about framing those conversations so that you’re minimizing false signals. So The Mom Test, I think is just a invaluable resource. It’s very super actionable, very short, and gives you tactics you can start implementing on day one.

Rob Walling:
It’s become a staple in our spaces. The second book is if you want to learn sales as a founder, and it’s called Founding Sales by Pete Kazanjy. First time I’ve ever heard of this book is in the last six months, and I don’t even remember how we got connected, but I wound up interviewing Pete on this show. And so he sent me a copy of his book. And when I opened it, I was like 450 pages, ugh. Normally, that means… To me, that means padding. It means you’re not succinct enough. Turns out, no, what it actually means in his case is he just wrote a book that took you all the way from, I know nothing about sales, all the way to scaling a sales team and hiring sales leaders. So it’s this huge reference tone. So that’s what I like about it. If you don’t need to learn how to do sales and you’re doing low touch, no touch, don’t do it.
But you just flip to any chapter and they’re titled, How to Do Sales as a Founder, How to Build Your Slide Deck for a Sales, How to Give a Demo as a Founder Doing Sales. And then it’s like, How to Hire Your First Sales Person, How to Scale a Sales team, How to Hire Sales Leadership, whatever. There’s like 13, 14 chapters, and they’re just so in depth because he was himself learning along the way. He was a non-sales founder of a SaaS company, and he was recording all of his stuff. And he has the crazy screenshots of terrible demo deck with bad graphics, and he’s like, But it sold things, so just iterate fast.” Anyways, Founding Sales is one that has quickly kind of become a staple in my arsenal.

Derrick Reimer:
I’d say my next one is Lost and Founder by Rand Fishkin. This one’s another kind of great look at a founder’s story as he sort of encountered what not to do when trying to grow and scale your business and how to deal with raising funding or not raising funding and the pitfalls that can come with that. And it’s a really kind of personal story from a really, really smart founder, founder of SEO Moz, and his experience doing that. So highly recommended for any founder thinking about level of ambition for your company and how you want to think about staying independent or raising outside investment or going full venture capital. Think he has a lot of wisdom on that and things to think about as trade offs.

Rob Walling:
My next one is another marketing book. The things that have had a lot of impact on me as a developer were things that were teaching me how to market, right? And one that came up more recently that I didn’t read back in the day, but that has been suggested to me by several TinySeed founders is called The One Page Marketing Plan. And what’s good about it, look, you can go to several other books over the last 10 years and cobble is together, but it just pulls a bunch of stuff into a succinct tone. And it’s not traction where it has these individual market, but it’s like high level thinking about marketing, but not so high level that it’s like, “Marketing is the approach to get people to consider demand for your…” Product. You know what I mean? It’s like I don’t need to read an MBA definition. It’s like in between in a good way, so One Page Marketing Plan.

Derrick Reimer:
I’m going to cheat and mention two books here because they’re quite related, and both things that I’ve diving into recently about specifically interviewing customers and learning about jobs to be done type things. So there’s Deploy Empathy from Michelle Hansen, is kind of a very… I would say it’s a very MicroConf friendly type of book because it is super tactical and she has scripts that you can use in specific cases if you’re having a conversation with a customer about why they switched or about why they canceled or about why they stick around if they’ve been around a long time. She has specific scripts you can use as kind of a starting place for jump starting those conversations. And so it gets down into hands-on stuff. It’s not just theoretical, I guess. Another book kind of along these lines is Demand Side Sales 101 from Bob Moesta, one of the OGs of jobs to ne done framework. And that one is also quite short, easy to read, and kind of frames selling your product through a jobs to be done mindset, as opposed to…
The way that a lot of US software people imagine sales going, which is kind of a greasy, used car salesman type of approach, this is the complete opposite to that. So those are two recs.

Rob Walling:
Those are great ones. My last one, and of course I say last I have 10 more. We just have to stop the podcast at some time, right?

Derrick Reimer:
Yep.

Rob Walling:
Should we just do a whole episode of this? I bet people would like it.

Derrick Reimer:
I bet so.

Rob Walling:
This one kills me to mention because it’s my book, it’s The SaaS Playbook. And I always feel like it’s super G to mention your own book, but in terms of if you want to build a million dollar multimillion dollar sales company, I wrote it because there was nothing else on the market that said the stuff that I thought should be said, right? And so what was funny is when I was going to do my YouTube video, I went to Twitter and people started suggesting it. And I was like, ugh, I can’t really mention my own book.
And then eventually, I was like, I guess I think I should. So I truly like it, or your money back. That’s just how I feel about it. It’s the best book I’ve ever written, and I hope that I like it. I did the Kickstarter. It’s done. You can go to saasplaybook.com. If you’re in the us, you can get a physical copy. If you’re anywhere out in the US, you can get electronic copies. If you really want a physical copy and you’re not in the US, then you’ll have to wait till the fall. That’s when it’ll be on Amazon. But right now, we’re in the middle of Kickstarter fulfillment, hard back books. There’s a bunch of stuff going on, and we just can’t fulfill one off… The ones being ordered on saasplaybook.com are literally shipping from my house.
And I can’t deal with customs, and it’s like $27 to ship to countries that are not that far from us, to ship a book. It’s insane. So all that said, yeah, I’ve mentioned on the podcast here before, you don’t need to hear more about it. It’s kind of everything I know at this point about building these types of companies.

Derrick Reimer:
That’s awesome. And yeah, I can’t wait to add that one to my bookshelf. I’m sure it’ll be one of the ones that I’ll be referencing every X months to just kind of reevaluate the playbook. So I’m really glad that’s in the world.

Rob Walling:
How about you? You have any final books that wrap us up?

Derrick Reimer:
Yeah, it’s funny looking through my… I have this page on my website, derrickreimer.com/booksforfounders, and Start Small Stay Small is definitely on there too, as… That was your first book, right? Your very first? Yeah.

Rob Walling:
Yeah, it was. Yeah.

Derrick Reimer:
Yeah, and that one was super influential in my thinking about starting B2B SaaS companies. And I feel like SaaS Playbook is probably sort of a successor to that. I also really appreciate… I revisit this one every so often. It’s Getting Real by 37 Signals, and it’s one of… I think it might be their first book, and it’s just a bunch of short, little essays. And I feel like they’re just particularly talented at crystallizing ideas and thoughts in really effective ways. And so I just enjoy occasionally those and getting a little bit of renewed insight or renewed enthusiasm for running my own business.

Rob Walling:
Yeah. I love going back to books like that, that were formative. Getting Real was not formative for me. For some reason, I didn’t come across it back in the day, but there are books that I read back then that just blew my mind, changed the way I was thinking about entrepreneurship, about being a solo founder. And I’ll go back and read them years later, and I’ll either, I’ll do both of these things actually, I will pick up on things that I didn’t get, and I’m like, whoa, I didn’t think that was in this book, but now, since I understand where I am now, I understand it at a new level. Other times, I’ll look and be like, wow, super dated. This is so obvious. How did I not know this? And that will just show you how far you’ve come. I didn’t know it because it was 15 years ago and this was not common knowledge in the way that this particular book probably communicated it. So I bet there have to be some moments in Getting Real that are like that for you.

Derrick Reimer:
Yeah, totally.

Rob Walling:
Amazing, sir. Well, Jessica, those are some books we tossed out. Again, there’s like another seven or eight on the 12 Books every SaaS Founder Should Read This Year YouTube video, and derrickreimer.com, right on the homepage, if you scroll down, it says Books for Founders, and you can find out another handful there. Mr. Reimer, thank you so much for taking the time out of your day.

Derrick Reimer:
Thank you. It was a pleasure.

Rob Walling:
Yeah, it was great, man. So folks want to keep up with you on Twitter. You are @DerrickReimer. That’s R-E-I-M-E-R, and savvycal.com, the best scheduling link on the internet.

Derrick Reimer:
Well, thank you, sir.

Rob Walling:
That should be your H1. It’s not, but that’s what I always tell people.

Derrick Reimer:
Oh, well, you’re too kind.

Rob Walling:
Thanks again, man.

Derrick Reimer:
Thanks.

Rob Walling:
It’s always great to have Derrick on the show. Hope you enjoyed his perspective on those questions. I intentionally let this one go long today because I find that sometimes we get on a roll, and cutting it off arbitrarily. Leave some content on the table, so to speak. We were prepared to answer the questions, and hopefully the last 10 minutes or so was as entertaining as the first few. Thanks for sticking around this week and every week. This is Rob Walling signing off from episode 666.

Rob Walling:
Being a startup founder is like playing a never ending game of chess, except the pieces keep changing, the board is on fire, and nobody knows the rules. This is Startups For the Rest of Us. I’m your host, Rob Walling. That joke, not very good, was written by ChatGPT, if you can believe it. I mean, ChatGPT is good at a lot of things, but it’s still working out its humor.
This week, I have a great conversation with one of the authors of Forget the Funnel. Gia Laudi and Claire Suellentrop run an agency that works with SaaS companies to help them grow their businesses. It’s called Forget the Funnel, and their book is called Forget the Funnel. And so if you’re already sold on this or you get two minutes into the interview and you want to pick it up, it’s on Amazon. You can just search for Forget the Funnel.
But the book dives deep into jobs to be done, with very specific examples where they have used it to help companies improve their onboarding rates, to help them grow their businesses overall, to find more customers like the ones that are already successful using their product. And what I like about the book, you’ll hear me say in the conversation, is it’s short, it’s compact, doesn’t waste your time, and it has a lot of extremely concrete examples from their experience doing this for clients.
But before we dive into that, if you haven’t checked out our YouTube channel, I’m releasing effectively a Rob solo adventure every week, 52 weeks a year, over at MicroConf.com/YouTube. It’s a 10 to 15 minute video covering all the topics that you would hear us discuss on this podcast, so it’s things like idea validation, it’s how to improve your marketing and sales funnel, how to hire, who to hire.
And I even told my story of buying, growing, and selling HitTail and building and selling Drip. And I told them in a way, like a compact format, in a way that I haven’t done really on this podcast or in any onstage talks that I’ve done. So while the content on the YouTube channel is in the same spirit as this podcast, it’s not the same stuff regurgitated. It’s genuinely new content covering new topics. So MicroConf.com/YouTube if you’re into that sort of thing. And with that, let’s dive into my conversation with Gia Laudi.
Gia Laudi, thanks for joining me on the show.

Gia Laudi:
Thanks for having me, Rob.

Rob Walling:
So we’re going to be talking about Forget the Funnel, which is the name of the book that you co-authored with Claire Suellentrop. Folks who listen to this podcast will recognize Claire’s name. She’s spoken at MicroConf multiple times, she’s been on MicroConf On Air, and you actually spoke at MicroConf Remote, what, about six, eight months ago.
So the subtitle of Forget the Funnel is A Customer-Led Approach for Driving Predictable Recurring Revenue. And the first thing I noticed about the book, as I normally do is, man, this is amazingly short. I love 150, 200 page books. When I pick up a book, a business book that is 400 pages, 450, I’m instantly like, “This is bull,” like some ghost writer pulled a bunch of anecdotes about Microsoft and Intuit from the ’80s to pad it so it looks big on it. And when I see Obviously Awesome by April Dunford, when I see Forget the Funnel, 150, or my own books, I was telling you offline, 200 pages is about where I stop. And if I need more than that, I’m going to write a separate book. So I’m curious if that was an intentional decision on your part.

Gia Laudi:
100%. I definitely took a page, so to speak, from April there. I remember hearing her talk about having a bunch of coffee chats with founders and they all described how they read books as being on a flight. And so she was like, “Okay, so it’s got to be read in a flight,” and I figured if I can take a lesson from April, which I will take all of them, her goal was to write half a book. And all the fallacies around why does a book need to be 300 or 400 pages or over 30K words, and it’s like all about the spine of the book being wide enough and it’s actually pretty arbitrary.
And so, yeah, we were pretty dedicated to write a short and also useful book. So April, big influence there. Rob Fitzpatrick, as well. I would say between the two of them, they were very, very close to Claire and I as we were writing this out.

Rob Walling:
Rob Fitzpatrick, did he write The Mom Test, right?

Gia Laudi:
He wrote The Mom Test, but he also wrote two other books, and one of them was called Write Useful Books. And then he wrote another one about workshops, I’m forgetting the name of it right now, but Write Useful Books was really the book that inspired the brevity in this one. Also, another aspect of this, that it had to be short, was a lot of what we talk about in the book is very practical and very tactical, as we were like, well, we can’t go down that rabbit hole because we need a video walkthrough for that or we need a template or a tool to communicate how to do this specific thing.
So there’s a lot of sections in the book where you’ll get to, where it’s like actually to dive into how to do this process, we’ve got this other resource over here. So we’ve got a complementary workbook as well, which is laughably almost as long as the book itself, it’s like 110 pages, and it’s all tools and stuff to make use of the core material.

Rob Walling:
Obviously we can’t cover the whole book in a podcast, but we’re going to dive into a bit the concept you came up with called customer-led growth, not product-led growth. But I want to first kick us off by finding out, a lot of listeners to this podcast, a lot of different stages, from idea to literally eight figure SaaS companies. What is the ideal stage for this book?

Gia Laudi:
So the companies that will get the most amount of value out of this book, or the teams, I should say, are definitely those who have happily paying customers. So you’ve got a product, whatever your vision might be for it, obviously you’re going to be continuing to evolve your product, but as long as you’ve got customers happily paying for it today, you can get value.
The other aspect of this that I would say, if you are in a situation where you’ve got a product that you have these happily paying customers, but you’re in this situation where you’re like, why haven’t I yet figured out how to articulate what we do, why do I feel like I’m not doing a good enough job describing what we do to our target customer, and why haven’t we been able to bring more people through the front door and activate them in the product, that’s the other flip side of this, is that you’ve gotten to this point where you’ve got high retention, high value, very happy customers, but now you’re like, okay, how do I take this thing to the next level? That’s also who would be a great fit for the book.

Rob Walling:
Got it. So I think of it as a growth book. That term growth hacking and all that, growth marketing, came out whatever, it started to become popular a decade ago. Marketing has always been drive leads to a point and then they stop. Usually it’s like, start a free trial, “Cool, I’m out of here.” Marketing moves on to the next thing.
But it feels like, to me, growth goes much deeper than that. Growth looks inside the product and says, people aren’t onboarding, what do we need to change here? How can we then find more of them? How can we retain them all that? That’s what Forget the Funnel is about.

Gia Laudi:
Sort of. I disagree a little that marketing is solely responsible for leads. In some organizations, yep, 100% that is the understanding for marketing, that marketing is responsible for going out in the world, finding customers who are a good fit for this product, bringing them to the front door, and then converting them on the website. That’s some people’s understanding of marketing as ending there.
We are pretty bullish about marketing’s role post acquisition. So through product activation, getting to value within the product, product retention, continued engagement, customer education, expansion, customer marketing, really even post solving the customer’s problem. So we think of marketing as being very holistic and spanning the entire customer experience. Now, you may not call it marketing. Some people call that product marketing, some people call that-

Rob Walling:
Customer success.

Gia Laudi:
Yeah, customer success. Also, some product teams think about the customer experience through that lens and think about optimizing all of those different areas of the customer experience. So we think of it as and describe it primarily as product marketing, but because product marketing is so wildly misunderstood, we have a hard time using that term. It’s getting a little better than it was when we first started out, but product marketing is a good way to think about it.
Growth is one of those terms that I just, like I can’t. What was marketing doing before the growth term came around, as if marketing wasn’t focused on growth anyway, but I understand that there is an understanding and a function for growth within a lot of companies that is very well-defined as being sort of in that middle of the funnel, so I get that. So yes, I would say it’s kind of all of the above, but predominantly what brings people to this, like we’ve got to solve this scalable customer sort of growth or acquisition is they think it’s marketing. They think, oh, we need more traffic to this website. We need to find out where people are. Marketing is not working. We need to figure out our messaging. That’s what the founders and the teams that come to us think is the problem that they’re solving, is we just need more people to the front door.
And people think of that as a marketing problem to be solved, but truthfully, what ends up happening is we do tip over to the other side and we see that actually you’ve got this opportunity post sign up to introduce your product in more advantageous ways and optimize that experience post-acquisition, help customers get from trial or free into paid, help them reach value as quickly as possible, and then turn them into really high LTV customers. So even though they thought they were coming to us and they think that this is a marketing problem, actually what they discover is that like, oh, it’s really a lot more holistically. And that’s the battle we’re picking with the funnel, too.

Rob Walling:
And I want to talk about funnels in just a second, but in the book you say, “We call this three-phase process the customer-led growth framework. It’s a method we use to help companies of all sizes calm the marketing chaos and hit ambitious revenue targets.” And the three steps are, number one, get inside your best customers’ heads, which you talk copiously about doing interviews, some surveys, but a lot of interviews. Step two, map and measure your customers’ experience, and step three, unlock your biggest growth opportunities.
So CLG, you don’t call it that, I call it that because I look at it-

Gia Laudi:
We can call it CLG.

Rob Walling:
But is that something-

Gia Laudi:
[inaudible 00:10:26]

Rob Walling:
Do you? Oh, that’s cool, because everyone’s talking product-led growth these days and I’m like, eh, slow down, you’re not Slack. But customer-led growth is a nice framing of this thing. You have something in the market, you have some customers that are being successful with it, but what do you do next? And that feels like what the whole book is about.

Gia Laudi:
Yeah, we are definitely not anti-PLG. We love, if anything, we lean towards more product-led companies, and I really, really believe that in order to be successful as a product-led product or business, you need to intimately understand your customers so that you can create effective and scalable experiences for them. If you don’t understand your customers, you don’t understand what led them to sign up or what motivates them to choose you and what parts of the product deliver that value, you’re not going to be able to create scalable product-led experiences for them. So CLG is actually a perfect fit for product-led companies. In fact, the majority of the companies that we work with are product-led.

Rob Walling:
And so let’s talk about funnels a little bit because when I hear the book title is Forget the Funnel, and that’s also the name of the agency you run, correct?

Gia Laudi:
Yeah.

Rob Walling:
You and Claire. Yeah. So see, I was a developer and then I became a marketer and I learned about funnels and I actually like funnels so I don’t want to forget the funnel. But the more I read in read your book, I was like, oh, it’s a cool name, it’s super memorable, but they don’t want me to forget the funnel. This actually helps optimize my funnel. This makes my funnel way more effective. That’s how I was interpreting it. Do you agree with that?

Gia Laudi:
I mean, yes and no. I find that those tools like that, funnels or pirate metrics or lifecycle, sort of the MQL, SQL lifecycle terminology and tools that we use, they’re helpful for teams to think about and communicate about what parts of the customer experience we’re trying to optimize for. And they help facilitate conversation.
And I still use the term funnel when we’re talking about awareness level marketing campaigns. We might slip in a, it’s the top of the funnel in a couple of conversations, but truthfully, that’s kind of where their value ends, in that it’s a helpful communication tool, it’s helpful for creating context. It’s helpful because it’s so well understood. It’s helpful for making sure that you’re talking about the same thing in conversation with others.
But again, it kind of ends there, because my biggest bone to pick I think with those models are that they’re generic. And the idea here is that your product, your customers, and your team even, you’re unique. And if you are thinking about your customers as falling into the same buckets of experiences as all the other products and all the other customers out in the world, you’re losing that nuance. You’re losing that customer understanding and that depth of understanding that can help you be really, really successful.
The other actually thing I would say about funnels is that they have this sort of beginning and an end and we’re in recurring revenue business here. We’re all trying to build a product that serves customers over the long term, builds a relationship with them, high LTV relationships, and funnels don’t account for that. I’ve seen the upside down funnels. I’ve seen all of that (censored), and still, it still doesn’t do the job of communicating that we’re in a relationship here and it’s about helping you get value and helping to solve a problem for you, and not only solving that problem, but what happens after that? What happens after somebody has become a customer and they’ve built a habit around our product? The story does not end there.
Where SaaS gets really, really interesting is after that stage. When we start to get into expansion opportunities and net revenue retention and those kinds of conversations, that’s where things get really, really interesting in the world of SaaS. That is typically not thought about until later stages of growth. But that’s where things get really, really interesting. And so this has a little bit more legs as well.
It also feels less gross for teams to talk about, oh, well our customers are, we’re trying to help customers get to first value, or we want to help our customers reach full value realization. That’s better than saying I’m building a campaign for bottom of funnel. It’s more meaningful. It pays a level of respect to the teams creating the programs as much as it does the customers. It just elevates the conversation a little bit.

Rob Walling:
I often think of funnels and funnel metrics. I have all my rules of thumb of if you ask for a credit card or don’t, and it’s a bunch of numbers, it’s great, but it’s the moment you ask, well, why? Don’t know, funnel doesn’t care. It’s like going to Amazon and seeing a bunch of one star reviews and a bunch of five star ratings without the full review and being like, well look, we got all these one star reviews. Why? Don’t know. There’s no actual review.
And that’s what a funnel is. A funnel tells you numbers, and I can look at a SaaS business and say, ooh, trial to paid is really messed up. That’s a problem. You need to fix that. And to me, that’s a great quantitative thing to know, but there is no, it’s the moment you say why, it’s like now you have to go start talking to people. Now you have to do all the things to find out why it’s broken.
And that’s where I feel as I read through Forget the Funnel, I was like, yes, this is the why. This answers the why of how to make this better. Something I really liked, obviously a lot of jobs to be done stuff in the book, one of the most helpful, I mean it’s like six or seven bullets in a row, it’s on page 24 of the book. And I was reading through it and it said, “In order to get inside your best customer’s heads, you need to understand,” and then it’s these bullets. And I was like, yes, yes, yes. It just gets better and better. The first is what life was like for your customer before they started using your solution. What happened that made them realize this isn’t working, I need something else? What they did next and next and next until they found you. What led them to choose you over all the other options? What value they experience?
And there’s a couple more, I won’t read them all, but it’s like this is textbook to me, at least I’m not a job [inaudible 00:16:30] expert, but as I understand jobs to be done, this is a switch interview. Is that the context?

Gia Laudi:
Yeah.

Rob Walling:
So many people who are listening to this have no idea what I just said, what that means. And I know that most of the best founders I know, they either directly know this about jobs to be done or they intuitively do it without knowing they’re doing it. They’re talking to customers and they’re just in their customers’ heads because they’re so close to the [inaudible 00:16:54]. So you want to talk a little bit about that, expand on how I’ve introed this?

Gia Laudi:
Yeah. So thank you for reading that and not making me remember what they all were, although I know you didn’t get to the end of the list. So the idea there is definitely to have that bird’s eye view, or how we sort of describe it, as that documentary understanding of your customers’ relationship with you from before they even knew you existed. So a lot of times I’ll be on calls with founders and I’ll ask who are your best customers and what led them to sign up? What was that moment that your ideal customers decided that they had to solve this problem or that they couldn’t go on with life anymore the way it was?
And many of them just sort of stare blankly. They don’t know the answer. They want to answer this question, well, they’re at companies of a hundred plus employees and they’re in this certain vertical and we know they have titles that sound like these, but they don’t really understand the why, as you were saying before, of what led to somebody to actually sign up, what was that pain? What was that struggling moment that led to somebody seeking out a solution like yours?
And then what was that life, and that experience, rather, of going from holy (censored), I can’t live like this, there’s got to be a better way. Who do they go and talk to? What conversations do they have? Where do they go? What watering holes did they hang out in? Who did they try to have some conversations with? Who or what were the influences that led them to find you and discover you? And then what was it about your solution? And I’ll even talk from a website perspective, what was it about your website or marketing materials that convinced them to try the thing? And then once they got into the product, what was it that convinced them to keep going?
There’s an amazing question that we ask in research, which is like, what was it that convinced you that this was going to solve your problem? And the answer to just that question can give you so much insight into what sort of not only experience you should provide once somebody gets into your product for the first time, but also what should be the carrot to dangle, so to speak, on the website, and the way to message and position your product for them. So having that deep level of understanding and really all the way from experiencing the problem through to singing your praises or even expanded product usage is kind of what we’re getting at there. Having that holistic understanding, like I was describing before, that funnels just don’t do that good of a job of, but it really gets you that intimate understanding into why somebody chooses you.
And just from getting that understanding, you can do a ton. The world opens up to you in term in terms of opportunity. It’s a good thing and a bad thing when a bunch of opportunities open up to you. So there’s a very specific process that we talk about to deconstruct the customer experience and start thinking about your customers’ experience through the lens of these milestones or leaps of faith that your customers have in your relationship with you so that you can really figure out what are those moments of value that we need to help customers reach, and then once they’ve reached them, then move them on to the next moment of value. That’s the operationalizing of that understanding that we were just describing in that documentary.

Rob Walling:
There are a bunch of people listening to this who either do this natively, intuitively, or they have [inaudible 00:20:15] jobs to be done and implemented it because it was such game changer as it’s hit our space. But there’s also a big chunk who I think don’t do it and they’re skeptical of the value.

Gia Laudi:
You mean of the research side of things?

Rob Walling:
Like we say, talk to customers a lot. I guess I’ll start by saying, we say talk to customers a lot, we all say this. And people say, what do I ask? Well, read Forget the Funnel because there’s a great list of questions on page I think it’s 54, we might even get to them in this. I might do another dramatic reading of your own words back to you. But I mean, it’s just a really good list of questions.
But I think for someone who’s listening to this and they do have successful customers, and whether they’re doing 10K a month or 100K a month, if you don’t know what’s working then when it stops working, how do you fix it? That’s the thing, and that’s what, even if it’s working well, I still think that you need to be having these conversations with your customer. Product market fit is a moving target in almost every space. Even if you found it and everything is working today, is the market going to be the same in eight months, in 10 months, in two years? It’s unlikely, unless you’re in a really regulated space or for some other reason.

Gia Laudi:
Or you add somebody to the team or start working with somebody else who is responsible for creating materials or collateral or programs to help your customers, and they don’t maybe have that same intuitive understanding of your customers that you do. So that’s another advantage to doing the research and operationalizing it, is that it can be used with your team and it democratizes that customer understanding for everyone who’s working on your product and supporting its growth.

Rob Walling:
Yeah, I think that’s a really good point, actually. That was a struggle. So at my last SaaS company, Drip, my co-founder and I were there from day one. It was just the two of us, and we knew our customers inside and out. We didn’t have it from the start, but by the time we built the product up, we were years into it, it’s like we just knew it.
The moment we tried to explain any of this, a new engineer or a designer, or frankly, our first product person we hired when we were at a couple million [inaudible 00:22:18], I was like, huh, I’m not sure how to communicate any of this. So it was just a huge interview. I was like, all right, ask me questions.
And then the cool part is one of them did. He was an experienced professional product manager. And so unlike us hacks who just figured our way through it. But he did put together a ton of documents based on that, that would’ve been way easier. And he actually did go and do a bunch of this. He asked a bunch of maybe not switch questions, but he did talk to a lot of customers to try to codify it in a way that wasn’t just, you know how co-founders are. They’re just like, “I don’t know, we just kind of got here. We figured our way out.”

Gia Laudi:
Just ask me. I know the answers. Just ask me. I’m right here.

Rob Walling:
Super helpful. And that totally works when there are 10 of you. And when I left, there were 120 of us, and it didn’t work anymore because everybody was asking me everything. And it’s like, no, you have to at a certain point scale it.
So I do want to get to some of these questions. I was just reading them again. And this is the type of stuff, Michelle Hanson’s book, Deploy Empathy, is tactical like this. I really like it. Forget the Funnel is the same way, where every few pages I’m like, oh my gosh, a list of questions. Oh, this is exactly either what I used to ask, or I would ask them in different ways, or I should have asked that and didn’t. And it’s that type of stuff, where it’s very prescriptive in a way that I like, especially because I’m not a professional at this. I don’t know this stuff intuitively. I’m not a professional product manager, I just am figuring it out.
But here’s a few of the questions. How are you using product name today? When did you first start using product name? Okay, so with that timeline in mind, take me back to life before product name. Prior to using this product, what were you using instead? If you were using a combination of tools, what were they? Tell me about the moment you realized old way wasn’t cutting it. This is good. What caused that moment? What compelled you to look for something different? Where did you go to look for new solutions? Did you try anything else? And there’s like five or six more just on that page. So is this from you and Claire just doing these interviews a cajillion times?

Gia Laudi:
Yeah, I mean some of these questions are best practices, and also I’m sure some of them come straight from Bob [inaudible 00:24:20], truthfully. But yeah, they are the gold standard style of questions. I don’t know that if you go look for jobs to be done interview questions, you’d probably find similar-ish questions to this. This is the way that we like to word them.
And with the right interviewer, mind you, amazing, amazing insight can come out of asking those questions, an insight that is not only just interesting and insightful, but also can be used in actions and actually turn into something that the team can create some experiences for and optimize for in the short term, and also build upon, as you said, the product evolves, the market evolves, and your customers evolve. So yeah, we really like them and yeah, that’s definitely a popular list for us for sure.

Rob Walling:
Yeah, I like having it here in one place. And so to give folks an idea, we can say talk to customers and we can say talk to potential customers or talk to cancel customers. I mean, talk to whatever to get this information. And then am I right that this information you gather, you’re using it to inform our marketing copy, our messaging, our positioning, our onboarding, even our product direction, even features?

Gia Laudi:
Yeah. So one thing I just want to back up a bit on is turned customers would probably not be the right fit for this type of research. And the reason being that we want to learn from the customers who have been successful with your product. I’m not saying there is no place for win-loss analysis or exit interviews. There absolutely is, and you should be learning from customers in that way, but not if you haven’t done this style of research first. So we’re really trying to figure out of those customers who are really successful with your product that represent what you believe to be a really great opportunity for the future of your company, what are those customers’ answers to these questions?
It is more challenging to do with potential customers for obvious reasons. You can’t ask them about what was it about our product? Obviously they don’t have that context. Learning from potential customers is very interesting and can be helpful, particularly for marketing. But it’s not validated necessarily because those customers have not yet put money down, so to speak, and have been successful in the long run with your product. So I would always start with your existing happily paying customers and then you can supplement with other types of research after that. So this is sort of the foundation, and we use jobs to be done to not only guide the style of research but also encapsulate or capture what we learn.
So we lean really heavily, actually, on customer job statements, as simple as they are, to help not only us while we’re doing the research and making decisions about how to prioritize different groups, but also for the teams that we work with to understand in an instant, so to speak, and really easily understand what are these customers trying to accomplish, what do they need to see in our product, and what are those desired outcomes that they were seeking out?
And that’s just that customer job statement, which is included in a couple of spots in the book. If you can take that research from those amazing customers of yours, those customers you want to clone, so to speak, and articulate what they were trying to do in this customer job statement, then you can think about those customers through that very sort of strategic lens.
You may also do that customer research, by the way, and identify that there’s two different jobs to be done here. That actually happens. I won’t say it happens all the time, but it does happen quite often, where we’re working with companies where there’s like two or three sets of customer jobs that show up in the research and then there’s a decision to be made. Do we want to continue to serve all three of these customers or is there one that we want to lean into? Do we want to park one for a moment and prioritize another?
That happens a lot, especially in situations where you can imagine, oh, we want a low touch SMB offering and we want a more robust, higher touch offering, and we still want to be able to serve both of those customers, but we can’t optimize for most of those customers with all the same materials and experience. So we need to pick one, park the others momentarily, and go forward with the customer mapping process and then go back later and do the same for those other more managed or higher touch customers who may have very different needs coming through the front door, very different needs for their evaluation process. And there’s all that higher touch way to operationalize that.
So you’re conducting this research, you’re not just going to end up with this homogeneous list of like, okay, well here they are, great, now we understand our customers. You’re actually going to see, oh (censored), look at that. Some of these customers came through and I’m glad they’re successful, but truthfully, do we want more of them? Probably not. So let’s eliminate that group and focus on this higher value group that you want to scale and do a better job of optimizing for.

Rob Walling:
So in this conversation, we’ve covered the first piece of the three parts of your book. The first part is getting inside your customers’ heads, and if folks want to dig into the next part, which is mapping your customers’ experiences and then operationalizing your customer insights, they should head to amazon.com, search for Forget the Funnel, or forgetthefunnel.com. Now question for you, it’s on Kindle and physical copy. Do you have an audiobook on the way?

Gia Laudi:
We have recorded the audiobook. It is currently being edited.

Rob Walling:
Edited? Okay. So side jag here, I just finished recording the audiobook of SaaS Playbook last week and I have an editor cranking on it, and of course I listen back and I’m like, oh, should have said that part different. And I was hammering an hour a day just every day, seven days a week until I got it done. I was doing it on weekends because I could do it at my house. And I was just like, yeah, but I can’t do more than an hour because it was driving me nuts. So I really just want to hear what was your experience like recording the audiobook, and you have two authors, did you get together in the same place?

Gia Laudi:
We were in Denver, Rob.

Rob Walling:
At MicroConf?

Gia Laudi:
Yes.

Rob Walling:
That’s amazing. Yeah.

Gia Laudi:
Yeah. That’s why I was in Denver. And so Claire came to speak at the event and she was like, “I’m going to be in Denver. Do you want to meet up?” And I was like, “Hell yes.” So we were in the same location. We didn’t have to record in the same location, but we kind of wanted to. We did it in a day.

Rob Walling:
Holy moly.

Gia Laudi:
I mean, advantage, two authors.

Rob Walling:
Two authors, and it’s 160 pages, so it’s manageable but that’s still got to be, that must have been six hours of recording.

Gia Laudi:
Yep. Yeah, yeah, about that. Well, full recording. I think it’s going to, once it gets edited down-

Rob Walling:
It’ll edit down to about three and a half, four, I would think.

Gia Laudi:
Four hours, that’s right. But it was rough because we were in Denver, and both, do you remember Claire getting up on stage and saying, “I’m losing my voice?”

Rob Walling:
Yes.

Gia Laudi:
So I landed and she was like, “I’m losing my voice, I don’t even know if I can speak tomorrow, let alone the audiobook.” And then I proceeded to lose my voice. So we were both pretty rough. She had recovered and I had not quite recovered yet. So chapter two, I’m like real nasally, it’s terrible.

Rob Walling:
Like you smoked two packs that day. Oh, it’s going to be good.

Gia Laudi:
Oh no.

Rob Walling:
And now that is how everyone will think of your voice. It’s going to be on audible.com forever.

Gia Laudi:
We may have to rerecord. I might listen to it and be like you and be like, no way, I’ve got to rerecord this. I’m nervous to hear it, truthfully.

Rob Walling:
Yeah, well, I’m excited for it. And again, folks can head to Amazon, Forget the Funnel, and then you on Twitter are @GGIIAA. That’s cool, so it’s kind of like Gia, but it’s doubling all the letters, GGIIAA

Gia Laudi:
Yeah. That was my very, very poor choice back in late, early, it was January 2009 and I could have gotten my first name, but I was like, Twitter. I didn’t take it.

Rob Walling:
That’s a three letter.

Gia Laudi:
I could’ve gotten Georgiana. Georgiana, I could have got, not yet. So I couldn’t have gotten the G-I-A, but Georgiana, I could have had my first name and I didn’t take it because I was like, ah, whatever. This is for fun.

Rob Walling:
Yeah, good old Twitter.

Gia Laudi:
Turned in, it was like 13 years ago or something, 14 years ago.

Rob Walling:
And we’ll see. Each week, I wonder how long Twitter’s going to be around.

Gia Laudi:
I know. I know.

Rob Walling:
Anyways, thanks for taking the time to come on and talk Forget the Funnel.

Gia Laudi:
Thanks for having me, Rob.

Rob Walling:
Thanks so much to Gia for coming on the show, and thanks for listening this week and every week. Here’s another bad joke from ChatGPT. As a startup founder, I’ve learned that naming your company is a bit like naming your child. You spend ages thinking about it, you finally pick one, and then you find out someone else on the playground has the same name. This is Rob Walling, signing off from episode 665.

Rob Walling:
Ads can be a good way to get started, but it’s not scalable. I think in the long term, if you want to build a flywheel, then you need that content engine cranking out content, and you need to start ranking for enough terms. Start with the long tail, and you slowly climb up to the head terms that allows you to get 10,000, 50,000, 100,000 uniques a month. They essentially are the demand side, looking for supply. These are the consumers and the businesses with the WordPress websites, and I would be looking to SEO.
Welcome back to The Startups for the Rest of Us. I’m your host, Rob Walling. In this episode, I answer listener questions, pretty amazing video and audio listener questions ranging from positioning a new SaaS with many potential use cases to deciding between consumption versus seat-based pricing, determining whether to expand your business to address customer needs that are outside your core SaaS, and several others. But before we dive into that, I wanted to let you know about my new book, The SaaS Playbook. I know you heard about it when I was running the Kickstarter. We are getting ready to fulfill that Kickstarter here, and it’s going to be probably in the next three, four weeks.
It depends. It depends on when the books show up and all that. But with that in mind, if you didn’t back the Kickstarter, you can still go to saasplaybook.com and pre-order a paperback copy of the book, the audio version, which I just finished reading last week, or an electronic version, like a PDF, EPUB type thing. This book is concise. It’s about 200 pages, and it’s where I densely packed everything that I know about building ambitious SaaS products, seven- and eight-figure ARR companies. I cover things like team and market pricing, marketing. I’d dive deep into it for a couple hundred pages. If you haven’t checked it out, saasplaybook.com. With that, let’s dive into our first listener question.

Simon:
Hey, Rob, I hope you’re well. I’ve been following along with the podcast and MicroConf community for quite some time now and really appreciate all that you do. Thanks for putting it out there. I have a question around positioning. I’ve just launched a SaaS, or a tech-enabled service called Delineate. It’s at delineate.co, and it helps you create predictive models and data products in a much shorter amount of time with a lot less money than what these things would usually cost. For example, you could train a predictive model with machine learning and your CRM data to predict the probability that any given customer is going to churn in the next three months, for example. Or you could externalize these models to create a data product or an engineering-as-marketing tool. Imagine if you were a business broker. You could train the model on a bunch of previous transactions and then create a business valuation calculator, which you could then publish to your website.
My question is the product can do a lot of things. Essentially, anything that involves a predictive model, it can help out with. I’m having trouble knowing where I should focus my energy on the marketing front. There’s just a lot of potential audiences and a lot of potential use cases for the tool, which is great in one way but bad in another because I don’t know where I should focus. I’ve read April Dunford’s book on positioning and loved it, but I do find it’s more relevant for companies that already have a bunch of data on who’s using their product and how. I’m wondering if you have any frameworks, mental models, or thoughts, et cetera, on how you think about approaching a positioning problem for a relatively new business where the tool has many potential use cases and audiences. Thanks again for all that you do, and I’m excited for the new book. Cheers.

Rob Walling:
This is a great question, Simon. Thanks for sending it in. This is a common problem. I’ll say it’s less common than it used to be because I think the idea of niching down or nicheing down has become so much more popular, partially due to the MicroConf community and this podcast, where I learned very early on, 15, 18 years ago, that not having some type of niche to attack, basically, and to own is a real problem in the early days. If you go back and read my first book, Start Small, Stay Small, there’s an entire chapter that’s just about niching down and about finding a single vertical to go after. Now, Start Small, Stay Small was about small lifestyle businesses that could get to maybe 10K, 20K, 30K a month. And these days, I’m thinking bigger than that with TinySeed companies and with the SaaS Playbook.
But if you don’t have $0.5 million or $1 million in the bank, it can be a challenge to not have a niche. Now, are there ways around it? There are. Think of SavvyCal and SignWell. These are a scheduling link and electronic signature, and those are not verticalized. It’s not designed for hairdressers, dog breeders, or web designers. These are broad horizontal platforms. But how have they marketed themselves? SignWell has a founder behind it who is a genius at content marketing and SEO, and it’s a huge market. There’s a ton of search engine and search traffic for it in general, and he knew that before he went into it. So he optimized the entire business around that concept. If you don’t have that here, and I bet you do not, because I don’t think the market you’re in is that big or has that much search volume, then you have to think about how Derrick Reimer with SavvyCal has done it where he had a small audience in the early days.
He’s built SavvyCal to be horizontal, but he focused on calendar power users and founders, executives, and now even sales folks. So it’s not directly niched, but he does have certain roles and certain use cases that he is catering to. But his thing is, he’s just building a more powerful but still really easy-to-use scheduling link. He also has a luxury. That space is very well defined. There are big competitors of Calendly. There’s YouCanBookMe. There’s a handful of big competitors, and he can come in and just carve out a position in the space. With those three things in mind, one I said, nicheing down, one I said, figure out if there’s a boatload of search traffic that you can get in front of, or the third one is to carve out a position in an already crowded market against other competitors where you have a far superior product and you are differentiated enough that people will actively switch.
The other thing that works in both SavvyCal and SignWell’s favor is, the switching cost is relatively low for those tools, versus I’m not sure about the switching costs with your product. If I were in your shoes, I would be looking to model what I’m doing after someone who has done it successfully before me. I would 100% not, if I was bootstrapping, be going after an amorphous horizontal space where you build something for everyone, you build it for no one in essence. I personally would likely be trying to figure out who are my best users, who are my most dedicated users, who will use this at all and love it, who says I can’t live without that? And then figure out, is it because of the task they are accomplishing or is it because of the role that they hold at a company? So then you can start figuring out, “Oh, it turns out chief technology officers or directors of business intelligence at Fortune 1000 companies. There’s two or three of them that really love it.”
You start to hone in on that, and then you build out their use cases before you land and expand. That is, you land with the functionality you have, and then you later expand into other roles, other verticals, or frankly, other use cases. In the meantime, to find that, I would be going on all the podcasts, I would be doing all the SEO, I would be spending all the money on the paper click ads that I could, or the Instagram and Facebook ads. Nothing has to be profitable. You are in customer development mode, and it sounds like you have a product already, but what problem does that solve and for whom? I’ve said this many times on the podcast before. Nowadays, when a founder tells me their idea, I say, “Don’t tell me your idea. Tell me what problem it solves.” And I should add this at the end, “And for whom? Who does it solve this problem for?”
Because that’s equally as important, because if you tell me this solves the problem of organizing my music library, I say, “Great, who needs this?” And you say, “It’s people over the age of 65 who still use MP3s.” Then I think to myself, “Okay, that is a tough market.” Not only is it consumers, but it’s folks who may be averse to paying for technology. Or if you tell me it’s for teenagers who have vinyl record collections, again, it’s like, “Teenagers don’t have a ton of disposable income to pay for software and the vinyl record space. The niche is very small.” I know you’re not serving either of those. They’re just dumb examples. But the idea is that the more you learn about who needs this, not just what problem it solves, but for whom that is where you can start to get traction and find your product market fit. I hope that helps, Simon. Thanks for the question. My next question is about consumption versus seat-based pricing.

Steven:
Hey Rob, my name’s Steven, and I love the show. I have a question about aligning pricing with customer value. I’m building tools for real estate agents, so I think that a single monthly fee will be simpler, but charging on consumption only when an agent closes a transaction seems better aligned with the cycles of their business. When do you think you should consider a consumption versus subscription-based pricing?

Rob Walling:
That’s a good question, Steven. Thanks for sending it in. There’s a bit of it, depends. I think, specifically with real estate, I have a tough time imagining a realtor is going to want to be charged every time they close the deal. Do you know when the deal is closed? Is there any way they can game that and just not close it in your system and therefore never pay you or only pay you for half of the deals they close? That’s something that you really need to think about with pricing is unless you are holding dollar amounts in escrow and when they get distributed, there is an angle there for folks to basically, it’s a hack to get around paying you for your services. There are two schools of thought on this, and honestly, when I’m bootstrapping, I’m usually trying to get recurring revenue such that when the real estate market slows down, I know I’ll have some cancellations, but I have that monthly recurring that’s coming in every month or the annual recurring, as the case may be.
If I’m truly based on transactions, I would go historically look at how many transactions happen in a given month or a given year in the US if that’s the market you’re serving. Then I would look at how many were happening in 2008, ’09, ’10, or in 2020 and try to figure out the swing there. You’re trying to figure out the volatility of how your monthly revenue might change up and down if you don’t have true subscription revenue. My guess is that number’s probably pretty substantial. Maybe it’s 40% or 70% back in the great recession of ’08, ’09, and that would scare me. There’s a reason that I love SaaS and believe it is the best business model. It’s because the revenue is not so bumpy. It’s not so spiky. One other thing to think about is, everyone sells. Eventually you’re going to build a company, and if it’s successful, it’s going to be worth millions of dollars, and you’re going to want to go sell it.
Whether you think you are or not, trust me, everyone sells. It’s just what happens. When you go to sell this, if it is not subscription revenue and the numbers go up and down each month, it is a discount to your valuation. Just something to think about of SaaS is SaaS because of that recurring and always upend to the right mode that it’s in. If you’re going to charge based on a percentage of fees or when an event happens, it’s more of a traditional business. It’s not subscription software. It’s still SaaS because it’s software as a service, but you are changing the model. So I think I am not wildly in favor of it.
However, someone who raises a bunch of venture capital and can wait this out, so to speak, or can try it out and doesn’t need to get to revenue early, if you had a million, 2 million in the bank, 5 million, whatever, you could screw around with this, you could try to only charge based on when someone closes the deal. Because if it doesn’t work out, you just change your pricing later. But if you’re bootstrapped, I don’t think you can justify taking that risk because I think you can have 6 months, 9 months, 12 months of just bumping along the bottom, not being able to grow. For me, I’m all in on subscription revenue models, and that is what I’d be leaning towards. Thanks for the question, Steven. I hope that was helpful. My next question is about whether to expand the business outside of the core problem that the software solves.

Dennis:
Hey, Rob, I absolutely love the pod, and I thank you very much for all the help you do for us new founders navigating the controlled chaos of a new startup. I’m working on a startup called FitFeed, which is a social encouragement platform where we build and host wellness challenges for organizations. We’ve seen pretty good traction with users and have several paying customers now. My question for you is, our business is really focused on the technology of building and hosting these challenges, but we’ve now had several customers ask us for marketing as a service for their challenge, and we don’t currently have the resources nor the expertise to offer this to our customers. I was wondering what your thoughts are on the best way to approach this. We do not have the funds to hire a marketing person. As a small bootstrapped startup, should we try to learn this on our own or outsource it to a third party, either through payment or through some type of partnership? Thanks for all you do and your advice, and looking forward to hearing your response.

Rob Walling:
This is another one that, in general, I have an answer. Then specifically for you, given what you’re up to and that you don’t have the expertise nor the money to do it, to me, it’s like I probably wouldn’t do it. It feels like a huge distraction for you specifically, but there are some factors that I use to weigh this. For example, if doing outside services, third-party services, whether it’s hiring freelancers to do it, whether it’s learning something internal to my company and doing it such that people get onboarded, a good example of this is with Drip, we would take a customer’s ebook or a series of blog posts and we would turn them into an email mini-course. It’s copying, pasting, formatting, some things like that. So I had essentially a support person who took that over and would build it for them.
That was a pain, and we did it for free if you paid for a few months in advance, and frankly, it helped people get onboarded and stick around. So if you can think of something like that that is truly an addition that will get people onboarded or will keep them around, then I think there’s some justification there. The caveat is, you need to charge a lot for this because this is services and it’s a pain in the ass. If you haven’t run an agency before, dealing with clients who are nitpicky and you’re going to do marketing, what happens if you don’t get the results that they want? That would put you in a tough situation, obviously. I think, if anything, I would consider partnering with a third party. If I could find an agency or a freelancer who is reliable and who would do this marketing for them, then maybe take a cut. Maybe you take a 10%, 20% commission for the referral.
Personally, if I’m building SaaS, I know that I need to focus and go all in to make it because, look, most SaaS companies don’t work. Most SaaS products don’t get enough users that they’re even worth building. So you’re thinking about adding to that the additional headache of servicing essentially agency customers, it’s folks who want consulting services. Now, I’m not saying never do consulting services. There are absolutely amazing SaaS companies that add consulting services, make buckets of money from them, and then when they do go to exit, eventually the SaaS revenue is multiplied by SaaS revenue multiples and the consulting revenue is multiplied by a much smaller multiple of one x, two x, or some very small number. But that doesn’t mean it’s not worth doing. But in this case, I don’t know. It just feels like a lot of work.
If you said we do have the expertise in house, because usually what I had is, I would say yes to things that I thought we could pull off, whether I had the expertise personally and I could delegate it to someone junior on the team or whether someone else on my team had the expertise and I knew that we could crank on it. But if this truly is something outside of your expertise, folks have asked for, I would look for referral partners and look for a way to potentially monetize that so you don’t have to deal with the headache and the lack of focus of actually implementing something that’s so far outside your core business. Thanks for the question, Dennis. I hope that was helpful.
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A reminder that the reason all these questions are audio or video is that those go to the top of the stack. So I still do have a backlog of 30 written questions that are getting preempted by those sending in questions through video ask on the website. If you go to startupsfortherestofus.com, click the Ask a Question in the top navigation, and whether you’re on a phone, your laptop, or whatever, you can send an audio or a video question, and those go to the top of the stack. The next question comes to us from Spain.

Gonzalo:
Hey, this is Gonzalo from Spain. I recently discovered your podcast, and I’m loving it, especially the Q&A episodes. I wanted to ask, I am a worker developer and I also teach people how to build their own websites. I’m focused on the Spanish-speaking countries, and a year ago I bought an online business that is very related to what I do, where worker developers pay a monthly fee to get access to job offers from website owners looking for those professionals, for those freelancers.
I’m not having trouble getting the freelancers to subscribe to pay, but I am struggling getting traffic from the companies looking for those professionals. I’ve tried SEO, I’ve tried Google Ads, but it’s difficult to make a difference in terms of keywords because I cannot differentiate with the search intent. The keywords are the same for freelancers looking for gigs and for people looking for freelancers, at least very similar. Because of that, I’m exploring other ad platforms like Twitter ads, LinkedIn ads, and it does not seem very scalable to me. I don’t know if you have any insights on how I could get traffic from that specific kind of people, like the companies or people looking for workers, freelancers. Thanks. I appreciate any inside spot.

Rob Walling:
It’s a good question, and it comes back to my rule. Don’t bootstrap a two-sided marketplace. That’s exactly what this is, unless you have access to one of the sides, and it does sound like one side. The WordPress developers is easy to get to sign up, and that makes sense. Usually, in a two-sided marketplace, one side will absolutely come because these WordPress freelancers, they want business. So that’s not a surprise to me that it’s easy to get them, but the other side, that’s what everyone’s trying to get. That’s what Upwork is trying to get. That’s what every freelance WordPress developer is trying to rank for.
I bet I’m guessing that the ads for those agencies are bidding these up, and I’m guessing the ads are pretty expensive as a result. But with that in mind, in your shoes, when I think about what you’re actually trying to do, which is to attract people who have WordPress websites, people, companies, whatever, who have WordPress websites and want freelancers because you’ve started a marketplace and you already have the freelancers, I would be thinking about one, if you’re running Google Ads, which it sounds like you might be, I would hone in on the negative keyword list for your ads to really try to exclude anyone who is a WordPress developer searching for this because you don’t want them. You want the folks who are looking for freelancers.
If you’ve already tried that, great, but if not, I would dive pretty deep into how I could engineer that to eliminate folks who are searching for the wrong side of your marketplace. Then the other thing I would do is what pretty much every two-sided marketplace that we know of has done and the way they have succeeded, and it’s content marketing and SEO. I have a tough time imagining you are going to build a sustainable two-sided marketplace if you have to fill one side perpetually with ads. Now, ads can be a good way to get started, but it’s not scalable. I think in the long term, if you want to build a flywheel, then you need that content engine cranking out content, and you need to start ranking for enough terms. Start with the long tail, and you’ll slowly climb up to the head terms that allows you to get 10,000, 50,000, 100,000 uniques a month.
They essentially are the demand side, looking for supply. These are the consumers and the businesses with the WordPress websites, and I would be looking to SEO. That’s the play here. I guess the only other approach I’ve seen is audience. I think of the Tropical MBA guys starting Dynamite Jobs, and they had both sides of the marketplace, not because of SEO or of pay-per-click ads, but because of their podcast and their community, the Dynamite Circle, and so they used that to their advantage. That’s probably the other way. I’m trying to think… Oh, I’ve seen a job board started based on audience. Joel Spolsky, back in the day, started, I think it was called the Business of Software job board, and authenticjobs.com, I believe, was started by someone who also had an audience. But usually it’s audience or content/SEO. I would be looking at one of those plays for that side of the marketplace. Thanks for writing in. I hope that was helpful. My last question of the day is asking for advice about being a single parent and managing your time.

Jake:
Hello, Rob. Thank you very much for the amazing content and insight you share about this industry. My question for you is, what advice or examples can you share about single parents who try to get something started in this industry? I know we have very little time, so I know every minute counts, so I’d love to hear your thoughts. Thank you.

Rob Walling:
Thanks for the question, Jake. Definitely one that has never been asked on the show. Certainly had time management questions asked, and there, I usually go into being effective versus being efficient, and you really can only work on the thing that needs to get done, and you can’t waste time even if you’re co-parenting with someone. I remember when each of our kids was born, just how much less time I suddenly had. I can imagine as a single parent, which I’ve really only been for weeks at a time, let’s say, when Sherry will go out of town and then you have even less time and you have to get everything done. The ways that I would think about it aside from just trying to get more effective and really focusing on the things that move the needle are, I would ask myself, “Do I have the budget to hire someone to do these other things?”
Whether that’s around the house, like I need a personal assistant to make meals and to handle all of my personal mail, dry cleaning, and delivery of things, there’s folks called house managers who can do this, and you may not have the budget for it, and that’s fine, but that’s where I’d be putting my thought to is, like, “Do I need someone to personally handle stuff such that I have just a bit more free time?” Such that when I have that two hours a night after my kids go to bed, do I need to sit down and pay a bunch of bills and worry about scheduling a contractor to come fix the sprinklers, or am I able to focus on work because I’ve handed that off to someone else? Similarly, I would ask myself, “Is there anything I’m working on now that I can outsource?”
Whether it’s design work or development, it’s only if you have a budget and it’s only if things are mapped out. The thing with handing off your business tasks right now is, I know they’re so amorphous and all over the place because it’s all research, it’s trying, it’s testing, and it’s stuff I think founders need to do versus paying bills, dry cleaning, running errands, grocery shopping, whatever else. Those are things that I think are a little bit easier. It’s a solved problem, and it’s not that complicated. Again, that comes down to budget. You may or may not have it, but it’s one idea. I’m not saying hire someone full-time, by the way. This is not like, “Oh, if you’re independently wealthy and you can spend $8,000 a month.” That’s not what I’m saying. You can find folks for less than that to help out 5 hours a week, 10 hours a week to just take care of stuff. You are more free to do it.
The other thing that I would think about is how to build something very small and get a quick win. I would not personally be trying to build a multimillion dollar SaaS company if I were in your position of just not having very much time because it takes so much time and it takes so much focus that I would either be looking at a step one business, like I talk about here all the time from the Stair Step Method, or even writing a course, building an info product, writing a book, doing a video course on one of the two-sided marketplaces, the Udemy, the Udacity, then whoever else is left in that space, teachable, did they have a two-sided marketplace? Anyways, these are things where they won’t create revenue forever, but they teach you how to build something, get it out into the market, and do some type of marketing.
The time commitment and the focus commitment is so much less than building software. So if you have a unique advantage, meaning you are a good writer, or you are good on the microphone, or you are good on video, then I would consider just building a course because, look, selling information, it is easier, it is simpler than building software. I love that idea as a step one, maybe pre-building a step one software business just to learn and get your feet wet, make a few hundred dollars or a few thousand, whatever you do make. I don’t know if this involves building an audience. Obviously, if you want to build a name for yourself long-term in the space that you’re building the product for, then maybe this is where you start that podcast, or you start the YouTube channel, or you start the writing, whatever it is you’re going to do.
But if you just want to dip your toe in the water, I fully think that you can do it without that, and you can get in front of other people’s traffic, but they take a cut of the sale. But that’s fine. You’re not necessarily doing this to get rich. You’re doing it for the learning, to get your feet under you, and to start shipping something to realize how much work it actually is. It’s a lot of work. It’s a lot of hours. I think that if you try this and, let’s say, you want to put out an ebook in the next couple months, and you get to the end and you’re like, “Oh my gosh, that was so much work.” From the writing to the copy editing to the layout to the cover design, to then promoting it, to uploading it, marketing it, selling it, refunds, support, whatever else you need to get to the end of that, and it feels like that, then you really know that for now you probably shouldn’t do a software product because it is 10 times more complicated on almost all the angles that I just mentioned.
It’s definitely tough. Each of us has our own headwinds in our lives, and some of those are more challenging than others, and certainly having young kids is super challenging. Whether you’re a single parent or you have a co-parent, it is a difficult time. As someone who went through it myself and someone who has raised young kids as I was starting companies, all I can say is, its hard, and I don’t know of any silver bullets that can really make it that much easier other than the thought process I offered, which is just pick something a lot smaller that doesn’t require as much focus as SaaS. Thanks for the question, Jake. I hope that was helpful.
Thanks for listening this week and every week. I hope you enjoyed the listener questions. Still more in the queue. I’ll be back at you again in a couple weeks answering more, hopefully with a co-host on that one. But if you keep listening, I’ll keep recording. This is Rob Walling signing off from episode 664.
You’ve made it to the hidden track of this week’s episode. I got a question where the subject line is not a SaaS question, and it’s about Dungeons and Dragons, so if you don’t care about D&D or my thoughts or comment on it, then probably just want to move along to the next episode. But the cool part is, it’s actually from one of the folks who asked a question in this episode, but I’m going to keep him anonymous here. He said, “Thanks for the amazing content. You said something in the last couple episodes that made me realize I’m not the only one because you also played D&D. I thought I was the only one that loved to talk business, and in the same group could also talk about Dungeons and Dragons.” And he’s referring back to where I said, I’ve played D&D with DM, Dungeon Master, once a month right now.
I’d love to do it more. I just don’t have the time. But I Dungeon Master once a month, and I handcrafted this group. It’s my 17-year-old son, and then it’s local startup founders, and I guess one guy I used to work with at Drip, but he works at a SaaS startup, so it’s all SaaS startup people. I did that on purpose because, for me, while gaming is fun, I like doing it with people I like, and when I don’t know the people there, it’s less interesting for me. It’s much more of a social endeavor. Anyways, back to his email, he said, “The people I played D&D with are good people, but they don’t have a drive to create, innovate, drive business growth, or create something new.” So me interjecting back in here, I would’ve a tough time in a group like that personally.
Then he says, “It is a commitment to play, and I only have time to play once a month, if that. But it’s fun to engage and come up with fun storytelling and creative solutions.” I agree. That’s what I love about Dungeons and Dragons, it gives my mind a break from business. If I don’t distract myself with things like Dungeons and Dragons, then my mind is going all the time thinking about, “Oh, what should the next podcast have? What should the next YouTube video have?” And even just reading books about games, about the history of games, or reading adventure modules that I may never play or never run is interesting to me. It’s a bit like reading fiction, but I know that it might have some applicability at some point, and it’s a way that I try to turn off my mind once in a while.
He has a question for me. The question is, “Do you have a favorite class?” So in Dungeons and Dragons, there’s race or heritage, and that is where you can be a human, an alpha dwarf, a tiefling, whatever it is. And then there is the class. Are you a fighter? Are you a sorcerer? Are you a thief or a rogue? They changed the names of these things. Personally, I tend to play either thieves, which I think they’re called rogues in fifth edition, but I like folks who can backstab and sneak around and hide in the shadows, or I really like clerics. I like those folks. They have healing, but also they have that brute force. Usually in high armor class, you get that flail, you get the mace, get the hammer, or even you can use an ax because, in first edition D&D, you couldn’t use edged weapons. If you were a cleric, it was for game balance, but now you can use them.
I really like having the ability to heal, whether it’s myself or others, but also be able to deal damage. I will be honest though. I’ve never played a druid, never played a monk. There’s a lot of classes that I haven’t played. While I do really playing some type of a magic wielder, again, sorcerer or warlock, whatever, I often find that with the limited amount of time that I have to prepare, if I were going to play as a player, that I tend to want to really dive in and figure out all the spells and optimize that. I just don’t want to spend the time or don’t have the time. Almost like the simpler gameplay of being a cleric.
Yes, I know you have cleric spells too, but those always feel pretty obvious to me. The ones that I’m going to need and use. But I’ll be honest, I don’t play as a player very often. I Dungeon Master a lot. Once a month, it’s not that much. When we go to events, because my son and I go to several gaming cons throughout the year, I don’t usually play D&D there. I usually am trying to play games I haven’t played before because I like learning new things and maybe figuring out a game that I really like that I can later go by. I can’t honestly remember the last time I was a player in a gaming session. Actually, it might have been Mike Tabor who ran a D&D game at MicroConf. He does it every year. I just don’t have time to do it. Last time I did, it was maybe 2018, 2019, and I played there.
I played a barbarian. We were like 10th level because it was a really hard adventure, and I had some three attacks per round, and when I would rage, I had advantage on everything and double damages. It was just bananas. So I really enjoyed that too, for a one-shot. It was super fun just being a massive tank, really high AC and doing crazy amounts of damage. Anyways, it’s nerdy stuff, but I love it. I believe we need pursuits outside of our work and family, even if it’s only once a month, once every other month, just to have something that recharges our batteries, something we do for ourselves.

Rob Walling:
Welcome back. To start off, for the rest of us, this is the show where we focus on bootstrapping and mostly bootstrapping SaaS companies. Today, I sit down with my TinySeed co-founder, Einar Vollset, and we talk through five insights SaaS founders should know about AI, about OpenAI, ChatGPT, LOMs. All the things you’re probably kind of tired of hearing about. But here’s the different tact that we took that I’m not hearing other podcasts and other pundits make on this topic. I tried to put a mental framework around AI that SaaS founders would understand. It’s how I would be thinking about this if I were a startup founder, and frankly, it’s how I’m advising my almost 150 investments to be thinking about this. So I kick it off by going through four categories of AI. So we had some taxonomy to think about and I talk about generative categorization, summarization, and predictive.
And then we walk through five things that I think you as a founder should be thinking about. If you’re putting your head in the sand and thinking AI’s not going to change everything, that’s a problem because it’s going to change quite a few things. But before we dive into that, tickets for MicroConf Europe this October are available for sale microconf.com/europe. MicroConf Europe is in Lisbon October 1st through the third speakers include Michelle Hansen of Geocodio, Sherry Walling of ZenFounder, myself, Stephen Innala-Craven of Stridist, and several others yet to be announced. It’s going to be an amazing event. Tickets are already flying off the shelves, as they say, microconf.com/europe if you’re interested. And with that, let’s dive into my conversation with interval set on five insights SaaS founders should know about AI. Einar, thanks for coming back on the show.

Einar Vollset:
Glad you have me.

Rob Walling:
It is awesome. We’re going to be digging into AI today, obviously talking about things that SaaS founders, whether bootstrapped or not really should be thinking about. I want to kick it off by maybe giving folks an idea of how you’ve been digging into AI, how you’re thinking about it and how much you’ve been screwing around with it. In essence, you’ve also, and you’ve been doing internal presentations to TinySeed companies. Of all the people I know you’re one of the people who has given it the most thoughts, so to speak.

Einar Vollset:
Well, thank you. Yeah, I mean, I started looking at it I guess in August or September last year, and it wasn’t really on my radar all that much. I have to be perfectly honest, we’ve invested in a couple of AI companies or companies that used AI. It was a key part of it back in I guess 21. And I nearly did my PhD on AI, which actually looking back at it, I’m glad that I didn’t because it was, looking back, it was a terrible time to have done your PhD on AI, but it sort of started, came definitely to the forefront in the fall. And particularly with ChatGPT, it became very evident to me that this was probably one of the bigger shifts in terms of a technical capability that would impact startups. I think at the very least the biggest comparative change that I’ve seen was probably when the iPhone was launched, and I think it’s definitely a bigger shift than that and potentially as big as the internet becoming a commercial commercially viable thing to do.
So I started really digging into it. I thought AI’s an interesting thing. People have weird reactions to it and there are the doomsters out there who are like… We should just call an airstrikes whenever the loss function falls too much. But equally, I think a little bit more of the considered concern meant, well, if you can just ask the AI to do everything, why do you even need SaaS companies anymore? Why do you need needle and stuff? So I started digging into it quite deeply, probably November, December timeframe. And it became evident to me that this was something that we needed to both for the portfolio for TinySeed, but also for the work that I do with Discretion Capital. We needed to lean into it. And probably most of my experimentation today and the systems that we’ve been building has been augmenting our systems for discretion capital in terms of using AI to understand the SaaS, specifically the B2B SaaS market worldwide.
And that has allowed us to basically have a step change. We’re basically gone from tracking the number of SaaS companies that we’re tracking and what they’re doing, and all this stuff has probably gone from 10% of the market to nearly a 100%. So it’s an order of magnitude change and it’s been key to me to try to understand, obviously that’s a huge benefit to us, but also I wanted to understand how it would impact our portfolio at TinySeed. Because we’re invested in so many companies, I felt like there’s probably at least a third, if not more, which there could be a severe competitive impact on the stuff. So I started digging into it. Most of my focus has not been so much on the visual models like the stable diffusion and dollies and stuff, but mostly on the large language models like ChatGPT or Flan-T5 coming out of Google and just trying to understand like, “Okay, how does this impact, how can we do this?”
There’s an odd dynamic in the AI world, I feel like, because it’s on one hand you have people who think it’ll be just snap your fingers and it’ll take over the world. And the other hand you have people who are like, “Oh, this is just auto complete, it’s bull- like why even bother with it?” The most standard thing I hear is like, “Ah, this is Web 3.0. Once again, it’s like NFT craze.” And I’m like, “Brother, it’s not NFT craze. Whatever it is, it’s not that.” So yeah, that’s been my angle. Like I said, my academic background is very much on the systems applied side, and so trying to understand, reading a lot of papers and trying to understand what can it do, what can it not do, what are best practices? And like you say, also trying to get the TinySeed portfolio companies up to speed as fast as possible in terms of understanding what they can expect.

Rob Walling:
And there’s a certain amount of just learning what it can do and not do as you’re saying. And then in three months, six months, 12 months, trying to get ahead around what might it be able to do at that point. Then taking that and viewing it through the lens of SaaS companies, whether funded or not. I mean that’s what we’re trying to do internally. It’s for folks who don’t know, you mentioned discretion capital, that is the sell side M&A firm where you help SaaS companies between one and 20 million ARR exit. You’re in processes. So a bunch of SaaS companies, tens of thousands, literally private equity companies, all this stuff that you do with that. So they know why both tiny seed and discretion capital. And frankly MicroConf and this podcast has an interest in this topic because I keep saying ignore AI at your peril.
I’ve heard the same thing about is this the next web three? Is this the next whatever other technology had a big hype cycle and then flamed out. Yes, there’s a big hype cycle, but I think this is much more no code where no code had a hype cycle and people are like, “I don’t know, it doesn’t really just code.” It’s always just code, you have these [inaudible 00:07:06] but no code is changing things at a grassroots level. It’s changing things for a lot of people. AI is going to do that times a hundred. I think you and I are both in agreement on that.

Einar Vollset:
A 100%. I mean, to give you an idea, it’s rare. The whole NFT thing like that, in my normy friends in Europe, that’s usually my standard measure of how do people interact with technology. And my normy friends in Europe, they never even heard of NFTs. It was like a, “What? Who cares about this? Ran Ethereum, who gives a shit? No code, I don’t care.” But ChatGPT, it was immediately, I was talking to my brother once and he is like, “Oh yeah, crap.” Normally it would take us three, four weeks to write this report that we charge a bunch of money for. And actually, yeah, it can be done in two days now real people are seeing real impact. And I think if you have technical founders who are sticking their head in the sand about the capability just become available, I think it has a massive, massive mistake, a huge mistake.

Rob Walling:
My brother runs a construction firm in the Bay Area, and similarly, he and I talked about it for 20 minutes and I started showing him, I was like, “It’s not like construction is the most high-tech industry.” But he was telling me about briefs he has to write or things he has to summarize or things he has to consume or you know what I mean? It’s just the moment we got in a text, I was like, “Oh, well let’s just… Here, give me that in a PDF so I can copy paste it right in the ChatGPT and just ask it some questions.” And it was a 100%, right? “No.” “But will it be a 100%, right? In the next three, six, 12 whatever, it’s going to get there so.”

Einar Vollset:
It’s going to get there. And I think a lot of the time, technical founders, they underestimate how much of the world economy consists of people who take bits of text and produce bits of text and give it to other people, and those people produce other bits of text depending on the inputs of that bits of text. That’s a lot of the economy in the world.

Rob Walling:
Yeah, it’s crazy. So, hey, when you said you’re Normy friends, so I use the term muggles. Oh, my muggle friends, you know that? It’s from Harry Potter when in the Wizarding school, right? Oh, the Muggles are like the normies, the who don’t have magic. Anyways, I want to kick it off. I put together an outline of my thoughts. The reason I wanted to have you on is I could totally have done a solo episode around this, but I want someone who knows more about it than I am to say, “I disagree. Oh, I do agree. Oh, I agree plus, plus.”

Einar Vollset:
I’m happy to disagree, bro. Always.

Rob Walling:
Oh, I know. That’s to derail. The podcast is your goal. All right. So I have been trying to get my head around the categories of AI that this is not capture everything in the world, but as I’ve seen uses of chat, GPT and Dolly and the OpenAI API, I think that in my head there are four categories, is the only word I can come up with. But the first is generative. This is where you type in something and it spits something out. So that’s like create an outline for a YouTube video titled How To Invest in Bootstrap Startups.
And then it just does an outline. It creates it based on its predictive stuff. Or you can type into Dolly, you can type in create a picture of Einar Vollset with a San Francisco Giants hat on. “Ooh, no, who’s your with a White Sox?”

Einar Vollset:
The Dodgers?

Rob Walling:
That would be great. The Dodgers, “Oh yeah, no. Ooh. All right.” Note to self, putting it on my trailer board, create a picture of Einar Vollset with a Dodgers hat on and waving a big foam finger that says, “I love Tommy Lasorda.” Am I in the wrong decade? Is that us?

Einar Vollset:
I don’t even know who that is. That sounds good to be.

Rob Walling:
Ooh, it’s a deep cut for people who watched baseball in the 80s, they totally know what I’m talking about. But anyways, so that’s what I’m calling generative AI generating things. Second one is categorization. If I feed it 1000 URLs, can it tell me which of these is an e-commerce website versus an agency versus a SaaS app? And then the third I have is summarization, which is a little bit, you could call this generative, but I’m breaking it out because I’m having a ChatGPT and other tools summarize a YouTube video and try to turn it into a tweet thread, for example. So there’s a summary and there’s a bit of generation. And then the fourth one I have is predictive. And this is one where internally I think we’ve talked or brainstormed, just like, “Well, could you input all the inputs of all the successful mastermind that we’ve matched in Microconf?”
And then when the new batch comes in, you put those inputs in and have it try to predict what we should match. Because that matching process is extremely manual right now. And I don’t know that we have enough data and we’ve matched a thousand founders. If we had a million, I would say we have enough data, but I just don’t know there’s enough that it could do it. So those are the four things, generative categorization, summarization, and predictive. I’ve gone to Google and tried to type in what are the types of AI, what are the categories of AI to try to get someone much smarter than me has thought about it in this way, but I don’t seem to be able to find it. Do you have thoughts? Do you feel like I’m on base there? Any other types that I’m missing?

Einar Vollset:
No, I think that’s reasonably fair. I probably think of it slightly differently. I think in general there is this notion, I mean in general, everything is generative. Fundamentally, a lot of the text models are just like, “They’re extremely flexible APIs, basically it’s just text in, text out.” So that’s true. I mean, I think as a broad class as the way I think about, there are classification, which is sort of similar to predictions where it’s like, “Here’s something, which bucket does this fall into?” It could be anything. It could be like, “Is this URL or SaaS app like we do for discretion capital? Or it’s like you say, given this background, does this person fall into this or that mastermind fit?” I think that’s true, and I think summarization is probably also one of the key ways to basically get value very quickly. And one of the key things there is, it’s remarkable to me, you were saying when you were talking to your brother, it’s like it’s remarkable to me how often you can just put dirty data in there and it’ll just clean it up and figure it out.
You could take raw HTL, messed up JavaScript from a website, dump it in there and say, “Hey, give me, what does this business do? Give me the summarize of what this page is.” Even though if you were to do that with pre LMs, then that would be a pain in the to do. And I think for me, that’s one of the key mind shifts that this technology does is basically programming in general is extremely precise. Math is very precise, programming is very precise. I mean, it’s like if you want to interact with text, you better clean up your text. It better be in a specific format. Ideally it’s in the table of some kind. You normalize the data, you deal with it. And it’s much easier as a programmer to deal with exact numbers and things than it is to deal with different various corpus of text.
And I think that’s probably one of the main things to keep in mind when you’re thinking about use cases is that it effectively gives you new fuzzy tools. So it gives you a way to grasp in a fuzzy imprecise way, grab text and text formats and get value from that in a way that is almost impossible to do in a generic way before. Because before you had to handle every side case and every possible whatever, versus with these tools, you can just roughly grab some text and indicate the sort of thing that you want to be able to do and it’ll refine it and like you say, summarize it and put it into a more valuable format where you can interact with it. And in fact, one of the most precise formats or one of the most interesting things is these things around embedding.
So I think that’s the next step that people get to. They start playing with it and they do the thing and then they sort of, “Go. Okay, how do I represent many of this thing? And being able to take extremely diverse textual, maybe dirty text sources and turn it into a very concise textual representation of something that contained information or even better an embedding that you can embed in a database and do things like vector search on.” I think that’s one of the key things to really understand when you’re trying to think about the use cases and how it applies to a SaaS.

Rob Walling:
Yeah, and that’s why it’s helpful for me to have these categories of what it can do, even if they’re all generative, you’re right, they’re all just generative. But as I break it down-

Einar Vollset:
Breaking down the next step.

Rob Walling:
But I’m thinking as a founder, let’s say I ran an email service provider today, or I ran a CRM, I would want to say, when do I ask my users to generate text or to generate images? Well, obviously when they’re writing an email, what are they getting that email from? Are they just trying to summarize something else? So should I build a summarization engine into my ESP, right? Or in my CRM, when I type in the URL of my contact, the sales lead shouldn’t AI maybe try to categorize that because that’s my second category, categorize it and say, “Hey, is this an e-commerce company?”
Or even pull in a summary or write a summary of this company does the X, Y, Z in three sentences such that the sales rep doesn’t have to do that. So having those four categories, and again, I’m not saying if we listen to this in a year, I bet we’ll be like, “Oh yeah, those categories were off. But I think they’re close.” And I think that’s a model of, if I was running a SaaS app today, I would apply each of those four generative categorizations, summarization and predictive to say, where in the app would my users benefit from it doing one of those? Or where do I ask them to do it today that AI can at least give them a start?

Einar Vollset:
And I agree with that, and I think it sort of relates to some of the other ways that I think about it and is what I tell TinySeed founders too is, it’s important given this new capability to not just… It’s completely the wrong approach to think that this is just NFTs and stick your head in the sand that is fundamentally wrong. I’ll take an argument with anybody who thinks that, but even if you think it’s like this is something that is great and you want to utilize, I think it’s such a big change in capability that it’s always behooves you to take a step back and look at the businesses that you have and the customers that you have and the use cases and the problems that you’re solving for your customers, and take a big sort of step back and get up to the 30,000 feet level and think about what are the sort of jobs to be done in that generically for my customers and what is now possible given that this capability exists that didn’t exist a year or two ago, what can I do differently?
I think some people will end up not getting the most of this or be left by the wayside because they’re a little bit too close to their existing solution. They’re like, “Oh, I’ll just add a chatbot to my thing, or we can do this.” And it becomes very hard to build any defensive mode around that because it’s like anyone can add a chat chat. There’s got to be, at one point I was looking at product hunt and it was every single thing except two things on that day’s product hunt was chat to my PDF docs.

Rob Walling:
It’s too obvious.

Einar Vollset:
It’s like 12 different ones. It’s like, “Yeah, okay.”

Rob Walling:
Exactly.

Einar Vollset:
Well, this is the tutorial case for almost all large language models like, “Come on. This is not a product. This is an auxiliary thing.” And it’s important that you take a step back and say, “Okay, what problems can I now? Maybe I can solve the same problems or bigger problems for my customers than what I was able to do before.”

Rob Walling:
Yeah, that’s our first point really. I have five points in an outline today. We may do more depending on other thoughts you have, but really the first one is to take those four categories that we’ve just talked about and ask yourself where each of them could be applied to your SaaS to help your customers to just make it better is to mental model. And as you said, the obvious ideas of putting a chatbot is not going to be enough.
My second thought or the second point that I’ve realized ties right into what you just said with the chat PDF and how eight out of 10 on product hunt were that unless you build something novel that is non-obvious and relatively difficult to build, AI is not a differentiator if all you’re doing is engineering a prompt and you can build it in a weekend, even though it can do something totally cool, anyone else can do that next weekend. That’s a big mistake. Everyone can use it. The obvious idea is, again, summarizing X, Y, Z or building a chat for your PDF, there are going to be hundreds of those, so you have to go further and think about moats are still moats and five hours of code is not a moat.

Einar Vollset:
Yeah, I definitely think that’s true. I think basically the key thing to think about in terms of how I think about founders and their SaaS businesses is like you say, I think it’s important not just to think, “Hey, don’t just stick your head into that.” If it’s two hours worth of work and it adds a really cool capability to your app, you should definitely do that. It’s a mistake, not two, but you can’t think that that’s a competitive advantage, an additional mode than what you currently have.
What you really want to be doing I think, is to say, “Okay, I have my mode. How can I further add to it with AI?” And I think if you don’t do that, if some obvious stuff that people eventually will come around to realizing, “Oh, we should add this capability that the LOM gives us to the problem domain that you’re working in. If you don’t do that, then someone else will and someone may come out as left field and basically because you refuse to go with the times and add this capability to your product, then that might be a competitive advantage for someone else because they choose to do it and we refuse to do so.”
There’s going to be some failure modes there where people are sticking their head in the sand about this and being like, “Oh, it doesn’t matter, whatever.” I think a lot of people, not a lot of people, but some people are going to get out competed by this low-hanging fruit. But the flip side is like you say, the low hanging fruit isn’t in itself emote,

Rob Walling:
It’s more an accelerant. I think of it, I mean there’s a ton of examples we could use, but remember when rails came out for Ruby and somebody… I don’t remember if it was DKH or someone on the team there built Twitter, a small version of Twitter MVP version in 20 minutes on a video, and people were like, “Oh my gosh, now I can build Twitter in 20 minutes.” And it’s like, “Yeah, that’s cool. That’s no longer a differentiator, like the code to build that.” And so if you were still writing Ruby with no rails and building web apps, suddenly you were way slower than everyone else. And in fact, if you were using… I mean, there’s a reason Laravel came out with PHP, Django came out with Python because those languages became much, much slower than Ruby at building web apps. And so again, it’s an accelerant. It feels like, “Oh my gosh, I’m ahead of everyone, but it’s like everyone else can use this too..”

Einar Vollset:
Yeah, it’s true. And the way to think about it, I used the iPhone example early on, this is almost like, which I know is strange. It’s almost like you can, if you have a web app, you can flip lick fingers and all of a sudden you have a native mobile app that works and that’s what it’s like. And if you think about it that it’s like, “Well, it’s so easy just to add a mobile app.” You just click your fingers and you have it, so it’s not a mote, but if you don’t do that, someone else will. And then that will be a competitive advantage for them.

Rob Walling:
Becomes table stakes in this space, right?

Einar Vollset:
Yeah.

Rob Walling:
All right, so that was the second point. The third thing, I’m curious if you agree with me on this, but I wrote this out, the big AI ideas, trying to build your own models, your own LOMs and the massive horizontal plays, building a search engine with AI, it’s like these are big, these are going to be billion and billion dollar companies, I think those are already done. They’re going to be won by OpenAI, by Google, by Microsoft, by Facebook, IBM, whoever else gets into it. These players are so massive and so well funded that if you’re a mostly bootstrap company like the Saas WISI, it’s just too big. What do you think about that?

Einar Vollset:
I agree with that. So for example, one of the things that I have running in just in my local MacBook is I’ve taken Google Takeouts, exported all my email from all my email accounts and basically created a chatbot that allows me to talk to about my email. So I can ask, “Okay, when did I meet so-and-so? Or who are the people that I talked to after I went to this conference?” That sort of thing. It’s very, very cool. But do I think it’s a standalone business? Do you think it’s a good business for a bootstrapper to start? No, because it’s such an obvious thing for the big email providers just to add out of the box. I’m almost a little shocked that Google hasn’t already added away for you to interact with Gmail that is like that. And so that’s effectively, I think the big players will take the low-hanging fruits and accelerate on their way and add that compare, add to the existing competitive mode.
So I wouldn’t want to start an AI email startup type client. That doesn’t make any sense, at least not for a bootstrap type business. Now, if you add Neumann and you raised a gazillion dollars, sure, go for it. But most people aren’t like that. They don’t necessarily do that. So yeah, I 100% agree with that, I still think the same is sort of true for search. Now some of these big hairy ideas that are like, once you realize understand what it does and understand the technology, then it’s an obvious idea. If it’s an obvious idea and a huge competitive market, but large incumbents what those guys are going to take that they’re going to own that piece.
And so building your startups around that and thinking like, “Oh, I’m smarter. I’m more nimble, I’m doing whatever.” I’m like, “You know what? connecting Gmails data with OpenAIs APIs and calling that your startup, that’s not competitive mode.” That’s not going to work for you. You have to go after like, “What is your existing mode, what is something new, something completely new that doesn’t require people to change that behavior in order to be for you to be successful.”

Rob Walling:
Or like we talked about above, you have existing moats probably within your company today. And using AI to make your product better is a way to extend those. And accelerate 0.4 that I’d like to communicate is in addition to thinking about how AI can be integrated into your product as features, which is 0.1, I think most SaaS founders, and frankly most entrepreneurs should probably be using AI internal to their company. Whether you’re doing content marketing or you’re trying to repurpose a YouTube video to Twitter or a YouTube video to a blog post, whether you say, draft a cold email based on my homepage to this type of buyer and have it give you a 101 oh, no, that’s not funny enough. I mean, you can go back and forth with it to help outline YouTube videos. I will admit some of the YouTube videos that I’m putting out.
I go to ChatGPT and say, “Outline a video 12 best business books to read this year, blah, blah, blah.” But then I’ll say, “Nope, not good enough. Regenerate. Regenerate. It’s not even 50% for me, it’s probably 25% I use or a third of what it gives me, but it helps get me outside of my own box.” So we’re using it for content generation, and I feel like small software companies especially really took advantage of when virtual assistances were $5 an hour in 2008. That was a game changer for my little company at the time. And I think that if you’re not using AI in your own internal workflows, again, this is not building it as a feature in your app, but helping it make you faster. I think it’s something that you should be thinking about. What do you think?

Einar Vollset:
Yeah, a 100% agree with that. I mean, I think the obvious case where this applies immediately is code. I don’t write code anymore without AI helping me out, and I probably do only about 20% or 30% of the typing. It just moves faster. I don’t bother if I have a new Python library that I need to figure out how to use, I don’t bother trying to ask Stack Overflow anymore. I just am like, “I don’t read the docs.” My standard thing is, “Hey, I want to use this library in Python. Can you write me up some codes to do it?” For example, I wanted some visualization code. I’ve never been good at a visualization code. And I was like, “Okay, because there all kind of complex. They’re a pain in us to deal with visualization stuff.” So I was just asking ChatGPT, “Hey, can you visualize these 2000 embeddings for me?”
Or whatever it was, and it just did. It was like, “yeah, just cut and paste this stuff in here, make sure you PIP install this library.” And boom, it was doing the visualization, the three-dimensional visualization that I wanted to do without me having to really ever look outside ChatGPT to understand how the library works. And I think that applies. I also think it’s like if you are in a profession or a party or thing is where you’re generating text, for example, reports and things like that, internally, you’re in a massive disadvantage if you’re not using that. Anything that you’re outsourcing to your VA or you have some medium level employee write text for that stuff, you should probably be looking at can, how can I augment this capability with it like an LOM?

Rob Walling:
I have a caveat to this one and I’m curious about it around with you just a little bit. It relates to this one plus the first point about building features into SaaS, but I feel like not every SaaS app itself needs or can use AI inside of it as a feature, but I do think every SaaS company or every SaaS founder could be using it internally pretty much, and everyone internally has something they can use ChatGPT or AI for. But I was trying to think of examples, and I mean there isn’t a great use case for it. What about Ruben’s company sign? Well, right, it’s electronic signature. How could AI be integrated in that? Because I can’t think of a great example off the top of my head.

Einar Vollset:
Sure, I can.

Rob Walling:
Okay.

Einar Vollset:
Hi, Ruben. Basically you have a company, it signs a bunch of documents, a bunch of contracts. How does the company keep track of its obligations that it’s signed? How does it know that?

Rob Walling:
You mean what’s in the documents? Like knowing what it’s-

Einar Vollset:
Yeah.

Rob Walling:
That’s interesting. So it becomes a knowledge base.

Einar Vollset:
All the contracts that are given, I mean contract management is driven can turn into a contract management. You can add a contract management capability to sign. Well, it could be like, “Yeah, part of the thing, you signed this contract and it says when you’re going to get paid, summarizes your obligations to the client. Did you meet this? Yes or no? It understands every commitment you’ve made and can summarize it for you.” So, yeah no-

Rob Walling:
I like that. This is why-

Einar Vollset:
That’s a good example. There might be, but that particular case-

Rob Walling:
I like that one.

Einar Vollset:
… definitely I can see.

Rob Walling:
How about let’s do one more and then we’ll move on. I think in the world there is a percentage that won’t use, but it’s probably pretty small.

Einar Vollset:
I’m sure.

Rob Walling:
Yeah. But what about SavvyCal, right? Derek Reimer startup scheduling link competes with Calendly like-

Einar Vollset:
Absolutely. I want to be able to talk about my SavvyCal account links like, “Okay. Hey, summarize, what did I do with my… How many times have I talked to this person before? When was the last time I talked to these people?” It’s unstructured, semi-structured data about what I did with my days that can be generated in text? Absolutely. You can use that built in. And actually it ties into one of the things I haven’t done, like I mentioned, my email is a good example of how I’m using it to talk about, basically talk to my inbox. One of the things that I’m not doing that’s kind of the low hanging fruit there too, is I want to be able to integrate it into my calendar and just say, so I emailed this person that and that date, and also by the way, I chatted to them, I had a Zoom call with them on such and such a date. That should be part of the information that summarizes into what I’m doing. So yeah, I think both of us two have pretty large, actually large language model in this case.

Rob Walling:
Cool. So let’s move on from there to the fifth point. And this is one I’m sure you’ve thought about. So I’m curious, I think we both agree on it, but the question here that I would ask myself as a founder, is my business model a ticking time bomb. Because some businesses are, if you’re a big team of analysts presenting data and you’re doing a bunch of manual work and you’re summarizing things like that becomes like you said, what was it the three-week report becomes a two-day thing? Well, once anyone can do that, that’s a problem. So how should founders, what should they be thinking about and how can you escape that? How can you not let your business basically be completely deprecated by AI in those cases? It’s not everybody, but there is a subset of SaaS out there.

Einar Vollset:
There are. And I think the use cases where you have… Again, maybe before it, a part of your mote was, “Oh, this is really dirty data. It’s hard to deal with. It’s imprecise. It requires verification.” So you end up outsourcing to a call center in the Philippines, or not call center, but outsourcing overseas, and you’re paying people to do textual analysis or updating reports manually because it’s super hard to do with the existing technology. I think that particular model, I think if that was my moat, if that’s what I did, I would be worried. I don’t necessarily think it’s like… So here’s the thing, it relates to what LOMs are bad at. You can’t have it. People say, “Oh, I can’t do math. I can’t do two times to the power, eight times, whatever, six, whatever.” That’s not like… Yeah, but that’s what it does.
That’s just a calculator. It doesn’t matter. That’s what it’s good at. What it’s also, another thing it’s not good at is queries like all the. Give me all the whatever it is in the world. It doesn’t do well at that just because that’s not what it’s good at. That’s not being able to iterate every role a database is not something that it’s good at. And so I think the moat that exists from building out and managing and quality assurance on a team of people in the Philippines say, I think that’s going to go away. But that doesn’t mean, I think that the entirety of those businesses are just three lines of code and ChatGPT anymore. It just becomes a different moat.
And if you lean then too heavily on that existing moat, then yeah, I think you’ll be out competed. But I think a lot, this is what I’m saying is for those kind of businesses, it makes sense to sit down and say, “Okay, let’s just admit that this particular thing is no longer a mode. What can we do given the capabilities that we already have and the customer relationships and the understanding of how we get that data, what can we build? It’s almost like, “Yeah, if you’ve been cruising along on that mode by yourself, you’re going to be in trouble.”

Rob Walling:
And I’m here less to be, what do you call it, doom and gloom? The world is not over. I mean, we are in as entrepreneurs, we are in the best spot possible. One of the best spots possible to take advantage of this. This is exactly, I keep likening it back to having a VA for $5 an hour because in 2007 and 2008, I was running these very small businesses. I didn’t have huge budgets, and I was either writing all the code myself and I was doing all the support myself because the only people I knew lived where I did in LA and I paid developers $75 an hour and I paid admins $30 an hour and I had no profit margin. And then when I read the four-hour work week, I was like, “What? I can do that?” And so I did, and it made my $3,000 a month net invoice suddenly be a 90% profit margin business. And that changed the game for me. And that’s when I realized, “Oh, I can do this.”
So I think AI is that plus, plus, I think it’s even more different. And I was in a position, and at the time people were like, “Oh no, offshoring, outsourcing, all Americans are going to have no jobs.” And I was like, “A, that’s not true. And B, a lot of us knowledge workers and developers and entrepreneurs are at a great place to take advantage of it.” So that’s my mental model of this.

Einar Vollset:
I agree. I mean, I think it’s an amazing time to be alive and it’s also an amazing time to be the bootstrap or nearly bootstrap a self entrepreneur because even just being aware that this exists and being able to write code, they can call an API, they can do some stuff that’s an amazing. You’re like heads and shoulders above your average, Joe and I think doom and glooming on it is completely pointless. It’s going to change. It’s change our lives, I think mostly for the better and having an optimistic view of where this is going to go and have it be like, “This is amazing. What cool things can I do now?” I think is the right attitude as opposed to the [inaudible 00:34:45] like, “Oh, all SaaS are going to go away. Everything’s going to hell. And then by the way, the AIs will take over and murder us all.

Rob Walling:
Right. And look, is there a spot to say, “Will people lose jobs and will it have social impact, especially on just the lower end of data processing, data entry, whatever?” Yeah. This is not the podcast where we talk about that kind of stuff, but it certainly could have an impact. So as a listener, hopefully that was helpful to hear Einar and my thoughts on this, obviously we have, I would say a relatively unique perspective being invested in a lot of companies and just being knee-deep in SaaS day in and day out. If folks want to keep up with you, you are Einar Vollset on Twitter, and we mentioned discretion capital at discretioncapital.com as well as TinySeed of course that’s what we work on together.

Einar Vollset:
Indeed.

Rob Walling:
Thanks again for joining me, man.

Einar Vollset:
Thank you.

Rob Walling:
Thanks again to Einar for joining me this week, and thanks to you for joining me every week. I’ll be back in your earbuds again next Tuesday. This is Rob Walling signing off from episode 663.

Rob Walling:
The big question is can I find people to talk to? If no one will talk to you, this is such a good lesson. I’ve said this on the podcast before, but I think it deserves to be stated again. It’s that if you try to validate a product before you build it and you cold call, cold email, cold dm, run ads, whatever it is you do, and no one will talk to you about this problem. How are you going to get them to talk to you once you’re selling something?
Welcome to yet another episode of Startups for the Rest of Us, I’m your host, Rob Walling. Today I’m answering listener questions. We’ve had an amazing influx of audio and video questions and so I’m going to be digging into those today. My first question is from Misha about switching jobs while bootstrapping a company.

Misha:
Hi Rob, my name is Misha. I have a question, should I switch jobs while bootstrapping a SaaS company? We haven’t launched yet. Our plan is to launch in about two months. The reason I’m looking to switch jobs is while at my current gig I can do the job easy enough and block out time to work on the SaaS product. It comes with plenty of what I call emotional politics, things that are distracting things that add emotional stress to the day and kind of sap motivation and focus. The new job is more technical work, so it’s a little bit less or quite a bit less on these emotional politics because I can focus on doing software development basically.
It also comes with a pretty significant pay increase of about 20% and that would be helpful since we haven’t launched the company yet and it’s more cash I can feel like I can devote into that space. So wondering how do you think about just bootstrap in your company knowing one’s going to be a long road before you can quit it, quit your day job for this bootstrapped company, but at the same time need to provide for yourself and your family. And how do you decide which opportunities to take and when to take them? Thank you.

Rob Walling:
Definitely an interesting question and one I myself faced many times and I’m sure a lot of bootstrap founders face as well. The way I would think about it is that if I haven’t launched yet with my side project and let’s say my goal is to get to $10,000 in MRR, that even with a little bit of expenses I can quit my day job and maybe the ultimate goal is to get to millions in ARR, but let’s just say the short term goal is to quit the day job. If I haven’t launched yet, the odds of me getting to 10K, MRR in 12 months are pretty thin. It’s possible if you get lucky, if everything comes together in a way that doesn’t usually come together as we see in the state of independent SaaS, just how many folks struggle to get past that initial $500 or $1,000 of MRR.
Let’s just say maybe on average, I’m making numbers up here, but let’s say that most apps take 12 to 18 months from launch to get to 10K, MRR. And if you’re lucky, it’s a little shorter and if you’re unlucky it’s longer or you never get there. With that in mind, I would ask myself, am I okay working at my current job with the politics making 20% less for 12 to 18 plus months?
So that’s one way to frame it. The other way I think about this is how much disruption will this have on my life and my ability to work on this side project? The good part is it sounds like you already have a job offer, so we can scratch the whole scouring job boards looking for jobs part of the process and just assume you’re at a decision point where you already have an offer and you could just accept it.
So then how many weeks or months is this going to kind of disrupt your personal life and frankly cause you to need to focus on the new job to make a good first impression and to get it to where you’re, you’re a trusted resource. Whenever I started a new job, I was always hustling, especially in the early days because I wanted that first impression to be that I got (beep) done and then people would stop bothering me. And so when I think about that, it sounds like you already have that with your current job. So how many months does it take you to get that with the new job? And I don’t know what the answer is, maybe it’s six weeks, maybe it’s six months, it probably depends, but that is going to probably pull time and focus away from your side project.
Next question is how much? Do you think you’ll still be able to do some work on your side project? I would absolutely expect so, but those are the two sides of the decision as I see it. It’s how long am I willing to work at my current job knowing that it’s going to take me a long time if I ever hit 10K, MRR with this project, the side project versus how much disruption will I have in the short term? A few months, probably. I mean if I were to guess I’d say in two to three months, if you hustle you can make a great impression. People kind of stop micromanaging you and you’ll have that, I think that mental bandwidth to be able to continue pushing on the side project. So that’s the calculus. I know what I would do in your shoes. I don’t want to make recommendations, but if I were in your shoes, I probably would switch jobs. I hated politics so much in any job that I worked at that that would be the leading factor for me to want to switch up because that alone would be a cognitive load for me if day-to-day I was dealing with that and I think that would make me less happy in my personal life.
And I also think it would probably negatively impact my ability to work on my side project or what it may do is make me work more on my side project such that I could get out of it faster. But that’s how I would think about it. But to each their own, it truly does depend on your prediction of how you think these things will play out and your own ability to deal with a crappy job because in the short term it will set you back, but in the long term I would guess it’s probably going to be a better choice.
The one other thing I’ll mention, it’s almost a tangent, but most employers, especially hiring developers are going to have you sign an IP assignment agreement and in that you will have to name any side projects that you are working on that you want to retain ownership of.
And so that’s something to think about and some companies will just ban you from working on side projects and they say, “We own everything you do even on your own computer at your house in the evening.” Now I think that’s bull crap and I personally would never sign one of those but find out in advance if this company has a clause like that because then that changes the decision obviously because you don’t just want to say, “Oh, they’ll never figure it out.” Because that’s a huge danger of you building something successful and then having someone else with a claim to own it. But if they don’t have a clause like that and they just say, “Name the things you’re working on.” And maybe you need to get permission or maybe you don’t, maybe they just want to know what it is that you’re working on the side, then you will have to list it and the new employer will know that you’re working on this thing. So that’s just one other factor I would keep in mind as I thought this through. Thanks for the question Misha. Hope that was helpful. My next question is from anonymous and it’s about factors for an acquisition.

Speaker 3:
Hey Rob, longtime listener since way before I started our company, which I’ll keep anonymous for reasons that will then become obvious, but we’re now approaching about $2 million ARR and we’re evaluating acquisition opportunities. And I guess I had predominantly two questions. So one, we are a very small team, we’re about four people full-time and we’re trying to understand when we can get a realistic valuation on revenue versus SDE. We’ve been optimizing for SDE for a long time and we’re just unsure when we can sort of pivot to the revenue valuation multiple. And the second was I’d love to know how you thought about an earn out in terms of when you were evaluating offers for Drips. So obviously… pay each year, but I don’t think that’s sufficient because I just, there’s a huge premium we place on our freedom and our ability to not be an employee and I just don’t see that talked about very much in terms of how people actually value that. And I’d love to hear about your thought process in terms of how you were evaluating opportunities and interest for Drip.

Rob Walling:
Anonymous cutout there for just a couple seconds in the middle. I think we get the gist of the two questions he’s asking. The first question is, small team $2 million ARR, how easy is it to get a revenue multiple versus SDE, I should define SDE, it’s kind of like net profit but it’s called seller discretionary earnings. And what it means is you take your net profit and then you add things back in like the owner’s salary or if you pay for your cell phone and your internet from the company, maybe a company car, whatever it is that you’re pulling out that really are discretionary earnings that if you left would remain in the company, those are added back in to net profit. And so you can imagine that a company doing $2 million ARR that is generating $1.2 million in, let’s just say net profit SDE, make them equivalent, $1.2 million and you get a five X multiple, you get $6 million, that’s great, but if you’re going to get a revenue multiple, you can often get the same multiple if you’re growing fast enough.
So five X on, $2 million ARR is going to give you $10 million. So it’s a big difference between the two and sometimes it’s even larger. General rule of thumb, and this is so general and it depends, so please don’t take this as gospel, but usually when you get to about $1 million ARRs, sometimes $1.5 million if you are growing quickly and growth is a big key to this and your churn is not super high, there’s a bunch of factors. But if it’s a really strong business, that’s when you can start asking for revenue multiples. So if you’re selling something that’s doing $250K a year, pretty much expect to sell for a seller discretionary earnings, multiple, SDE multiple. If you’re doing $750K a year, odds are pretty dang high. There’s, I’ve seen some exceptions, I saw someone doing 75K a year get $750,000 in cash for their company. It happens but it’s not the norm.
So you think about it as a bell curve, where in the center is the likelihood or the frequency that it happens. And then as you go out, there are these outlier multiples right? To the left, it’s low multiples and to the right it’s high multiples and it just depends on how desperate someone is to acquire your tech, or your company and are there any equivalent replacements on the market that they can acquire. ‘Cause if you’ve built something truly unique or you’re way ahead of everyone else, you’ve built an amazing team, whatever it is, that can be a huge factor in jacking that multiple up if they can’t find an equivalent replacement to buy. So all that said, the biggest factor is growth, right? And if you’re growing 100% year over year at $2 million ARR, I don’t see why you wouldn’t be able to get a revenue multiple.
Now I didn’t write any rules, it’s a market and so selling right now is better than selling last year, but not as good as selling two years ago when everything was frothy. So two years ago maybe if you were going 40% year over year, you know could get a revenue multiple and maybe now it’s 50, 60, 70, there’s some number in there. It just depends on the acquirers. Most acquirers are either private equity firms or strategic acquirers where there is a logical fit into their business that you will fit into. And so if you are growing quickly and you have relatively low churn, so there’s like a path to keep growing, and you’re in a space where there are PE buyers or strategic buyers, then that’s where it starts to make sense. And that’s where you contact like a sell side SaaS broker, like Discretion Capital, it’s run by my good friend and Tinyseed co-founder Einar Vollset
And that’s where they help folks who once they get into that single digit or double-digit million ARR, they can run a process and they know all the big players of private equity players, the strategics and they put together a, it’s a whole process, it’s months worth of work and it’s something that they do very well and that’s how you get top dollar for something like this. It doesn’t just happen by accident. The reason you run this process is to get multiple buyers. If you’ve read the book, the Art of Selling Your Business by John Warlow, it’s very good and it talks about the way you get maximum bids. The way you get maximum sale price is by having multiple buyers. And the best way to do that is to run this process and the best way to run a process is not to do it on your own because you don’t know how to do it, right?
I remember thinking I was going to run my own process and I think that’s a terrible way to go. I think you will always leave money on the table when you go that route. With that said, if you’ve optimized for profit, which it sounds like you have, it can be really difficult to make that pivot because you’ve kept the team super small and you probably have sacrificed growth for profitability. And I’ve talked about this many times on this show, where in the short term it can be easy to say, “Oh look how profitable we are. We’re a half a million-dollar business that threw up 400 grand for the founder.” That’s amazing. But if you could instead grow twice as fast, you can sell that thing for 10 times more than if you’re milking it for cash, right? Private equity and strategic acquirers, they don’t care very much at all about profitability.
Now if you’re lose buckets of money, of course, but if you’re running at breakeven and you’re doubling every year and you’re in the millions, people will take a look, like you will have buyers champing at the bit. So it can be difficult to make that pivot because if you’re growing at 20% a year and you’re super profitable, it seems like you’ve built a great business, you’ve built a great lifestyle business even at $2 million a year. And I’m not saying no one will buy you for a revenue multiple, but it’s definitely more challenging. It’s a lot to say on this topic. I should probably get Einar Vollset back on the podcast and we can talk this through ’cause it’s a super interesting question.
Second part of his question was about thinking of earn outs. Meaning you’re going to work at the acquirer for a year, two years, three years, whatever, and you get part of the purchase price up front and then you get these progress payments that may happen after one, two and three years.
So general rule of thumb is if you’re going to sell for many millions of dollars, if you go to say Facebook, or Google, or a huge brand name company, big tech, pretty much three year earn out is standard. There are exceptions but usually it’s three years with smaller, I’ll say known name tech companies. The ones that we’ve heard of but maybe are not mentioned in the New York Times or people are not frequently protesting them in the Silicon Valley. Those usually ballpark about two year earn out. But have I seen folks sell a company and walk away within weeks of closing? I have once again think of the bell curve. How often does that happen? Not very often and I have seen folks negotiate earn outs lower down to 12 months, 18 months, not with big tech but with these smaller PE acquirers and other things, especially if you have a team in place.
And that’s another thing, a lot of us founders think, I’m going to keep the team small ’cause it makes it easy, that’s great, but then everything relies on you, so your earn out’s going to be longer if you don’t have a team in place to do things. If you’re still making the product decisions, or you’re still writing code, or you’re still involved in the day-to-day of that business, the acquirer doesn’t want you to go away because they don’t want to have to replace you. So the more you hire and the more you delegate, the better position you are in to negotiate and say, “I’m basically an observer in this company.” If you can say this company’s growing and I only work 15 hours a week on it, 10 hours a week, some small number because everyone else is doing all the work that is actually the best position to be in to walk away within months or whatever, 12, 18 months of an acquisition.
But to really answer Anonymous’ this question he was asking, it’s a huge premium to place on your freedom. Even if you get a million dollars, 2 million during this earn out to work another year or two, is it worth it? And in my book, I knew that if I was going to sell for enough money that I never had to work again. I was going to work to minimize that earn out, but I was okay to work there for a period of time that made it worth it that when I got out I could do whatever I wanted. And so if that had been four years, no there’s no chance, three years, nope, wouldn’t have done it, two years felt too long. So I really negotiated that down. Actually there’s a reason our acquisition took 13 months, I’m not sure I’m talking about this, but I negotiated a lot of stuff and they were really keen to buy us and that helped.
I wasn’t as keen to sell, but I certainly was intrigued by the idea of diversifying my holdings from this one company that was worth millions and millions of dollars, to having cash in the bank and being able to put that into other assets. I kind of wish there was secondary that existed back then. It really wasn’t a thing where you could actually take chips off the table. If I could have sold 10% of it for $1 million dollars or whatever the numbers would’ve been, that would’ve been super intriguing, right? ‘Cause that’s a way of diversifying that is something that’s more possible today. We do it ourselves through our Tinyseed syndicate, where if a founder’s doing a few million a year and they want to take a chunk of money off the table, sell it to investors in order to keep going and grow that company, that’s something that is now an option and it’s not as frowned upon as it used to be.
But with all that said, you’re right. It’s a big trade-off to work for someone else for a year or 18 months or whatever that number is in my book though, the cash just has to be worth it. What you get out of the deal has to be worth that money. And again, I could imagine a deal falling apart if the cash was amazing and they said, “You have a three year or four year earn out.” I would say “No way.” The opportunity cost is just too great. And so if you want that earn out to be as small as possible, then you need to figure out how to make this company run itself a little more than it probably is today with only four employees, and then realize the odds of getting it below even a year I think are pretty slim.
One other thing that I would say is I have heard of folks kind of getting a full time earn out for a year and then having six months or a year as almost a consultant where it’s like you back off, no one reports to you but you will commit X hours per week at an hourly rate to continue working on it.
So there’s some in-betweens there. You’re still tied to it, but you’re kind of not under the thumb of the acquirer so to speak. There’s a lot there. Thanks for that question Anonymous. I hope it was helpful. My next question is from Victor about whether to take a role as a founding engineer or try to start a lifestyle business.

Victor:
Hi Rob, I’m Victor. I’m a JavaScript full stack developer and I’m not sure what to do with my career. So I have an offer to be a founding engineer on an agile backed or BC back startup and that would lead me to perhaps a more corporate job or a role as a founding engineer, corporate engineering, managing people and perhaps sacrificing time for money. So I’m not sure that’s what I really want to, I learned to code to have a lifestyles business, but I feel like the alternative is going backwards because I know how to code the super complex app using JavaScript, but if I have to perhaps become a Shopify developer or a WordPress developer and then leverage that experience to build an app with that for my customers, I would be doing things that I think of super simple. So the question is what should I do? Should I kind of go backwards and build for people that then I can help sell a plug into? Or should I go for the more conventional or perhaps conventional startups career where I become part of a founding team and then in the future perhaps fund my own company or become a CEO of that company? Thank you for the space.

Rob Walling:
It’s a good question, Victor. I think there’s a bit about risk versus reward here, but there’s also a bit about freedom in this decision. I guess I want to comment, start by commenting on one thing you said. You said, “I feel like the alternative is going backwards because I know how to code super complex apps using JavaScript, but if I opt to become a Shopify developer, WordPress developer, then leverage that experience, I’ll be building super simple things.” That would carry absolutely zero weight in my decision personally. If I’m going to try to start a business, I don’t care about the technology. Are you building it for fun and for the challenge? Because if you are, go work on an open source project, maybe start your own, go do fun hobby projects, screw around with AI, and crypto, and Python sentiment analysis APIs, just have fun, go do it.
But if you want to make money from something then know that you’re going to have to do away with your technical preferences and there’s a decent chance you’re going to build stuff that’s going to be too simple for you. Or you acquire something and it has a (beep) code base that you don’t want to work on. I’ve done both of those things. It didn’t matter because my goal was to get to the point where I could quit my day job, and if that’s the goal, then you have to make that the number one goal in my opinion to get there in any timeframe that makes sense. And look, I know I talk a lot about the stair step approach and building Shopify apps or WordPress plugins, you don’t have to do that either. They’re all types of routes you can go. You could just try to build that standalone SaaS app. It’s going to be harder, but if you want to build something complicated, you can go try to do that.
For me, the calculus I put into it is if I’m going to be a founding engineer at a company, and this means there are founders, two or three founders, and they have the bulk of the equity and then as a founding engineer, you’re probably one of the first one, two, or three engineers, so you might get a percent, or 3%, or 5%, some number. It’s usually pretty small. Probably in a venture backed company there’ll probably be like 1%. And so I am betting that those founders are going to be able to execute and make this company a reality. And if they’re raising venture, I’m just guessing that they are, the odds are they won’t. The odds are that they won’t succeed because that’s how venture works. And so when I think about my own decisions of working as a founding engineer versus starting my own stuff, I had more confidence that I could execute on these small stair step one and two opportunities with a higher likelihood that I would have just enough success.
Maybe it was $2,000 a month to make my house payment. Maybe it was 10 grand a month to quit my job. I thought the odds of me doing that were better than this company selling for what, $100 million, $1 billion dollar, whatever that number would have to be for it to make sense for them to sell and for it to make sense for the opportunity cost that I was going to put in.
Now, I’m thinking about being a founding engineer as kind of being all in on it. That likely means you’re going to work long hours, you’re going to be really focused on it, you’re going to be driving it to succeed because you’re all in on it. You have this equity and you want that to grow,
And maybe that’s not correct. Maybe you can work 40 hours a week and then do the side project on the side and that would be perhaps the best of both worlds.
I don’t know the particular situation and of course I’m not saying don’t be the founding engineer. I don’t really like to give advice, but I like to say in your shoes, this is how I thought about this when I was at your stage. It’s an interesting question, Victor, thanks for sending it in. My next question is from Ryan who’s thinking about selling his business for five years of runway. “I’ve been looking into selling my project management company. I’ve been bootstrapping for seven years on my own. I make $180,000 a year. It’s ARR, growth is low at 15% a year and I’m struggling to market and develop on such a large project and I’m getting tired.”
I’m going to assume this is software. He’s said project management company. Oh, I’m going to assume it is a SaaS app.
“I’ve received an offer to buy the company for $500,000 in cash, which is four times STE plus $125,000 seller note or alternative revenue royalties on top of the cash, still working out the details. It’s a full share sale, no earn out, it’s not an amount of money that will change my life in any way, but it could buy me five years to work on what’s next and it’s tempting. Two questions given the current financial climate, you think it’s a reasonable deal. Second question, what revenue or growth do you see in tiny seed companies over five years? Surely with product market fit, getting back to $180K ARR within two to three years should be possible, especially if I can reinvest earnings into the company rather than paying my salary. Thanks for your advice, Ryan.”
Sorry it took me so long to get to this one, Ryan. The text questions they do fall to the bottom of the stack. I wanted to get this one in. It’s a few months old even though there are still more audio and video questions.
So my opinion is, current financial climate, do I think it’s a reasonable deal? It doesn’t sound terrible to me. It sounds about in line, so it’s kind of a five times seller discretionary earnings with 20% of that on a note. Yes, the market is what, 4 to 6-ish STE. Again, you can get 2.7 if your app is declining, and you can get 7 if it’s in a super hot space and growing rate. There’s all these numbers, but 4 to 6 I think is a typical range, five to 7 in that range. So to get 5 for this when it’s not growing superfast and you’re kind of tired of it, I can’t give you advice, but in your shoes, I would probably personally cash it out. I love the idea of having that money in the bank to be able to just focus on something else full-time that I have a ton of motivation to work on and I have effectively infinite runway.
I know five years isn’t infinite, but that’s a really long time. To your second question about revenue growth in tiny seed companies over five years, I mean we’ve been around for five years. We’ve only been funding companies for four years, but yeah, there’s a huge bell curve. You see people on the bottom that are flat and people on top that are doubling MRR for one month to the next. So it’s a huge difference. Depends on market factors, all the stuff that you would expect, but getting back to 180K of ARR, which is $15,000 a month in two to three years, I think is absolutely possible. I think especially if you use one of your unfair advantages and hopefully you have one now that you have this app under your belt. Do you have a network in the space, an audience in the space? Can you sell to the same customers? Do you see a problem already that you think has a gap and has a pretty desperate need to be solved? There’s a lot of things you’ve probably learned from growing this first company that I think will allow you to stair step your way up and potentially grow faster with the second one.
Now there’s also the danger of you always forget how hard it is in the early days, and I’ve said this, I remember I said this on Twitter and Heaton Shaw responded, “Absolutely, every time.” And he’s on what is fourth or fifth product? And you just forget that the first 12 months you think you’re going to get there faster because you know what you’re doing, and you have the money, and you have the focus and you should be able to get there faster and you don’t, right?
It’s super frustrating. Trying to find product market fit is the huge question mark because you might find it in three months and you might find it in 18 months. And that’s the biggest difference is, as you build something people want and are willing to pay for it. It’s like how quickly can you get there? And without knowing your individual skillset and the market you’re going after, it’s really hard to guess how long that will take. But if you were to come to me and say, “I’m an experienced entrepreneur, I have half a million dollars in the bank, I have years of runway, do you think I can get to $15,000 of MRR?” I would probably bet on, yes. Good question, Ryan, thanks for sending it in.
My last question for the day is from Gavin about whether it’s time to move on.
Gavin says, “I built teencybit.com, a daycare management app targeted towards home daycares. I was inspired by my mom who runs one of these small in-home daycares, but she won’t use it. She’s helped me test some things but doesn’t seem interested in using it. This sucks. I’ve emailed some local daycares with little response. My question is, when do I learn that this isn’t going anywhere? Did I try something in a space where I really just didn’t have enough connections? Is there a cheap way to market this and further this test? I feel ready to give up and try something else, but I also don’t want to give up on something that could actually make some money. What should I try before giving up?”
So specifically with this case, I know that daycares are notoriously cheap, especially home daycares because they think consumers, and I remember our sons were at an in-home daycare. It was actually good friends of ours, and at one point I asked the owner about the software she used for billing and she said, “Yeah, they charged like $5 a month flat,” or $10 a month. It was incredibly cheap. And I was like, “Really? They don’t take a percent of the payment?” She said, “No, if they did that, I wouldn’t use them.” And I was like, “Wow, what if they went to $20 or $30 a month?” She said, “Yeah, that’s too expensive.” And I remember being like, oh, that’s a mentality. It’s this really frugal. I have my house and I have this little home business but not a good market.
That’s what I took away from that, and I’m making a very broad generalization based on that one interaction, but sounds like maybe you found that a bit as well. I think the biggest thing I would think about of what do I try before giving up? Well certainly try to ask my mom why she doesn’t want to use this? Is it too complicated? Is it just easier to do on paper? Is it easier to do the way you’re used to in Excel spreadsheets or whatever it is, and maybe that’s just your mom, but then if you can’t get other people to talk to you to also tell you why they will or won’t use it, then you’ve kind of hit roadblocks, right?
The question you ask is there a cheap way to market this and further test this? I don’t know. Is there search engine engine traffic for this? Have you gone to a keyword tool? Have you looked on Facebook groups? And Cora’s not a great place for this, but where do home daycare folks hang out and do they have this need? It’s like I would go back to pretending I didn’t have a product and I would try to run it through the 5:00 PM framework. You’ve heard it here on the podcast, you can Google it’s 20, 30 episodes ago, but I would reevaluate this idea, now that you have the software, you kind of have invested a bunch of time, but it’s a sunk cost, right?
You’re not going to get that back by pushing on this further. And I would be trying to look at this through the lens of where is the traffic? Again, it sounds like you wrote code based on one person having that need, and this tends to be that scratch your own itch fallacy of well, I have the need and so everyone else does too. And let me tell you, the hundreds of products that I’ve seen fail because you have a need yourself or one other person has it and you don’t set up a landing page and drive traffic. You don’t get 10, 20, 30 other people to buy-in and say, “Absolutely, I would want that.” Before we launched Drip, I had 11 yeses who’d said they’d pay $100 dollars a month. Before Jason Cohen launched a WP Engine. He had 40 people who said they would pay, I think it was a $100 a month as well for WordPress hosting.
That’s not the only way to validate, but it is a way to get around this, certainly putting up a landing page and trying to send paper, click Facebook, Instagram traffic, Google AdWords traffic, to it and gathering emails, probably not going to work. And those are the two ways I think about validation. You have your landing page smoke test, and then you have your individual conversations. And so again, I would go back to that step one phase one before I even had a product and figure out, is this thing viable? Stop working on the product, it doesn’t matter at this point. The big question is, can I find people to talk to? If no one will talk to you, this is such a good lesson. I’ve said this on the podcast before, but I think it deserves to be stated again, it’s that if you try to validate a product before you build it and you cold call, cold email, cold dm, run ads, whatever it is you do, and no one will talk to you about this problem, how are you going to get them to talk to you once you’re selling something?
That’s when it becomes even harder and developers think, “Oh no, once I have a product, then it’ll be much easier because I have something to show them.” No, all you’re trying to find out, is this pain real? How have they tried to solve it? Are they willing to pay to have this solved? And you can read books like the Mom Test or Michelle Hansen’s, Deploy Empathy to find out questions you should be asking, but if no one will get back to you, either it isn’t a pain point or you’re not doing a very good job of outreach. When I outreached, I would say, “,I’m a developer founder, I’m a local entrepreneur. I don’t have anything to sell you, but this is a problem I’m trying to solve. I’m wondering if it’s a problem for your business. Even if you respond with five words of yes it is, no it isn’t, that would be amazing.”
It’s like email them again. I mean that that’s kind of the things I would do before I gave up on an idea like this. With that said, personally, I would’ve a tough time going into the home daycare market because it’s basically a B2C app, but you have to build it like a B2B app and it’s not going to have the virality of B2C, right?
The reason B2C works is because people talk about it and they recommend it to one another, and usually there’s a viral loop built in and it’s mass market, so anyone can use it. But you’re building an app that has B2C price sensitivity, but in B2B form, and that’s kind of the worst of both worlds. So thanks for the email, Gavin, hope that was helpful.
And that’s a wrap for today. Hope you enjoyed those listener questions as much as I did. If you have a question you want to hear me, or me and a guest answer on this show, head to startupsfortherestofus.com. On your mobile, you can do this. You just click a button, you can record audio, you can record video, or you can send a text question. You can also email questions at startupsfortherestofus.com, and we are getting a nice influx of questions, so these episodes will keep coming out and I look forward to hearing from y’all. This is Rob Walling signing off from episode 662.

Rob Walling:
Welcome back to Startups For the Rest of Us. I’m Rob Walling. This week I talk with Mike Perham, the founder of Sidekiq, the solo founder with no employees who is doing single digit millions in revenue as a one person software company.
Mike’s story is pretty unique and that he started an open-source project and later monetized it by selling features that aren’t available in the core product.
As you listen to the interview, you’ll hear me ask Mike about how much luck factored into this. We talk about how he’s had this amazing success and then we talk about how it was 10 years to overnight success because he launched a bunch of different open-source projects and none of them succeeded. And then finally, Sidekiq did. And Sidekiq is a tool we used at Drip. I know a lot of folks in the Rails community use it as their queuing mechanism, but realistically, if Mike hadn’t had this amazingly successful opensource project, then none of the rest of this works.
So it’s an interesting and I think a pretty unique story on today’s episode. But before we dive into our conversation, I want to let you know that we have several open podcast sponsorship slots on this here very show. We’ve run a few ads on this show over the last couple years, and our sponsors have received amazing results from being in front of this audience of ambitious, bootstrapped, and mostly bootstrapped SaaS founders. If you’re interested in learning more, send an email to sponsors@microcom.com and ask about the podcast sponsorship options. And with that, let’s dive into our conversation. Mike Perham, welcome to Startups For the Rest of Us.

Mike Perham:
Thanks for having me. Rob.

Rob Walling:
What an incredible story, sir. You started Sidekiq 11 years ago and it’s an open-source project that you have monetized through premium support. And I knew of Sidekiq because my last startup Drip, when we went to start building it, my developer who later became a co-founder said, “We’re going to use a queuing mechanism,” a queue, a thing, a job thing that does jobs, a worker thing. And he’s like, it’s called Sidekiq. And I was like, “Huh, never heard of that. Is it like Rabbit MQ?” I had these older references, and he is like, “Exactly.” And this is 20, so it was, it was probably January of 2013, December, 2012.
So it was not like he’d been around for a decade, but we were building it in Rails and he said, “This is what we’re going to do.” And so we were on your free plan or I guess just the open-source plan for quite a while. And then eventually when we started sending tens of millions of emails a month, it became obvious we want whatever paying money got us, which I think was maybe escalated support is that it, I don’t even know. We were paying a thousands dollars a month and I felt like the value we got was tremendous.

Mike Perham:
I think the business model that I have, I think is typically called Open-Core, which is to say that the core of the system is open-source and freely available. And then what I sell are packages on top of that core, that wrap around that core, which is the Pro package and the Enterprise package. Those add additional features that people can build on their own if they wanted to. But what I do is I collect a dozen of these features together and support that package so that people can either build it themselves or they can pay me for my batteries included type commercial package.

Rob Walling:
Right, and obviously if you’re building some free tool somewhere, then you might build it your own if you’re hacking it on the weekend. And we were doing about half a million or a million a year in revenue at this point, team of six or seven. And my co-founder came to me and said, “I think we need to start paying for Sidekiq.” And I think it was like you have grouping into jobs, and there was some visibility into the queue. I don’t remember exactly what it was, but I’m like, how much is it? And he said, “A thousand dollars.” And I said, “A month?” And he said, “No, a year.” I think that’s what it was. Is that, am I remembering that, that eight or 10 years ago? And I was like, really? That’s it?

Mike Perham:
Yeah, that’s still the price too. The pricing I have, like I said, I have two packages, the Pro and the Enterprise. The point of the Pro package is to bring together a couple of features and provide a pretty low price that the majority of the community can afford.
So I have to try and walk that fine line between making it too cheap so that no one really values it and making it too expensive that only 1% of the companies can afford. So I settled on a thousand dollars a year only because so many companies have the credit card policy where anything over a thousand dollars requires a VP sign off or something like that. So I was just like, “Well, let’s get it under the VP sign offline, and hopefully the vast majority of corporate customers can afford this and won’t have an issue paying for it.”
And so yeah, Sidekiq Powers, is that layer, is designed to get me as many customers as possible, and so to spread the load across lots of different customers. So I never have to worry about one giant customer churning out and my business going bankrupt because of it. Instead, I’ve got a thousand small customers all which provide this very predictable, steady income that I can always depend on.

Rob Walling:
And that’s the beauty product income rather than consulting where you have a one big client. And the reason you got on my radar, again, I knew of Sidekiq, but I didn’t know your story as someone who started this open-source project and is now in the single digit millions, I want to say that again. Multi-millions in revenue.
You recently did an interview with Code, Code Ship codecodeship.com. We’ll link it up in the show notes, and then there was a hacker news thread around that, and it was cool. You were chiming in, people were kind of guessing at your revenue. You said, I’m closer to 10 million than 1 million in annual revenue right now I have 2000 customers. And you were generally just chiming in and you’re a single founder, no employees, is that right? Do you have any contractors?

Mike Perham:
The company’s just me. I have no contractors. I have a designer that I contact maybe once a year to help me out with a graphic here and there. I have a lawyer, which I contact once a year with any red lines I need to discuss or custom licenses that customers request. But 99% of the time is just me.

Rob Walling:
And that for many developers, especially developers who want to be entrepreneurs, is the Cinderella story. It’s the dream of I just want to be me. I don’t want to manage people. I don’t want to deal with people. So how did you get here? How did this happen when you started Sidekiq in 2012, I believe, were you planning to monetize it long term or did you start it and it caught on and then you realized, “Oh, I should make money from this?”

Mike Perham:
I had been doing open-source for 10 years before I even got involved with Sidekiq or started the Sidekiq project. So I had been around the open-source world and I knew how the typical open-source project works. You start it with lots of excitement. You get your first couple users and you’re super enthused, and then the bug reports come in. You start fixing those in your nights and evenings. And if you’re successful, you get more and more and more bug reports and more and more support requests, and you find yourself devoting more and more free time to supporting this community that you’ve built, but you are not making any money from it. You are just giving free support to the world, and the end result is always the same. It’s burnout. And so I’d seen open-source project after project burnout and the developer’s rage, quit, and I knew that Sidekiq would follow that exact same path if I didn’t do something different.
So that was it. I just pledged to do something different. I thought that no matter what, you’re always going to have to support your project. And so I thought, well, if I can make money somehow off offered the support, then I could just make it into a job and I can work 40 hours a week on it. No problem. I mean, it’s a project that I create. It’s technology that I love. And so as a developer, why not turn this into my dream job? And so that’s what I set about doing is turning it into my dream job.

Rob Walling:
And how quickly after releasing it into the wild did you start charging for something?

Mike Perham:
Let’s see, I started Sidekiq in February ’12 or January ’12, and then by August or so I knew that I had something happening. I knew that Sidekiq was looking like it was going to be successful, and I had a lot of people telling me, “This is a lot better than the previous thing and it’s valuable.” And that’s when I knew I could charge for it, right? If you’ve got value, you can charge for it.
So the only question was how do I charge money for it? I originally licensed Sidekiq as, it is licensed, I should say as LGPL, and the GNU licenses are famous for being somewhat corporate unfriendly. And I thought, well, maybe I can sell a commercial license that would allow the corporations to get out of having to use the GNU license with Sidekiq that didn’t sell very well.
The reality is most of the people making these technology decisions are developers, and developers don’t care about the licensing as long as it allows them to do what they want to do. And so what I then said was, “Okay, well maybe I can charge for additional features?” And that’s when I started planning Sidekiq Pro and thinking, “Okay, what features haven’t I built yet? What can I build and package separately and how do I sell that thing?” So that’s really where it became, okay, how do I this? Because I think there was maybe one other person who was selling Ruby Code at the time, and that was the Passenger team, the people that built the Passenger app server, they introduced Passenger Enterprise a couple months before I did. And so I saw them trying it and I said, well, I’ll try it too. And so I created Sidekiq Pro, I figured out how to distribute it. I signed up for a payment service, which provided it a checkout shopping cart kind of on top of Stripe, and just started using that and opened for business, so to speak.

Rob Walling:
And for folks listening to this who think they may want to go down this path, I believe that the hardest part of your journey of becoming the success you are today is not everything that’s happened over the past 3, 4, 5 years, but it’s that very first step of you built something people wanted. That’s hard to do. You and I could collaborate and build 10 open-source projects and throw them up on GitHub or wherever else, crickets. But finding something that people want and building it and having it catch on and having that momentum. And as you said, I knew I was onto something right from January to August already I’m imagining downloads or accelerating, I’m imagining five-star ratings or reviews or whatever it is in the ecosystem. And then once you have that, it’s not easy, but it is, okay, figure out a way to monetize it. You tried to license, didn’t work, tried features. Oh, that works.
If features hadn’t worked, you’d have tried something else. I think you could have eventually monetized it with a big enough audience that while that is a challenge, that’s not the hardest part of it. It’s the initial, how do I build something that just a bunch of people are using starts to becoming a little ubiquitous in the default. And then you can piggyback on that to create a revenue stream.

Mike Perham:
I mean, what I left out in that history lesson, there was the previous five years where I had been blogging about Ruby. So I was consistently blogging every month about various Ruby topics, and my blog was getting popular. Fellow Ruby developers were reading my blog and where I was talking about various really arcane, really technical topics. And so they grew to trust me as someone who was really technical and sort of knew how this tech worked and had a vision for where I wanted it to go. And in doing that, I built up my audience, and once I started Sidekiq, I was blogging every week about the Sidekiq project and what I was going to do, and here’s the various things I’m going to try.
And so you build up this audience and that audience starts to trust you and they see the logic of what you’re trying to do, and all of a sudden they’re saying, “Well, I want to check this out. I want to try it. And I love what he’s doing here. Everything makes sense.” And “Yeah, let me throw some money his way to buy this tool because we need it too.”

Rob Walling:
I mean, over the next few years, I think you were making a full-time income within a couple of years of either launching or monetizing, I mean, they’re so close together it almost doesn’t matter.

Mike Perham:
Yeah, it was about 18 months.

Rob Walling:
18 months, okay. So I mean, that’s obviously relatively quick. And again, I think that ties into the popularity, the fast popularity. You had overnight success. So we might say it was 10 years to your overnight success. That’s how I think about it. Because a lot of the stuff that you did prior, all the open-source projects and all the blogging and all that, would you agree with that, that you kind of needed all that to make it work?

Mike Perham:
Well, if you think about it in the term sense of a band, that’s an overnight success after touring for 10 years, I would certainly say that was true of me also. I mean, I was doing open-source work. I was blogging regularly. And so it was only after those five, 10 years of industry experience and know-how that I started this project and said, “I’m going to take it up a notch and start charging for this thing.” So yeah, and to your point, it was maybe six months until I monetized it. It was another 18 months after that to where I got to a full-time salary. And then a few months after that, I started, I incorporated, and started my own business, I quit my job, and just started doing it full time. I mean, I think I probably reached my success point once I was making five X my previous annual salary because that just becomes life changing money at that point.

Rob Walling:
Right, especially when it’s going to continue, right, when it’s like, “Oh, this is actually building and I can count on this for the foreseeable future.”
So over this journey then, this decade long journey, have you had a point where you were like, “This isn’t going to work?” The example I always use is when I ran an email service provider and Russian hackers sent a bunch of phishing emails one night, they kind of broke in and sent them overnight, blacklisted all our IPs, and I showed up Monday morning, I was like, “Well, that’s it. We had a good run. We’re done.” And turns out we weren’t done.

Mike Perham:
Wow.

Rob Walling:
We figured it out. But there were a few moments like that along the way that were just, “Oh my gosh, I don’t know if I can keep doing this.” Did you ever have a moment like that?

Mike Perham:
I consider myself pretty lucky. My business has just sort of skyrocketed up. The Sidekiq business has for sure. I’ve spun off new products as I’ve tried to diversify my business. I created a product called Inspector, which just didn’t sell well and didn’t have the demand, and so I shut it down.
I’ve created another background job system, which is not based on Ruby because the one thing your audience may not know is that Sidekiq is specific to Ruby. You can only use it with Ruby. Whereas I created a new background job system called Factory, and that can be used by any language. And so I’m also selling that as a product in my company. It’s not as successful as Sidekiq. I mean, Sidekiq was a rocket ship up. Factory is growing nicely, but it’s not the sort of exponential growth that Sidekiq has really seen.
So that’s kind of where my less successful aspects of my business would be is in the very different products that you launch that don’t quite become that big hit. And it’s kind of like a band with their first album is a huge success, and then their follow-up is a huge dud, but such as life.

Rob Walling:
And those are the risks you take to try to diversify your just risking time at that point, right? Because your main business is already so lucrative.
One question I did have about that, piggybacking on that is all technology has a life cycle. We look at programming languages, classic ASP, and even Pearl for use on the web, CGI scripts, whatever. I’m going way back here, I’m going back 23 years. And they come up and then they get replaced with a .net or Rails. Ruby had been around for a long time, but Rails became a dominant framework. And then even Django and Node, I would say are newer in the life cycle.
As an entrepreneur who makes, is generating incredible wealth from essentially the Ruby ecosystem. Do you have concerns that Rails, Ruby and Rails have been around now for, what is it 15 years, however long they’ve been popular, but that there could be a decline in the ecosystem that would cause your business to shrink? Have you seen any of that? Just curious about your thoughts?

Mike Perham:
Yeah, I mean that’s a concern, but at the same time, I always fight back against the need to have a venture capital need for growth at all costs, right? I’m happy with the lifecycle, whatever lifecycle Ruby has, I’m making more than enough money. I don’t need to make any more money. You know what I mean? I very much believe in sort of the Buddhist mindset where desire is a root of pain and wanting more and I don’t need more. I’m happy to support my customers.
I also look at tech like FORTRAN or Cobalt that have been in existence for going on 60, 70 years now, and they’re still out there. There’s still people making money off of it. You just don’t hear about it. And to me, what I’ve always pledged is that I’m here to support Sidekiq for the long term. And so if Sidekiq’s around 10, 20 years from now, hopefully I’ll still be around supporting it too. I don’t have hundreds of employees and venture capital backing that demand, endless growth in profits and margins. I’m doing great and I’m lucky enough to where if I need to, I can hire other people to help me support it. But at this point, that has proven not to be necessary.

Rob Walling:
That was actually leading to my next question is I feel like if I were in your shoes, there would be some things about my job, your entrepreneurial job that you’ve created that I wouldn’t like, probably support would be my thing that I would want to hire someone to do. You obviously have budget for that. You haven’t hired anyone. I know that your support must be incredibly technical, but look, you could hire someone for a quarter million dollars, some amazing senior developer or some amazing, I mean, if we go to Eastern Europe, you could hire an amazing senior developer for 150, you know, have budget for that. Why haven’t you done it so far?

Mike Perham:
Well, if I take myself out of the trenches, the technical trenches, so to speak, then I lose that sense of pain that customers might be feeling that would then go into the next version of the product. I need to have that boots on the ground knowledge so that I know, “Okay, what are the customers asking for? What are they suffering with right now? What features are painful and what features do they love?”
And so I don’t want to put a layer of abstraction between myself and that sort of feedback. You’re right, support’s not necessarily the funnest thing. I constantly get emails from lesser technical customers, customers who aren’t quite as savvy, technically asking, “Oh, the memory on our psychic process is going crazy. How do we solve this?” So I do have these constant support pains that I do my best to document to people and to the community. How do we overcome these issues?
So I am incentivized to make my Wiki documentation as good as possible and to make error messages as clear as possible and that sort of thing, because that literally makes my day-to-day life better because I get less and less of these emails asking the same questions over and over. So I do my best to document things thoroughly to make the code as smooth as possible and to sand down any rough edges so that I have as little support as possible. But at the end of the day, that support does inform a heavy part of the changes that go into Sidekiq.

Rob Walling:
Yeah, I could see that being close to your customers is an incredible advantage. One thing I’ll say, so I used to be in your boat too, and I was like, I did all the support for my products. What I eventually did was I hired it out and I realized I could read through all the tickets at the end of the day, and I didn’t have to respond to them myself, but I still felt the pain of the customers. And then we got to the point we were at what, 10 employees and then we got acquired and we were a hundred employees eventually. And I know that’s not the path you’re going, but then I had someone really smart who would read through the tickets, who would then create a brief for me that here’s all the major issues coming up. So it was a summary.
I wasn’t right on the front lines, but I felt like it was important to me that I too, as a product maker, didn’t lose that familiarity and that the pain, as you said, the frontline feel. So there are ways around it if you decide to do it, but it’s your business. You can do whatever you want. If you want to keep doing support, you can.

Mike Perham:
Yeah, I mean, Rob, at the end of the day, one of the decisions I made when starting my business was that I didn’t want to hire people, period. I don’t want to be a manager. I don’t want to deal with the administrative overhead. And so I said, “Well, what is a developer business like Sidekiq look like if you can’t hire anybody?” And so all of my business policies, all of my support policies all are based on the fact that how do we treat Mike’s time as valuable and not allow the customer to take too much of my time.
And so some of my policies are rather harsh. You can’t pay for Sidekiq Pro with anything but a credit card. And that’s because I don’t want to deal with the billing and the invoicing. Everything is all automated for Sidekiq Pro, and that’s how I keep the price low. But yeah, at the end of the day, it’s what policies and what’s the type of business that you want to build, and what I decided isn’t necessarily right for you or anybody else.

Rob Walling:
Yeah, it’s a great way to think about it as you own your own destiny as someone who has bootstrapped it right, and own all of the IP.
Question about competition. See, I’m imagining in this decade that you, 11 years you’ve been building this, has no one come along and tried to build a better Sidekiq, a competitor that would take market share for me. That’s what normally happens. And if they have, why have you won? Why continued to succeed in the fashion that you are?

Mike Perham:
There have been a few what you might style as competitors to Sidekiq competing projects. They all use different technology. Some of them use technology like Kafka, which is a lot more complex than Redis. So Sidekiq is based on Redis. Redis is quite simple to start and to manage, at least I think it is. Maybe others disagree, but Kafka is a order of magnitude more complex to manage. Another one used MongoDB as it’s backing store, and MongoDB of course, is this kind of niche data store that never really is, it’s kind of out of fashion now.
The current, what you might call a competitor to Sidekiq is another project called GoodJob, and it uses Postgres as its store. So other competing projects have come out. The thing to note is that they usually don’t have a commercial side. They usually are just open-source. And that goes, leads you right back to what I said earlier, which is every successful open-source project either grows to a team that can survive it or that the founder burns out over time. So yeah, I think I have competition, so to speak, but I don’t have any commercial competition, so to speak. Well, I think my commercial competition would be like SQS.

Rob Walling:
Amazon, which is it?

Mike Perham:
Right? It’s an Amazon web service that does queuing. It doesn’t have anywhere near the breadth of features that Sidekiq offers, especially the commercial packages. But it does have the Amazon name, and if you’re going all in on on AWS, it makes sense that you’d use that instead. It’s like pay per use though. So as you scale up, the price just keeps going up. Whereas that’s not true in Sidekiq. So you can pay a thousand dollars for Sidekiq Pro and then you can process a trillion jobs through it for that same thousand dollars. So there’s various different competitors and different offerings out there, but the Ruby community and the Rails community seem to trust Sidekiq as the best choice right now, at least.

Rob Walling:
As we wrap up, I want to ask you a question. I don’t know that I’ve ever asked anyone on this show before, but it’s about the fact that you’re open-source.
I’m curious, there are open-source purists who think no one should ever pay for software. It should all be free, more the, I don’t know there, it’s an extreme-ish viewpoint, but I’m wondering if you’ve had any run-ins with folks where your success story appears on Hacker News or you do an article and interview and basically haters come in and are shocked and appalled that you are monetizing an open-source project in this fashion?

Mike Perham:
That’s a constant worry of every open-source developer I’ve ever met. And the reality is that I hit very few, I mean one or two occasionally, but the vast majority of people that chime in on these threads are usually saying, “We’ve been a customer of Mike’s for five years now, and the product’s been amazing. He’s answered issues and questions within 20 minutes.” Someone had filed a security issue a couple of weeks ago with Sidekiq and I had it fixed within two hours of the report coming in.
So individual people who are maybe hobbyists and don’t have any budget, they may be a little bit upset that they do not have access to the commercial features and that I don’t just give it away, but a lot of businesses understand that if you’re in business, you have insurance, you have insurance, you pay your vendors because you want that support, you want that dependability of always being there. And this is no different. You’re buying a tool, you’re buying the commercial insurance to ensure that that tool is going to be around forever.

Rob Walling:
And at a thousand dollars. It is, and was, a no-brainer for business that’s doing well.

Mike Perham:
Enterprise is a little more expensive.

Rob Walling:
I’m sure it is. Yeah, no doubt. No doubt. Well, Mike, thanks so much for coming on the show. If folks want to keep up with you, your Twitter handle is getajobMike, which I think is hilarious, and of course Sidekiq, S-I-D-E-K-I-Q.org if they want to check it out.

Mike Perham:
Yeah, I don’t use Twitter anymore. I’m on Mastodon with the majority of the Ruby community now.

Rob Walling:
Okay.

Mike Perham:
But it is, it’s GetajobMike@Ruby.Social.

Rob Walling:
Perfect.

Mike Perham:
My Mastodon handle is on my Twitter pro.

Rob Walling:
People can find you there. Amazing. Well, thanks again for coming on the show.

Mike Perham:
Of course, thanks Rob.

Rob Walling:
Thanks again for joining me this week, and thanks to Mike for joining me on the show and taking a half hour out of his busy day. Another reminder that we have sponsor slots open for the podcast sponsors@microcomp.com. If you want to learn more, I’ll be back in your ears next Tuesday. This is Rob Walling signing off from episode 661.

Rob Walling:
In my opinion, the wrong way to go about it is to have this magical thinking and to think that, much like me, my customers will want certain things and if your customers are not you, if they’re not developers, if you’re selling to school teachers, or to realtors, or to construction firms, they’re very unlikely to be like you. So know that going in, and this is where talking to your customers and learning how they think and how they buy is critical to your success.
Welcome back to another episode of Startups For the Rest of Us, I’m Rob Walling, and today I’m doing another solo adventure. I’m going to talk about the trade-offs of hiring a team of contractors versus hiring full-time folks. I’m going to talk about not raising funding if you want to be a lifestyle business, talk about the danger of thinking your customers are like you, and maybe another topic or two depending on time.

Before we dive into that, MicroConf Mastermind matches are happening again, we do them two to three times per year. If you want to be matched up with like-minded, bootstrapped and mostly bootstrapped SaaS founders at about your stage, or maybe slightly ahead of you, head to MicroConf.com/masterminds. This episode goes live on May 9th and applications close on May 12th, so you will want to head to MicroConf.com/masterminds, if you are interested. We have had amazing success matching hundreds and hundreds, we’re approaching a thousand matches and 150 to 200 million in total ARR across many countries. You’ve heard me talk about it before. It’s one of our most successful offerings and if sometimes you feel like you’re wandering through the desert on your own and you’d like some other folks along for the journey, MicroConf.com/masterminds.

So I want to start with a topic of this idea of hiring a bunch of contractors and instead of having full-time employees because you know the quote, unquote, “headache” of having full-time team members and contractors are plug and play, right? It’s simpler, it’s easier. I have seen maybe a handful of folks actually make this work in a sustainable way and it’s when the founders themselves are extremely talented in the things they need to get done and the founders are willing to either pay for really expensive contractors or the founders are great at being project managers and they’re fine with being that bottleneck. Because that’s what happens when you hire five or 10 contractors who are essentially, I call them black box contractors, where in essence you want to think of them almost as a black box, a deliverable, right?

Here’s a summary of an article, please create an SEO article and publish it based on this topic. Or the task of set up Facebook pay-per-click ads or set up Google AdWords and we want trials and customers on the other side of it, where folks are individual contributors and they have a deep knowledge of a specific thing they are doing. Once you get five, 10 of those, even if it’s like, well, someone’s working five hours a week and some are working 10 and some are working 20, it sounds like this amazing kind of lifestyle business of everyone just does their thing and it happens. The problem is things sometimes stumble. You lose a contractor, you need to replace them. You have a lot of project management and approvals and reviews to be done, in a way that if you hired full-time people who took ownership of those areas, you can delegate a lot more and you can trust them to get things done without you needing to weigh in on every decision.
It comes back to what I’ve talked about a lot, task level versus project level versus owner level thinking, and when you hire a bunch of contractors, you typically get a bunch of task level thinkers and that’s not bad as long as you have a project and, or, an owner level thinker at the top able to manage that. And if that’s you, just know what you’re getting into.
I have yet to see a multimillion dollar, like an ambitious SaaS product that wants to grow quickly, follow this model. I have seen people try it and talk about it on Twitter, and I do know of a couple examples where someone’s doing a couple million dollars, but they are not going after fast growth. I’ll say it’s a mix of that ambitious and lifestyle bootstrapper, but again, those founders are exceptionally gifted in what they’re doing. I did this in the past before Drip, when I had HitTail, and then when I had the whole portfolio of products, I did have a team of contractors, I had nine in total. They all reported to me. And that’s what I did, was project management and approval, and I really didn’t do any individual contributor work.

There was a time there where I was working, that was about, between 10 and 15 hours a week. I kind of was living the four-hour work week. It was a pretty amazing time and I actually think back to it fondly, but what wasn’t happening was my businesses weren’t growing very fast and that was okay. They were throwing off a lot of profit and it was, again, it was that amazing lifestyle business where I barely had to work on anything, but if I had been ambitious about growing it, I would’ve been smart to hire full-time folks, which is what ended up happening with Drip, right? Drip started off and it was like, “Well, I’ll hire Derek as a part-time,” he was a part-time contractor for six, seven months until things started to ramp up and I was like, “No, I need to go all in on this because I want to grow this company in a way that is much more ambitious than this approach of having a bunch of folks who kind of care, kind of don’t have ownership, kind of don’t have buy-in who are just doing tasks can do.”

I believe I’ve actually covered this topic on the podcast before, perhaps on a listener Q&A episode, but someone brought this up to me the other day and I heard someone talking about how they were trying to do it and they were frustrated with the results, and so I wanted to come back and circle back on it, because I think this is something that is worth saying because it’s this siren song. It’s like every year or two, someone comes up with this, quote, unquote, “new idea” to do this and frankly, we’ve been doing it for at least 15, maybe 20 years, and it’s not that it never works, it’s that there are these trade-offs. And it’s like know your skillset and know where you want to go because if you do want to grow fast, this is probably not the path for you.

Second topic I want to cover is this danger of thinking that your customers are like you. I was eyeballing some auctions for collectibles as I am sometimes known to do, and I saw a listing for a Dungeons and Dragons adventure. It was called a Dungeon Masters Kit I believe, and it was published in 1976, and the seller said this was the first ever adventure written for Dungeons and Dragons, and I thought to myself, “That’s very odd because it was not published by the creator of Dungeons and Dragons.” TSR is the company who created Dungeons and Dragons. I thought to myself, “Why didn’t TSR publish the first adventure?” By the way, I’m going to sometimes say module and adventure, they’re the same thing. I just interchange the two words. But TSR had created Dungeons and Dragons, and I know they published a ton of adventures in the ’70s and ’80s because I used to buy them, so I was puzzled by this.

And what happened is TSR had a stance, and most notably it was the president and CEO and founder, Gary Gygax, who said, “No one will want to buy pre-made adventures. All the dungeon masters will want to make their own.” And he thought that because that’s how he felt, right? He was a creative, he created the game, co-created the game. He wrote a lot of the early adventures and that was a big part of the stimulation for him, was being able to create the adventures.

What he didn’t realize is there were people out there, it turns out a lot of people out there, who maybe didn’t have the creativity that he had, maybe didn’t have the time that he had. And these days that’s me. I buy adventures at discounts on Humble Bundle, I’ll back them on Kickstarter. You don’t want to see my Kickstarter history. I’m almost up to 300 projects backed, and a lot of it are these D&D adventures or STL files for 3D printing miniatures. But the thing for me is I don’t have the time to come up with something amazing from scratch, and if I can pay $5 or $10 for a PDF that someone spent hundreds of hours thinking through a whole storyline with characters and twists and turns and puzzles and just the whole deal, it’s a no-brainer for me.
But back in 1974, ’75, obviously Gary Gygax didn’t think that was the case and he was a bit myopic in this and in fact, so Palace of the Vampire Queen comes out, that’s the 1976 module, and then this whole company springs up called Judges Guild that puts out a bunch of adventures before TSR catches wind and realizes, “Oh, we can’t just sell rules to everyone. We’re going to sell rules to dungeon masters, but the real money in this space is in selling new adventures.” And that became a new cash cow for them.

Luckily, they had the cache, and the brand name, and the distribution, and the partnerships that it didn’t end the company. Feasibly, if you were a startup and you missed something this big, it could feasibly cause you to go from first to second place in a space and really lose the race, so to speak. The reason I bring this up and turning it back to SaaS and startups is I especially see this with the developer founders who think that software should be cheap or software should be free, it should be self-serve, that you shouldn’t do cold outbound, that my people don’t want to do sales demos, that everyone wants to pay $10 because it only took me a weekend to build this software, whatever it is.

I think the developer mindset, and I had this too and kind of had to shift my thinking over many years the longer I was in business, to realize that, no, some people do want sales demos. And in fact, once we started implementing sales demos, we either doubled or tripled, I forget the number, but we doubled or tripled our conversion rate on Drip sales demos versus people who are just signing up by themselves.

And one of the biggest realizations for me in my entire entrepreneurial career was realizing that great products do not market themselves and that marketing is important, and that as a developer, we don’t want to have to market because Basecamp didn’t market and, oh, “I heard about this $1 million homepage that didn’t market, it just came out and it went viral.” It’s this myth, it’s this dream. We just want to build Flappy Bird and have it go viral. And realistically, I’ll say it never happens, obviously it happens one in 500, one in a thousand, one in 10, there’s some number. It’s just so unlikely to be you. Do you have time in your life to put out 500 apps hoping that one of them goes viral?

So that’s what I want to call out today is, if you’re a developer and you feel like you don’t want to market, you don’t want to have to market, you don’t want to bother people with cold outbound outreach, everything should be self-serve, you shouldn’t do a demo. It’s kind of these tropes. I would encourage you, I’m not saying you have to do all those things. If you really are against, let’s say, cold outreach and you don’t want to do any of it, then just pick an idea where that doesn’t need to be the marketing channel. Pick an idea where there is a lot of inbound and then learn SEO and learn content marketing.

There are ways around this, but in my opinion, the wrong way to go about it is to have this magical thinking and to think that, much like me, my customers will want certain things. And if your customers are not you, if they’re not developers, if you’re selling to school teachers, or to realtors, or to construction firms, they’re very unlikely to be like you. So know that going in, and this is where talking to your customers and learning how they think and how they buy is critical to your success.

My next topic is going to seem random, because it kind of is, but I was thinking the other day, this is how I think about buying souvenirs when I’m traveling, and I promise that the fourth topic I cover today will be related to startups, but I realized years ago that as a kid I would go somewhere, to Santa Cruz or whatever, to the boardwalk, and I would buy something that I would take home and sit on a shelf, a little trinket, a tchotchke if you will. And I realized pretty soon I had a bunch of clutter and that didn’t make me happy. It just made dust everywhere and it meant I had to maintain things. And the more things you own, the more your things own you, right? I’m sure someone much smarter than me said that before now.
But I have a loose rule now. I hold to it pretty tight. Every once in a while I will break this rule, but if I’m going to go someplace and buy a souvenir to remind me of that trip, I want to either be able to consume it or wear it. And so consuming is buying chocolate when you go to Switzerland, it’s buying wine, it’s buying whiskey in Scotland. It’s some type of thing that I can take home and enjoy, but then it essentially moves out of my life once I have shared it with friends and enjoyed that. Or wearing it, so I’m big into T-shirts. I have T-shirts with nerdy sayings on them, T-shirts with logos of the companies I run, on and on. And so for me getting a shirt or a T-shirt, even if it’s not a T-shirt, even if it’s a collared shirt or just something to wear that reminds me of that, then that’s something I know I will put to use.

Now for my wife, Sherry, she might buy jewelry, right? Earrings, necklace. I could see buying a watch, although the only watches I’ve ever bought while out and about are the fake Rolexes that you get in Europe that last you for a month or two before they rust out and you pay €8 for them or whatever on a blanket in Pisa. But I think that counts. So is it a hard and fast rule? Do I never buy something that I can’t consume or wear? No. But in general, I try to shape my thinking through that because I think for me it’s a healthier way to think about it and I have enough clutter on my shelves as I think most of us do.

My fourth topic is about raising funding if you’re a bootstrapper. This really wasn’t a thing 10 years ago, and I kind of started hearing about it with Customer.io, I believe they actually raised a bit in 2012. And then of course with funding like TinySeed or our syndicate Indie.bc, they’re obviously more bootstrapper friendly funding avenues around, crowdfunding has also added to this, but here’s the danger, and I think here’s the pitfall we’re starting to see some people fall into. And it’s that if you want to be a lifestyle bootstrapper, actually let me step back and define terms. You know on this podcast I talk about the venture track and then I talk about lifestyle bootstrappers, which is that amazing business, just throws off cash. And whether that’s 10 grand a month, whether that’s a 100 grand a month, you don’t necessarily want to grow it. You’re not super ambitious to be like, “I got to grow this thing and I’m going to have a multimillion dollar exit.” It just throws off a bunch of cash and you have exactly the lifestyle that you want. Okay, that’s a lifestyle bootstrapper.

Then there’s the ambitious bootstrappers, and that is, “I want to get to one, five, 10 million and have this amazing, usually it’s a life changing exit.” Maybe you run it for the long term, but frankly for growing that fast, the enterprise value, the sale price you can get out of a SaaS HEP is so extravagant, it’s so incredible, that you would almost be foolish not to take that money. It can be a once in a lifetime, literally create generational wealth at that point.
So those are my three categories. And what I’m saying is I think we’re seeing some folks who really want to be lifestyle bootstraps, but they are raising funding thinking that it’s free money and that it doesn’t come with some type of responsibility and some of the mistakes I see, and there are several folks who I’m either affiliated with or I just see it online, but they still want to take a couple months of vacation a year and take funding and are frustrated when they’re in a competitive space, because they took funding to go into a competitive space, and they’re not making progress.

And so it’s like, “Look, I get it. I like taking a couple of months of vacation each year,” but then I’m not going to delude myself into thinking that things are going to keep moving as fast as if I was involved. If you want to be ambitious and move quickly, then in the short term, I believe that you do have to make some sacrifices. Another person I saw had raised money and wanted to work part-time on the company, and I don’t know of a single investor who’s willing to back a company where the founder is not willing to go part-time or the founder wants to work on a myriad of side projects when the main project itself is not succeeding yet. And so I’m not saying any of those things are bad. If you are a lifestyle bootstrapper, don’t take money, take months of vacation, work on side projects.
I’ve had times in my life when I’m doing that and it’s amazingly fun, but once you take investment from someone, even really nice investors who are not putting a ton of pressure on you to grow, there is still an implied agreement that you will focus and that you will do your best to grow the company. That you’ll work hard to build yourself an amazing business and to provide an amazing outcome for you and some kind of a return for investors since, if you think about it, huge amount of risk with writing an angel check. The odds are it’s going to go to zero and they are taking risk with tens of thousands of dollars.

So this is my public service announcement for this week of the idea of raising funding has become more palatable and certainly more favorable to bootstrappers. And I, obviously, as I run an accelerator and venture fund myself, I think this space needs it, and I think there is a subset of bootstrappers that can and should raise money, but before you dive into that end of the swimming pool, so to speak, I would ask myself, “What are my goals with this? And am I willing to go all in on this project and give it a few years to see if I can really grow this?” Because to me, that’s the implied contract that you’re going to want to have with your investors.
My next topic is this great quote from the Comic Lab podcast, and I feel like I need to thank Dave and Brad, they’re the hosts of Comic Lab, because Dave Kellett has just dropped some amazing quotes that have got me thinking so much about their applicability to startups. And Dave and Brad are cartoonists. They write comic strips, not comic books, but comic strips that they put online, and then they do Kickstarters for the books themselves, and then they have Patreon and such. So they’re professional cartoonists who don’t appear in newspapers. But the thing that Dave Kellett said, and it was about career progression, he said, “You want your career to be a series of ever-increasing and manageably sized mistakes.”

And I love the careful wording here. You can tell it’s someone who writes a lot, right? He writes punchlines, because he writes things that are funny, and so, “… ever-increasing and manageably sized mistakes.” This lines up so well with my career and what it has been and the amount of risk and the size of the risks that I could take when I was in my 20s are so dramatically different than where I am today. And if I was still having to take those same small risks, I think I would be pretty bored, and I think that would be a career that had not progressed very far. And then I can imagine that there are folks out there who maybe took some risks, had some rewards, but they didn’t increase the size of the risk they were taking. And so maybe they’re continuing to make mistakes, but they’re not getting larger, and so therefore the gains don’t get larger.

When I put a chunk of money into crypto back in 2016, I viewed it as an angel investment. It was going to go to zero or it was going to a hundred X, and I couldn’t have made that bet in good conscious. It was a chunk of money that would’ve been foolish for me to risk even 12 months earlier. But we had sold Drip, but I realized that this was a manageably sized mistake that I could manage now with this newfound wealth, but it was also a lot larger than something I could have done six to 12 months prior. That bet wound up paying off in a way, obviously, because crypto went up. Even in the crypto winter and crypto is down right now, it doesn’t matter because I just made the bet really early on and put in more money than would’ve made sense before that.

Now, have I made some bets that have not panned out? Of course. And those bets were always manageably sized. That’s the genius of this quote, is that if you’re just starting out today, then make some bets and realize that the six months of nights and weekends you spend building your first product is a manageably sized mistake. The first two or three products I launched were three months or six months of nights and weekends hacking on it, and that was the risk, and they all failed. And then acquiring DotNetInvoice, spending that $11,000 scared the crap out of me, and that was a bigger risk than I had taken prior, but it was manageably sized because if it had gone to zero, I’d have been okay, and in fact, I bought it, didn’t have the revenue I thought, my back was to the wall and I just ground it out and figured it out, and then HitTail was a $30,000 bet, and there were a bunch of bets in between those two.
But I love this quote, and I’m going to say it again, “You want your career to be a series of ever-increasing and manageably sized mistakes.” And I like it because I think it’s a reminder to each of us, no matter if you’re just starting out, if you’re mid-career, if you’re later in your career and you’ve had some amazing successes, not to sit on your laurels and to continue increasing the size of the risk you’re taking while keeping the manageable based on where your life is at at that point.

Okay, last topic for the day. This is to know what you’re bad at. I see founders with this. I also used to have an assistant who had this blind spot, and what’s a trip is I notice a lot of things that I’m bad at, and so therefore I either ask for help or I delegate them, or I spend extra time and attention on the things that I’m bad at. So if you’re bad with numbers and you can’t get someone to spot check your Excel spreadsheet or your math on something important, then you double check it, triple check it, check it multiple days, and frankly, you find someone to spot check it for you.

The problem with not knowing what you’re bad at is it becomes this blind spot that almost can look like self sabotage, but you’re not doing it on purpose. I’ve known founders who just cannot get out of their own way, and a huge part of that is they don’t know what they’re bad at. They don’t understand that they have this limiting belief, whether it’s they’re not super creative, so they shouldn’t try to be super creative in their startup, or whether they’re just too much in the weeds of development, so they really need to find a co-founder, or they need to go into a space where the marketing is just all left brain, SEO, pay-per-click ads.

Or it’s someone who doesn’t realize that their fixed mindset isn’t going to allow them to maybe achieve the goals that they want, or it’s like the assistant I used to have who was just not good at booking travel, but he thought he was. And so there were just mistake after mistake, whether it was, I’m flying from here to there, and he would book the ticket the opposite way by accident, or book the wrong date, or book 9:00 PM instead of 9:00 AM, or not put it on the right card so I got miles. It was just always, travel was such a hassle, and it’s like, “Realize that you’re not good at this. You screw this up all the time.”

He was a great assistant across all the other domains that you could ask someone to be an assistant for, but this one thing they just weren’t good at. And so eventually I had to start delegating to someone else or doing it myself. But I often say, “Know thy self,” as a founder. Knowing thy self is such a big part of the game because managing your own psychology is the majority of being a founder, I believe. And you can’t manage your own psychology if you don’t understand yourself. And I think this is one component of that, is there are some things that you’re probably really good at, double down on those. Know the things you’re bad at, you can improve them, you can try to improve them. I tend to lean more into strengths myself, but in the meantime, if you know what you’re bad at, then you know when to ask for help and you know when to delegate if you can, and you know when to spend that extra time and attention when you have to tackle that task.

That’s it for this week. Hope you enjoyed this solo adventure. This is Rob Walling signing off from episode 660.

Rob Walling:
Welcome back to Startups For the Rest of Us. I’m Rob Walling. Today I sit down with Courtland and Channing Allen, the co-founders of Indie Hackers, to talk about their newfound independence. They are no longer owned by Stripe. They also turned the tables on me in this interview, and we spend probably the first 30 minutes talking about my new book as well as sharing theories about entrepreneurship and just all the tasty goodness that comes when I sit down with really smart people who are thinking about entrepreneurship on a day-to-day basis. This episode will go live in both of our podcast feeds. If you haven’t checked out the Indie Hackers podcast, you definitely should. It’s a great companion podcast to Startups For the Rest of Us. But if this episode feels like kind of a cross between an episode of Startups for the Rest of Us and an episode of Indie Hackers, that’s because it is. Because essentially we have all the hosts and we were interviewing one another on the important topics of the day.
So we let this intentionally run long. There was just a lot to talk about. To be honest, we hit stop on the recording and talked for another 20 minutes about things that we probably should have recorded. We started talking about AI and about angel investing and a few other things, but that just goes to show you the content was flowing and it was one of those magical moments that you do want to capture. So I know I keep episodes between 30 and 40 minutes typically, and this one’s a little longer, but I hope you enjoy it and agree that it was worth doing. Before we dive into the episode, MicroConf Mastermind Matching opens on April 3rd. That’s just the day after this episode goes live. And realize you can head over now to microconf.com/masterminds and get on the wait list to be notified.
Every time we do Mastermind Matching, we have people contact us after the deadline closes begging to be included and unfortunately we can’t. There’s a reason there’s a deadline. Because we start matches. So we only do matching two or three times a year. We have matched more than a thousand founders across dozens of countries, dozens of time zones with a combined ARR somewhere approaching $200 million across all the companies. It’s been a very successful offering from MicroConf. One of the most successful offerings we’ve had in years. We’ve only been doing it three years, but it has just taken off and I’d really encourage you to check it out. Whether you are in the idea phase. Or whether you’re doing 10 million ARR, we have a match for you. And we match you up in these small groups of like-minded founders. If you apply between May 3rd and May 12th, which is the deadline, we’ll have your match sent by May 17th.
In addition, if you’re interested in chatting with me at an upcoming MicroConf local or you have a strategy or a framework that you think other bootstrap SaaS founders should hear, we are always looking for founders to come out and share their expertise during all of our conferences and events. If you’re interested, head to microconf.com/pitches and share your idea with us.
And with that, let’s dive into my conversation with Courtland and Channing.
Courtland:
Anyway Rob, welcome to the show. We sort of already introduced you in our preamble, and I’m sure anyone who’s listened to the show for a while also knows who you are. How you been, man? It’s been a while.
Rob Walling:
I’ve been good. I’ve been working on MicroConfs. I’m leaving tomorrow for MicroConf Denver in the US here. And then I got my book going. That’s my big project I’m heading up right now.
Courtland:
Nice.
Rob Walling:
Yeah.
Channing:
Wait, how many MicroConfs are there? There’s Denver, there’s Vegas.
Rob Walling:
Yeah, well so-
Courtland:
No, there’s not Vegas anymore.
Rob Walling:
There’s a US.
Courtland:
Oh, okay.
Rob Walling:
Yeah, there’s a US MicroConf and it used to be in Vegas, and then we moved it. It was in Minneapolis last year, it’s in Denver this year. I don’t know that we’ve announced the city for next year. And then there’s a Europe, and those are our flagship events. And then we do the locals, which are these just one day almost afternoon events where we get a big name guest and hang out for a few hours.
Courtland:
Channing and I were just talking about getting back in the game when you’ve felt kind of out of the game. And I know that we’ve been out of the game because we haven’t been doing MicroConf in a couple years.
Channing:
Yeah.
Courtland:
Part of that is because of the pandemic, but part of that is just out of the game. So next year Channing, we should bend our company budget to come.
Rob Walling:
Yeah, I was going to ask if you guys were going to make it to MicroConf next week.
Courtland:
Not next week, but next year. As soon as we know the city we’ll be there. Because it’s been a while and MicroConf has so much energy.
Channing:
And also we’re underwater actually becoming a real business again. So I feel like next year we’ll actually have the systems and the processes in place where we’re running it as opposed to-
Courtland:
It is nice to put everything on Stripe’s tab. That’s something we’ll miss.
Rob Walling:
Yeah. To not burn 10 grand a month of your own money.
Courtland:
Yeah, yeah.
Rob Walling:
It’s like uh-oh.
Courtland:
When it’s your business, it’s like, “Yeah, I could pay this. This could be my salary.” So you got to be way more judicious with business expenses.
Rob Walling:
Totally.
Courtland:
But MicroConf, of all expenses, I think is worth it.
Rob Walling:
Yeah, it’d be great to have you guys back. It’s been a while.
Courtland:
Yeah. It’s been so long. You are writing a book or have written a book. How far are you in your new book? It’s called the SaaS Playbook.
Rob Walling:
It’s all done.
Courtland:
Well done.
Rob Walling:
I finished that months ago. Four or five months. Yeah. I have a hard copy. Got some digital print copies. Yeah, it’s a hardback, which is like-
Courtland:
Wow. Look at that. That’s a beautiful book.
Rob Walling:
Thank you, man. I paid a lot for this. My first book, Start Small Stay Small, has a black cover. I don’t know if you’ve seen it. It’s ugly as hell.
Courtland:
Yeah. Yeah. I have it.
Rob Walling:
Because I had no budget, no money. Because I knew myself. This one, I was like, all right, I’m going to go all out and hire a legit designer, legit layout person, actually get an editor this time and not edit my own work.
Channing:
So you put that together your yourself. I was curious about the publishing process. This sounds like independently published and you kind of put together a team of the editor and the designer and all that stuff.
Rob Walling:
Yeah, exactly. So this time I hired a … I didn’t remember how much work it was, but I knew it was going to be a lot. So I went and found a book project manager who used to work for a publishing company.
Courtland:
Book project manager.
Rob Walling:
Isn’t that crazy? It’s very niche, but I was like I want … I went out just seeking if I can find any type of project manager, I’m sure they can do this, and if they have publishing experience, great. And turns out she had worked for a publisher for three years, so she knew everything. She’s like, “Oh, you can buy 10 ISBNs for the price of two so you should …” Just all the little internals. “Oh, and I already know four different printers in Hong Kong and in the US, and I’m going to tell you.” It was that type of stuff. So it really took a lot of load off of me.
Courtland:
How much money does it cost to basically do a book right? Self-publishing. You’re hiring a book project manager, you’re hiring an editor, you’re hiring someone to design the cover, to make a video for you on Kickstarter. How much all in does it cost to produce a book in 2023?
Rob Walling:
At this point, I bet I’m in 30 grand. 20 to 30 grand for all the labor. That’s before printing costs or any fulfillment.
Courtland:
Wow.
Rob Walling:
Yeah, it’s a trip.
Channing:
And so that’s all mostly upfront to get the thing produced by the different people.
Rob Walling:
That’s right. And that doesn’t include, obviously, I spent a bunch of time writing it and I had a writing coach who was busting my chops. I haven’t included her in that price because this is the first book where I’ve used a writing coach.
Channing:
What is a writing coach? I want to write a book, not nonfiction, but I’m curious about all these details.
Courtland:
Yeah. What does a writing coach say to you? Does she just say write more?
Rob Walling:
Yeah. They can have a bunch of different roles. If you want to write every word yourself, then you get the writing coach … He or she will be almost a developmental editor where … Well, it’s two things. Accountability and developmental editing is really what it is.
Channing:
Which is big.
Rob Walling:
Yep. So it’s weekly call. I know that I have to show up with X thousand words written, and if you don’t, then she was like, “So I guess we’re going to ship late.” And I’m like, “Oh no, I feel so guilty.” Taking advantage of my guilt complex. So accountability was a big thing for me. The second thing was she would just read through and be like … Not even copy editing, but like, “Yeah, it’s not hanging together.” So she’d reorganize pieces. And then the third thing for me that I needed was I didn’t have time. It’s 45,000 words in this book.
I didn’t have time to write every word, but literally, I had someone go through and scrape it for an AI project. Like close to a million words spoken on my YouTube channel, on my individual podcast episode. Just incredible. So I would pick topics and be like, I recorded a whole solo episode around just this topic, and I want that to be a section. So she would take that, transcribe it and turn it into a section. So she would write the words, but they were my … So you could say she’s a ghostwriter, but I always struggle with that because it’s all my thoughts.
Courtland:
It’s your ideas.
Rob Walling:
Yes. And then I would come back and put my voice on it. So she would do a first pass-
Channing:
That reminds me. Sorry, go on, go on.
Rob Walling:
No, that was it. So it cut a huge amount. In fact, I stalled. I got about halfway through the book and then I had about a year where I didn’t write a word, and that was when I realized I need someone else involved in this because I just can’t push it through with the other stuff I’m doing.
Courtland:
So there we go, content reuse in action. It actually works for books. And I’ve seen this before too because I interviewed for my other podcast, James Clear, who wrote Atomic Habits, which was literally the number one bestseller on Amazon for weeks. And Mark Manson who wrote The Subtle Art of Not Giving a … And they both did the same thing where instead of repurposing their podcast, they repurposed their blog posts and then just edited it and put it together in a book. And that actually works. And it doesn’t make the book any worse. It makes the book better because you’re picking the best ideas that you’ve already put out into the world, already tested on an audience. Now you’re just putting them in print format where they’ll just live forever.
Rob Walling:
That’s right. And I did that. So my second book … I’ve written four books. Start Small Stay Small. My second book is exactly that. It’s a collection of blog posts and it’s called Start Marketing The Day You Start Coding. I give that one away for free on my site. Third one I co-wrote with Sherry, Entrepreneurs Guide To Keeping Your Together, and then this one. But the second one is exactly that. It’s my favorite blog post. Because I had almost 200 blog posts at one point, essays and such. And compiling that into a best of was … I still get positive feedback about it.
Channing:
I just had a conversation actually with Josh Kaufman who wrote The Personal MBA. He’s sort of a regular at these MicroConf events. And he specifically mentioned that he’s struggling. He’s working on a new book, it’s going to be a followup to Personal MBA. And he’s like, “Well, I’ve got a lot of other stuff, a lot of other balls in the air as well.” He’s working on a website where he’s going to have courses and he wants to keep in touch with his email list. And he’s like, “Yeah, it’s kind of hard to figure out a way to work on any of these individual projects.” And that idea of, well, why don’t you figure out the topics? Because he’s still brainstorming for his book. Why don’t you figure out the topics that are going to go into your book by testing things out, going out to your email list and getting information. So it’s not just a way to save time once you decide you want to put the book together, but it’s also a useful way to figure out what goes in the book.
Rob Walling:
And that’s a big thing that I did. I mean, we really leaned into YouTube about a year ago on MicroConf. And so I’ve been putting out a YouTube video every week of unique content. And it’s a grind. It’s a ton of work in addition to the podcast and all that. But the topics that resonated the most there, I was pulling those in to this book. And the other book that I haven’t mentioned to anyone yet that I accidentally wrote that is also 40,000 words, and it’s a prequel to this. So now I got to figure out am I going to publish another book later this year? But there’s a lot of content.
Channing:
Before you came on, we were talking about your accolades, and Courtland was just going down this long laundry list. And I was like, it’s easier just to start from the negative. What hasn’t he done? And now we get to add to that list that you accidentally wrote a book. What does that even mean?
Rob Walling:
Yeah. I had this outline and I’m like, I want to cover everything in the SaaS Playbook. And it’s all the way from, I don’t even have an idea all the way to talking about exits and mindset, the whole lifecycle. So I start at the beginning and I’m writing about ideas and how to come up with them and how to validate and how to evaluate and how to find your first customers and just all that pre-product market fit. And eventually the book, it was just too damn big. And I realized the weaker part … Or maybe weaker is not the right word, but the more amorphous part of it where it’s kind of hard to be super prescriptive is everything before product market fit. Because product market fit onward, that’s what I do every day. I’m in it, right? TinySeed, that’s a lot of the higher end MicroConf founders, and that’s what the SaaS Playbook focuses on is at least some weak product market fit. One to 5K, one to 10K MRR and how do you then go from there. Rocket ship it.
Everything before that I had about 25,000 words and I was like, this just doesn’t belong here. So I just put it in a Google Doc somewhere. And then when my writing coach and I got done writing SaaS Playbook, she’s like, “Do you want to circle back on this stuff?” And I was like, “Yeah, we could flesh that out. Let’s just add it. I think if we add a few thousand words, it’ll be done.” And now it’s like 45,000. I mean that’s a 210 page book. Right now that tentative title is Idea to Traction. And I don’t know what I’ll do with it. Maybe I’ll publish it later this year, early next year.
Courtland:
Well, you did something with this book that I rarely see in our niche, which is you launched a Kickstarter. You’re only the second Kickstarter that I’ve ever backed. You and one other project in the last 10 years. And it’s crushing it. I mean, you’ve got I think another week to go on the Kickstarter and it’s already at $80,000. So it’s more than recouped your initial investment. It’s basically like you’ve paid yourself an advance that an author would have to go beg a publisher for usually, but you’ve done it through Kickstarter, which is super cool. And I’m wondering why you did that because I’ve just never seen anyone do that. Usually people launch on their email list or they just host their own presale. But you’ve used this platform that is super popular, but what’s the advantage? Why launch on Kickstarter?
Rob Walling:
Yeah. It’s a good question because I really went back and forth on it all the way up until the week we launched because all the books I’ve launched prior have been exactly what you’re saying. Set up a landing page, put a Stripe buy now link and have a few tiers. There’s one with a video and one with a blob that’s more expensive. And that’s how I’ve always done it. This time around, there were a couple reasons. One, I really wanted to be able to offer a bunch of tiers. Seven different things. There’s a live talk to Rob option. And that starts to feel weird on a landing page, but in Kickstarter it’s native. It was just really obvious that I … Because I don’t do one-on-one consulting ever. One-on-one advising outside of TinySeed. But I was able to offer, I don’t know, I remember five, six, seven slots of that.
Courtland:
Dude, you sold out for hundreds of dollars. You sold out immediately. You should have charged thousands.
Rob Walling:
I think I should have just offered more slots. So I really did want to have that option of just doing it, of seeing what happened. The second thing was I like learning. I like doing new stuff that I’ve never done. And doing yet another launch to my email list, that’s fine. I’ve done that a lot. But actually trying to do a Kickstarter, I was like, I don’t know. What does this entail? How hard is it? What goes into it? And the learning that I’ve had from that I think has been really cool. So there’s a bit of personal satisfaction there. The other reason is I’ve never had a hardback book. It’s always been soft cover because hardbacks, you got to order a 1,000, 2000, 3000, ship them over. It’s like a bunch of work and oftentimes it’s a four to six month delay. And so Kickstarter’s kind of designed for that.
It is a pre-order thing. I could have ordered two or 3,000 books and paid for them, but I didn’t want them sitting in my garage. So this is a way to do that. And lastly, I view Kickstarter as a community/ it’s not quite a social network, but it’s kind of. And I have exposure on Twitter. I have exposure and podcasts. I have exposure on YouTube. I’ve backed 275 Kickstarters, but I’ve never run one on my own.
Courtland:
Whoa.
Rob Walling:
Yeah, dude, go to my page. It’s embarrassing.
Courtland:
Good lord.
Rob Walling:
It is nerdy as hell though. It’s all not video games, it’s like tabletop gaming and stuff I play with my kids. And there’s certain slider belts and watches that I back to, but it’s a lot of nerdy stuff.
Courtland:
What’s your favorite thing you’ve bought on Kickstarter?
Rob Walling:
There’s a game. I think it was a kick … It was a crowdfunding. I’m not sure it was on Kickstarter, but it’s a game called Kingdom Rush Rift in Time that is based on … Kingdom Rush is one of the best iPad games, and it is a tabletop version of that with these … It’s like 125 bucks when I backed it. And it’s these great minis and endless-
Courtland:
You’re not messing around.
Rob Walling:
And my kid painted them. My 16 year old painted them and we’ve just had endless hours of fun playing with that one.
Channing:
That’s awesome. You have kids that you can have an excuse for you to get those things, but I would just get them and just be a 36 year old man with tons of tabletop games.
Rob Walling:
Totally. I know. I’m so glad that … It’s like having kids is tough, but this is the best time was when my oldest-
Channing:
It’s the excuse.
Rob Walling:
Exactly. It’s an excuse to like, I’m going to learn to play Dungeons and Dragons again. I hadn’t played it since the ’80s. I’m going to get into comic books and Star Wars stuff. I would never make time for that stuff if I was-
Channing:
I need a kid. I need a kid for the sole purpose, I have this omnidirectional virtual reality treadmill in my gym in the other room, and whenever anyone sees it, they go, “What the hell is that? Are you an adult or are you not?” I just need just a kid that’s just not even really my kid. A neighbor just to come and be like, “No, no, no. I got it for this kid. It’s like a charity thing. It’s not really my thing.
Rob Walling:
You need a nephew or a niece. Yeah.
Channing:
A nephew. There you go.
Rob Walling:
That’s awesome, man.
Courtland:
Thinking about Kickstarter, I wonder if … If you look at our niche, Indie Hackers, Bootstrap Founders, there’s not that many places where we launch products. It’s like Hacker News, Twitter, our own email list, product hunt. There’s only a few. And I feel like that number hasn’t changed in years. It’s kind of just the same. Especially if you want to launch to your customers, of course there’s lots of different channels. Some people are really good at SEO, some are good on YouTube, some are good on TikTok. But internally, when we want people in our own niche to support us, there’s those four places. I feel like I’m blanking on any others. I wonder if there’s room for another one. Channing, maybe we should build this. A Kickstarter for Bootstrap Founders that’s slightly different than Product Hunt that is a different model, but something that people understand so we can kind of support each other and invest in each other’s launches in a way that’s easy.
Channing:
Yeah. And just have more surface area for the discovery function.
Courtland:
And I like this idea of putting a credit card into it. One of the reasons why Kickstarter is good is because people like Rob who’ve already backed hundreds of Kickstarters when there’s a new one. There isn’t all this friction of, okay, I got to sign up and create another account and yet another website, et cetera. It’s just like, boom, click a button, click pledge, already in there, payment’s gone and it’s super simple.
Rob Walling:
I think that’s a really intriguing idea. There’s obviously all the logistics of well, what if they don’t deliver and all the same crap Kickstarter has to deal with. But the idea of bringing it to our space I think is … It’s kind of a novel way of thinking about it.
Channing:
I’m to say, Rob, also the idea of you going into Kickstarter is really smart. We just had Wes Kao on. She runs Maven, the online course platform, and she had had this idea where she’s like, “Look, there’s a pyramid of ways that you can deliver content to your audience and the higher up the pyramid you go, the more high touch and profitable you can get and obviously there’s higher stakes.” And she placed a book toward the top of the pyramid. The bottom is maybe sending a quick tweet where you don’t have to defend the things that you say, but then above book, she’s like an online course or you’re actually live with your audience. And with your Kickstarter, you actually get to segment out. You don’t just have this book that’s something you’ve already written, there’s nothing you can really add. You get the ability to have those tiers. So I really like that idea as well.
Rob Walling:
There was a MicroConf talk by Ryan Delk years ago who used to work at Gumroad and he had the typical launch for a book like this is you have a 1X, 2.2X and 5X price points. So if your 1X is 40 bucks, 2.2 is about 90-ish or 100 and then 5X going to be around 200 and maybe do 250. And then you figure out what’s worth 40 bucks, what’s worth 100 and what’s worth 200? And that is kind of how I approached it, but also I realized I don’t want to get on a one-on-one call for 200 bucks. I just can’t justify that. So yeah, there’s an $800 tier and then there is a $5,000 tier to come for two days to Minneapolis this summer and actually do an in-person thing, which I think in your pyramid would just stack on top of that. It’d just be up. I’ve never done one of those aside from MicroConf, so it’s certainly going to be an adventure.
Channing:
Are you open to sharing how many people have taken you up on those offers? How are you doing so far?
Rob Walling:
I had five slots and I think three are booked for five grand a piece, which would be a great … I mean anywhere between three and five is a good number. My fear was A, it would be zero or one. And it’s like uh-oh. Me and this person are just staring at each other for three days in Minneapolis.
Courtland:
Do you know who the backers are who got those slots?
Rob Walling:
Not yet.
Courtland:
Ooh. Total mystery.
Rob Walling:
I don’t think we learned … I know. It’s a trip. And what’s funny is my brother who lives out in California sent me a text and he’s like, “Hey man, if I bought back one of these in-person retreats, does that include a trip to Parler Burger,” which is a famous Minneapolis place. And I was like, “Heck yes, it does.” So I honestly don’t know if … One of them might be him. I have no idea.
Courtland:
It could be us.
Rob Walling:
It could be you.
Channing:
Here we are.
Rob Walling:
Could be anyone. I’ll know in nine days I guess.
Courtland:
So let’s talk about the book itself. You described it as what to do once you have product market fit. And obviously you have a pretty good perspective on this. You run TinySeed. You seed dozens and dozens of companies that you work with personally every day to help them basically grow their startups. How do you figure out what goes into this book? I’m sure there’s a lot of people listening, us included, who want to know what do you do once you have a big audience and your product has struck the market and you kind of have this elusive product market fit. What now?
Rob Walling:
Yeah, no, it’s a really good question. And it’s one I had only been through once or twice before running TinySeed. And I had been had in conversations and affiliated with folks at MicroConf. But you’re right, I’m really inside a bunch of businesses now and so I’m seeing the patterns. The book really starts off talking about, hey, even if you have weaker product market fit, here’s how to think about talking to customers and strengthening that. And it’s some stuff people have heard before and it’s also some of my unique thinking. But then I went through all the advice that I have emailed to founders. Every time I would post to Indie Hackers, I would take that post if it was a response to someone’s question and I was throwing this all in a Google Doc. And I realized there were patterns.
Talk about content reuse. There were patterns to what people were asking. Like, should I compete in a really competitive niche? How do I compete with big competitors? That’s a topic in the book. Pricing. The number two chapter after market is pricing because most founders screw it up. We under price our products and I talk through my psychology of pricing, what I see people doing well, what I see them doing poorly. And then of course marketing’s a huge one. Little different for Indie Hackers because your community much MicroConf. I don’t necessarily think about marketing beyond the content we produce, but if you’re a SaaS app, a B2B SaaS app, the hardest thing is what do I do? What do I try? What do I try in what order? And I have a whole chapter on that. I have a three factor framework of speed, scalability, and cost I think. I forgot what the third factor is, but it’s a whole mental map that I’ve developed of, hey, there are only about 20 B2B SaaS marketing approaches. These are the ones you should try in this order based on what you want to accomplish. And then I talk about hiring, building your team, tracking metrics. That’s kind of the high level.
Courtland:
I have a friend who’s an investor who who’s telling me his theory that it’s basically becoming harder and harder to build a successful SaaS business. And his idea is here’s why. There’s more competition than ever. 10 years ago, not that many people were building SaaS businesses, not that many people knew how to code. Tech startups seemed like a difficult thing to bust into, especially if you’re self-funded. Today, there are dozens of businesses for every product idea. The playbook for starting SaaS businesses is out. You literally wrote the playbook. Other people have written the playbooks. People have mapped this out and they kind of know how to attack a different distribution channel, et cetera. But he argues even as there’s more and more competition and more people starting things, the number of channels for marketing your product is not really growing as quickly as the number of people who are trying to do this thing. So everything’s becoming more competitive. Ads are becoming more expensive, the bar is getting higher and higher to do good SEO. Every company’s inundated with sales calls because there’s so many people doing sales. In your experience, is this true? Is it getting harder to start a SaaS company?
Rob Walling:
I would say yes, but it’s not hopeless. Is it slightly harder than a few years ago? Yeah. I honestly think everything that you’re saying is accurate. The content bar, especially with AI now, but even before that. 10, 15 years ago, I could hire someone to put out articles and just build links, almost buy links from what were they, blog networks or whatever. And you could rank in Google and you can’t do that anymore. So it is more challenging. I do think that’s where raising a bit of funding has become more and more in my head. I think if you get traction, it’s probably something you want to think about. Even if you’re a hardcore bootstrapper like myself, it just becomes hard to organically grow a business in the ways that we used to. With that said, there’s a flip side to this. We still see tons of companies apply to TinySeed that are competing in spaces where the competition is much less.
So Builder Prime is a CRM for home improvement contractors. And when I first heard the idea, I was like, “Ooh, that’s a tough market to sell into. How are you going to find them and how are you going to close them? Customer pain, right? Oh, nontechnical, and all this.” And he’s crushing it, just absolutely crushing it because he’s executing really well. So it’s the people. There are a lot of people starting, a lot of people trying things, but I still see Ruben Gamez with SignWell. I see Derrick with SavvyCal. A lot of folks we know and then a lot of folks you haven’t heard of that are in TinySeed, like Iran is the founder of gymdesk.com. And that’s another one where it’s like, well, aren’t … It’s booking scheduling software, management software for a gym, martial arts studios, all that. Wouldn’t you think that’s a solved problem? And yet, the dude is growing like crazy. But it comes down to you have to execute probably at a higher level than you did 10 years ago, but it’s still completely possible.
Channing:
There also seems like there’s a huge out of that challenge is finding a smaller niche and not just sticking with a market as it seems to declare itself to at first. There’s a really good anecdote about Gary V, who had some conference, he gave a talk somewhere and there were 400 people at the conference. And he goes, “Well, hey, listen, at the end of this conference, I’m going to give a one-on-one one hour coaching session to somebody. And this is an auction for charity. The bid starts at $500.” And at first all 400 people in the room were like, okay, well, we’re bidding it up maybe $50 at a time and then everyone started to fall off except for two people at the end who just really, really wanted it. And they just kept going up by $100 to the point where everyone was so restless that he was like, “Okay, well you’re both at 4,000. Would you both just pay me 4,000 and I’ll make it each of you get that. Can we just settle this here?” And so in a way, you could say, well, look, the market was everyone in the room and the supply and demand placed his little coaching session at whatever, $800. But really the market was two people.
Courtland:
At that price point. Yeah.
Channing:
Right. At this new price point. And so I kind of feel like one easy way to miss out is to go, oh, well, we can’t build a SaaS in this space because it’s so overcrowded. Because you’re just looking at the market as it’s been designated by everyone who’s come before.
Rob Walling:
I just recorded, or I think I released a podcast episode this week about positioning, and I was talking about positioning really is figuring out where there’s a gap in the market. Where is the corner of the market between … Sometimes it’s like, oh, there’s tools out there, but they’re too expensive and they’re hard to use. Is there an opportunity for a Drip or a ConvertKit to come in and kind of swoop in under. And we both got a lot of traction because of that. Or we see it with another electronic signature tool? Isn’t that a solved problem? And yet, SignWell’s crushing it. And there are reasons. Because he found out some unique angles, but also because he positioned himself well against the incumbents and people are a little tired of them. So I agree with you. I think the other thing too is it is more competitive, but the markets are all growing.
The market for email service providers compared to 10 years ago has got to be two or three times what it is. So there are more customers in these spaces, even though the marketing is more competitive, the channels are competitive. But I think that’s where people need to have some type of differentiation. The biggest mistake I see is someone trying to build the exact same thing as a bigger competitor. And they’d be like, “Well, the market’s huge. I just need 1% of it.” It’s like, no, no one’s going to sign up. You have to be opinionated and either have unique feature set or unique positioning and be like, we are really good for this subset and not good for everyone else.
Channing:
Exactly. Yeah.
Courtland:
I watched your video on Kickstarter where you’re marketing the book and you go through a list of different things that are included. I want to talk about a few of them. You have mindset, you have product market fit, you have marketing, you have new ways to differentiate and compete. You just mentioned that last one. New ways to differentiate and compete. So how do you do that? You said have an opinion, you can’t just be the same as the incumbent. What works in terms of differentiating yourself and what doesn’t work?
Rob Walling:
Usually early on, everyone says, “We’re the simpler version of this.” And that-
Courtland:
We’re that with no features.
Rob Walling:
Is kind of a cop out. Exactly. It’s usually-
Channing:
We’re the cheaper.
Rob Walling:
Right. We’re cheaper or simpler. And it’s like, okay, maybe for now, but really that’s not a durable advantage. There’s a couple angles. The one most of us think of is to pick a vertical. I’m going to be scheduling software for hair salons or for gyms instead of scheduling software for everyone. That’s kind of the most obvious. There are a couple others that if you’re in a big space with hated competitors, what you’re trying to look for is where are their achilles heels or where are their weaknesses? So as we were building … I’m going to use Drip as an example, even though it’s older because I did exactly this. We were undifferentiated and we were plateaued. We did not have strong product market fit. And then what I found out was these marketing automation providers were pretty expensive and they were hard to use and their sales process sucked.
They made you go through multiple calls, they made you pay a $2,000 onboarding upfront. A lot of them made you pay annually. And so I kept saying, is there a way to make not simpler software, but much easier to use software to remove that frustration? Is there a way to just have self sign up if you want it? And is there a way to still be super profitable, but under price them? Right? I’m not going to be Walmart. I’m not the low price leader. But they were charging outrageous. I mean, the cheapest one was $400 a month, and most of them were two grand a month and up. So this is a way to do it is how can we take something that enterprises are using now and paying a lot of money for and make it more accessible to the masses? So I think those are two. There’s other tactics there, but-
Channing:
And it sounds like if you reduce your operating expenses, so if you have an option where you don’t have to provide all of this onboarding, then that’s a way where you can build that into a lower price without cutting into your margins.
Rob Walling:
And it also becomes, if you’re competing against big hated competition, oftentimes their cost basis for everything, including their software. They were not on AWS because they launched 15 years ago. There’s I think a lot of opportunity there.
Courtland:
What about mindset? This is a big topic that I think a lot of people underestimate when they first become founders. What have you seen that helps people have the right mindset to basically succeed with their business?
Rob Walling:
I mean, there’s a lot to it. It depends on your own psychology. Some people like me are naturally more stressed or anxious. When I was running my last startup, I was like, “Ugh, I’m stressed. Everything’s going to be a deal ender.” And I had to learn to not make speed bumps into roadblocks. So some folks need to hear that, hey, it is not going to end your business. Most things are not going to end your business. Take a deep breath. We’re almost trained in life to go to school and then get a job and then go to … Well, you go to school and go to college and get a job. And you’re not faced with crises on a daily basis. But as a founder, you kind of are. And sometimes I find it’s hard to pick which of these crises are catastrophic and which are just not that big of a deal. And so I think that’s a big thing that I help founders with these days is I will do a call with a TinySeed founder and just say, “I know you’re stressed and I can tell this is a big decision. You’ll figure it out. Just know that you’re going to figure this out. It’ll work out.” I think being able to roll with things that feel difficult, but actually realize that they’re not business ending is a big one.
Courtland:
Where’s your mindset at nowadays? I mean you’ve been in the game for 15, 20 years, you’ve got a million things going on. Do you ever get disillusioned? Do you feel like you have more energy? How are you feeling?
Rob Walling:
I feel like I’m living my best life, and it’s because I’m working on what I want to do. And I do not take that lightly. I worked hard to get here. I got a little lucky to get here, but the best decision I made after selling my last company was to take six months off and say, what do I really want to do? Because I do see entrepreneurs sell their businesses and then start another one and do the same thing, and they don’t really want to do that. And that would’ve been a mistake. If I was running hardcore right now, pushing on a SaaS app, I would not be happy. It’s just not what I need to be doing at this stage and age and with the age of my kids. So for me, I looked back at what have I been doing for free forever? And it was writing about entrepreneurship and it was having a podcast about startups, and it was writing books, and it was starting a MicroConf, which made no money for several years. I almost walked away from all that at one point. Got a cash offer for MicroConf, and I was like, oh … This is 2018. I was like, “Oh, I could just walk away from all of it.” And then I realized, what am I doing? That’s like my legacy.
Channing:
That’s what you love. Yeah.
Rob Walling:
Yeah. So that’s what I’m doing. I mean, that was one of the reasons. It was like, okay, well what if I double … I did a what if. What if I double down on MicroConf? What if I double down on the podcast? What if I double down on all this stuff? And that’s where TinySeed started percolating as I talked to people of like, yeah, could you run an accelerator for bootstrappers? And it’s like, what would that look like? So I feel great these days.
Channing:
Courtland, you just quote tweeted someone. Someone mentioned, and no hate on them, they were like, “Look, now that Indie Hackers is independent again, if I were CS Allen and Channing Allen, I would list on listen on MicroConf,” or MicroAcquire. MicroConf. “And sell it again to someone else, this time for 10X. Could be a great success story.” And Cortland cheekily quote tweets this guy and goes, “The best success story is finding work you enjoy for a lifetime. Even if you sell and get a big payday, what’s next? You start experimenting and trying to build a life you enjoy. Of course. That’s always the end goal. Money’s a tool for that and not a destination.” And in a sense, I think of two things that you just said, Rob. On the one hand, you had the experience or the privilege or whatever to take a step back, take a satellite view and say, well, what do I actually want before I just jump into something?
But then the first piece, which is if you have a little bit of a temperament for being anxious and everything is a fire, well, when the house is on fire, you don’t have time to stop and navel gaze. And so putting those two things together, if you’re able, and it’s all in the how ultimately, but if you’re able to see a small fire raging, a little bit of an ember, and go like, “All right, I could put that out, but I really need to think about what I’m going to do after I put this fire out and then I put the next fire out. How do I build a system, for example, where I’m not really dealing with fires?” That’s the really difficult balance to strike.
Rob Walling:
That’s right. And it’s something I didn’t do well until I left Drip, until TinySeed, MicroConf. We have budget, but I also have experience to put the right people in place, such that producer Xander runs MicroConf day to day. And Tracy Osborne does a lot of the running of TinySeed. And that allows me to work on exactly what I want to work on, which is not a luxury you have when you’re bootstrapping a SaaS. You just have to do everything until you have money to hire it. And if you’re bootstrapping, you never have enough money to hire, which you really need.
Courtland:
There’s this, I would describe it as a scarcity mindset around coming up with ideas, where a lot of founders, myself included, for the vast majority of the time I’ve built stuff online, think that it’s very hard to come up with an idea for something to work on that can both make money and that can align with things that you enjoy doing. And so you got to choose one or the other. And if you’re a broke ass founder, your first time out of the gate, you choose the one that makes money. And so you see a lot of people starting companies that they would never want to do a second time after they sell the first time. Do you think that that is kind of a true dichotomy? Do you think it’s reasonable as a founder to think, okay, what am I going to enjoy running for the rest of my life and what will make money? Or do you think you have to go out there, build something that’s successful, and then once you’ve got your nest egg, then figure out what you want to do and build a company that aligns with what you want to do for the rest of your life?
Rob Walling:
I think that you have to enjoy the process of building a business, and you probably want to like your customers, but I don’t like the mindset of I have to build something that I don’t really like in order to make millions so that I can work on what I want. Because you got to enjoy the journey, but also the journey sometimes is not very fun. And so what are you going to hang on to during those not fun times when you’re grinding it out or when Russian spammers get all your IPs blacklisted on a Sunday night, as happened to us in 2014. And I wake up and I’m like, “Well, guess we had a good run. We’re done.” I literally was like, “I think we’re done. I think we’re going to have to shut down.”
Channing:
That’s it.
Rob Walling:
That’s it. Drip is no more. So do I love dealing with email deliverability and IPs and blacklists, and-
Courtland:
Is that your dream?
Rob Walling:
No, don’t. But I really love building businesses and thinking about them and solving hard problems creatively. Because there was constantly hard problems that we’d have to sit down and say, whether it’s how do we get our IPs unblacklisted? Or it’s we have these 50 feature requests and they’re all kind of related, but they’re all asking for different things. How do we turn this into a visual workflow that answers all of them? That was a super hard creative, almost engineering mindset problem to solve. That’s the part that I enjoyed the most. And so I think that’s what I’ll say is I could have run a business for gyms or for hair salons or whatever. It’s still creative problem solving. But I think the two things you want to love is building a business, creative problem solving and your customers. I do enjoy working with entrepreneurs, and it’s like if you don’t want to deal with hair salon owners, then don’t start a business for them. Because Patrick Mackenzie talks about this with Appointment Reminder.
Courtland:
And Bingo Card creator.
Rob Walling:
And Bingo Card, where it’s like he did it for the money and he learned a lot, but as he quickly learned, these are not the people I want to talk with every day. I think that’s something that a lot of people make a mistake around.
Courtland:
There’s this book, Channing, remember you recommended to me from Strength to Strength?
Channing:
Yeah.
Courtland:
And it kind of starts off by saying, look, if you’re reading this book, you have made it, you know are at the top of your field in some area, you’ve been a success. Congratulations. But what do you do now? This book is for people like you trying to find their second peak in life. And he studied all of these famous people from Charles Darwin to Johann Sebastian Bach and recognized a certain pattern that when people are younger and they’re sort of getting their first success, that’s when they seem to have the most energy sort of grind it out and to do this very hard, often creative or even mathematical work to try to figure it out. You’re trying to figure out how do I combat spammers? How do I push into this new market?
But once people get older, if they keep trying to do that same thing over and over, they tend to meet with less success. Like Charles Darwin, everybody knows him because he created the Theory of Evolution, but people don’t know is that he died tremendously unhappy because he kept trying to top that success and come up with new theories, which no one ever really knew anything about when he sort of died alone and unhappy. Versus others, which is tragic. I don’t why you’re laughing.
Channing:
Because it’s so tragic.
Courtland:
But I think that’s common. But I think the more successful approach that he talks about is as we get older and we have gained all this knowledge from our earlier wins, is to move into a much more social role, a much more teaching role, a role that aligns with our strengths, which as we get older is the fact that we have a ton of experience and wisdom and knowledge, much more than anyone younger has because they just haven’t been out there. Whereas at the same time, our horsepower’s slowing down quite a little bit. We’re a little bit more resting on our laurels. And so it’s not surprising to me to see this transition of a lot of people who do this crazy SaaS startup at first, and they’re fighting through all these thorny problems that aren’t really their life dream. And then later on when they look back and see what they enjoy when they want to get started again, it’s running conferences, doing one-on-ones and office hours and talking to people and just generally giving back and helping other people. And once you’ve sort of achieved that nest egg, you also have the clout to do that and make money from it because people will pay you $5,000 to go on a retreat with you because you have those wins under your belt.
Rob Walling:
Yeah. I’m really honestly impressed or surprised by the people who do just keep starting and starting. David Cancel’s on his fifth, I think company. And even AD PNR did Woo Themes, which became WooCommerce and then did Conversio and sold that to Campaign Monitor and now is on his third or fourth. And he had a couple that failed. And I’m like, I respect that, but that’s not me. But I’m also a lot older than AD, I think. So David Cancel is just an anomaly to me. I’m like, this guy’s unbelievable.
Or even, I guess Jason Cohen had three and he had a small success up front and then a bigger one. And then WP Engine has been the last 12 years. But I couldn’t see him doing another one after WP Engine, but maybe he would. But exactly to your point, I see a lot of entrepreneurs doing that. I mean, there’s a reason that TinySeed mentors … The mentor list is a lot of founders who have exited because they want to participate and give back and still be in the game, so to speak. But they don’t want to be the … They know, it’s a cliche, but I’m too old for this … That’s how I feel of actually being in the heart of it. I’ve done it for too many years and it doesn’t sound fun. Could I do it? Could I pull it off? Yeah. Do I want to do that? No.
Channing:
And see, that’s the big change. What the author of that book talks about is in the beginning, whatever, in your first 30, 40 years, you have a lot of fluid intelligence. You’re really creative. It’s easier for you to come up with the ideas and then eventually you have crystallized intelligence so it’s easy for you just to kind of … The wisdom that you’ve gained. But you’re saying for you, it’s not that you couldn’t, you’re just like, nah, I’ve been there, done that.
Rob Walling:
Or maybe I couldn’t and I just don’t know it. I do know that running TinySeed and MicroConf is still … When I first meet people and they say, “What do you do?” I say, “I’m a startup founder. I run startups.” That’s what TinySeed and MicroConf really are. TinySeed happens to have raised funding to invest in other startups, but internally we have engines that we’re building. We have marketing engines in MicroConf. It is different than running a SaaS, but is still a lot of problem solving.
Channing:
These days, I’m curious about you. What drives you? Are you driven by making more money a lot? Is it just the process?
Courtland:
Yeah. Because I think everyone has their own formula for what brings happiness, what motivates you. When I was younger, I wanted to be a success. I think now we’re sort of talking about the second peak in your life and it’s a lot more driven for most people by what makes me happy. What’s on your checklist for what makes you happy?
Rob Walling:
It’s a really good question, and it’s one that I grew up my whole life wanting to be able to work on whatever I wanted. I wanted freedom. The money never mattered, but I needed money to be free in my day job. I mean that’s-
Channing:
Like a constraint, not a goal.
Rob Walling:
It is. Exactly. And so my goal since I had my first job when I was a teenager was like, I want enough money that I never have to work again. That was it. And I don’t need more. Some people do need more and they’ve driven by the money and I haven’t been. The money’s nice. I have a house and a car and that’s great, but I achieved that point in 2016 in essence, where it’s like, okay, I literally never have to work again, but I’m going to work. So what am I going to work on? And that was the big come to Jesus moment, so to speak, of I went on a founder retreat and was like, I think I’m going to step away from all this. And I actually started talking to the number two board game/tabletop gaming website in the world in terms of traffic and reach, and I was going to acquire it from him.
And I was like, how much revenue do you have? I was going to go all in on tabletop games and all this. And then I had that moment I talked about earlier where I was like, no, that’s fine, but I’m going to regret this if I do this.
Courtland:
Would you?
Rob Walling:
Oh yeah. I would get into tabletop gaming and be happy for a couple of years and then the margins are terrible. You know what I mean?
Channing:
Sure.
Rob Walling:
Money is still a scorecard. It is. That’s something I think is a pro and a con or a strength and a weakness of me is that I have a tough time doing things that don’t involve money, even though the money doesn’t motivate me per se. But just doing things … Even my hobbies, I collect collectibles. I have this Beatles gold record back here. And I bought it, and it’s worth more than it used to be and it’s like, I’m never going to sell it, so that doesn’t matter, but somehow the money … It is.
Courtland:
Gives you a little jolt.
Rob Walling:
Yeah.
Channing:
I have to say, I want to write a novel, I’m working on a novel, and I feel like the fact that I’m trying to write a novel must mean by a logical extension that I don’t really care at all about the money.
Rob Walling:
Totally.
Channing:
But the thing about that though is one of my strongest convictions … I think that one of the things that I root for for everyone is to get to a point where they make the amount of money where they don’t have to think about money anymore. Not because, oh cool, now you’re going to have money, but it’s like every single time I’ve seen someone have that transition, they then have to stop and say, “Okay, but what do I want for myself besides money?” And it’s like this self realization that I feel like you can’t ever have good clarity around that until you reach that goal.
Rob Walling:
Yeah. And that’s the thing is the people I know who are doing it for the money, when you get there and you make 10 million bucks, 15 million bucks, what next now? Are you just going to do it for more money? Because I don’t know that you’re going to be happy. I think probably all of us know decamillionaires who are really unhappy. That sucks to have worked all that time and to be a whatever, a one percenter, a three percenter. Some of the most wealthy people in the world have that luxury and yet still not be happy. I think that’s a travesty.
Courtland:
Yeah. I know on my checklist, I’ve got four or five items on there that tell me I’m going to like working on this. And one of them is that there has to be some number that goes up. I don’t know why. I don’t know where that comes from. If I was a writer, Channing, maybe it wouldn’t be money. Maybe it’d be the number of readers or copies sold or something. But if there is no cumulatively growing thing, then I just get this weird feeling in the back of my head that I’m not really building anything. What’s the purpose? And so money in a way, when it ceases to become the primary motivator, it’s no longer, I need more money to be free, does become this scorecard. But there’s healthy and unhealthy ways for that to happen I think.
You’re the Scrooge McDuck character and you’re just collecting more and more money, but you’re unhappy because you have no idea what you want to do with it except put it in a room and swim through your vault of gold coins, then that’s unhappy and that sucks. But if it’s like, okay, well this is a way for me to measure my progress and feel good like I’m accomplishing something, then I think it can be healthy. And then you can always spend your money to do other things. Invest in other entrepreneurs, pay it forward, help out friends and family, et cetera because it’s not about spending it on yourself that matters. It’s just a motivational thing.
Rob Walling:
Yeah. I think that’s a big one. A number going up is something I think about a lot too. And this is going to sound maybe contrived or cheesy or whatever, but I realized at a certain point I really like making an impact. I really like impacting people. And the more people I can help or impact the happier I am. And that’s not just bull talk. If you look at my history, I grow the podcast so that more people … Every time I get an email it’s like, thank you. I get these emails and It’s like, “You changed my life. I had no idea what I was doing, I built an MVP, I just sold it.”
There was a guy in Romania or somewhere, very little cost of living who’s like, “I just sold it for half a million dollars. I can almost live the rest of my life on that and it was basically following your advice.” I made no money off of … They’ve never come to a MicroConf. I don’t care. I care that his life is better. Is that a bit of a luxury? Yeah. I have that. I don’t need to make money off him. But that’s where the numbers that go up these days are YouTube subscribers or podcast subscribers. If those are stagnant, I’m just like, so who am I helping then? What good is this? How am I making a difference in the world?
Courtland:
Yeah.
Rob Walling:
I wanted to ask you guys about the whole Stripe thing. Is it a weird transition to do this?
Courtland:
Yeah. No. No. No. We can talk about whatever you want. That’s why I love interviewing another podcast host.
Rob Walling:
Because we can just turn the tables. Yeah.
Courtland:
Exactly.
Rob Walling:
So I listened to your last episode. I saw the announcement Indie Hackers is Indie Again. I listened to your last episode. And I know you can’t divulge details of the deal, which I’m not going to ask about, but I totally get why you guys would do this because I would feel the same way. I know even no matter how good the parent company-
Courtland:
But why would Stripe do this?
Rob Walling:
That’s the question. And I believe Stripe approached you about it.
Courtland:
Yeah.
Rob Walling:
So is it a focus thing? I have my own theory of, well, markets are going down, I know they took a haircut on valuation. Are they just trying to focus? What’s the logic there?
Courtland:
I think it’s tricky to talk about. You’re right.
Rob Walling:
Yeah.
Courtland:
But I think at the end of the day … I know this also sounds cheesy, but people at Stripe are just really good. They are not very miserly. They’re not penny-pinching trying to save every nickel and dime. And I think Patrick in particular is pretty wise about the overall concept of branding and reputation. Compared to other big unicorn startups of its size, Stripe has remarkably small number of bad press stories, et cetera and that’s deliberate. It comes from the top because everyone at Stripe is conscious of making sure … We have what’s called the front page test. If what you’re doing appeared on the front page of a magazine, how would you feel about it for the company? And that takes precedent over, okay, how much money do we save this quarter or this half or something?
And so I think for Patrick, he’s just looking at Indie Hackers and looking at who we are and what we’re motivated by and how we feel. And a large part of it is like, hey, are you guys happy? Are you doing what you want to do? Do you still have the same fire? Do you still have the same drive? He’s asked me that question every single year that we’ve been at Stripe. And I think we could have stayed. We could have just continued doing exactly what we were doing. And Channing and I had to also go back and do some soul-searching and be like, well, are we happy? Would it be better if we owned Indie Hackers? That was never an option before. What would we do in that case? And what would we need to feel like it was even a fair deal or a good deal because Indie Hackers burns through a lot of cash. I don’t want to jump ship and then suddenly be losing money every month. And so I think it was just a hodgepodge of, it was just convenient for both parties to figure out a good deal for that. And here we are in this crazy situation where we owned this time last month, 0% of Indie Hackers, and now we own way, way, way more than that. And it’s just cool. It’s cool to be here.
Channing:
But I was going to say another thing from Stripe’s incentive perspective just aligns with the weird circumstances around them acquiring us in the first place, which is that if we do what we are … If we inspire a lot of new entrepreneurs and we help to educate a lot of entrepreneurs to be more successful, that’s a common rising waterline that lifts all the boats. And so that’s what we were doing at Stripe. We weren’t making a lot of revenue. It wasn’t a financial acquisition where we were raising their bottom line in that way. If we are healthy and happy and inspiring more entrepreneurs and doing what we are really designed to do better, then that helps with what Stripe actually wants from us. So us being cut loose, us being independent and having the energy to go 100% on Indie Hackers is directly in Stripe’s interest.
Rob Walling:
Yeah. And that’s a really mature way of thinking about it, and I would expect Patrick or Stripe in general to think about it that way. It’s a long-term way of thinking. It’s as you said … I know they talk about raising the GDP of the internet. And if you’re able to do that better independently … I was going to say before you said it of I know Stripes not making buckets of money off Indie Hackers.
Courtland:
No. No.
Rob Walling:
That was not the play. The play as I saw it years ago was, hey, we want Indie Hackers to stay alive and or … I think at the time you were running ads, and I think Patrick was like, “Ah, it’ll grow faster without ads.” That was my mental model of why they acquired you. Is they want MicroConf to exist. They want Indie Hackers to exist. I don’t know if you guys were there at the MicroConf where I was either talking to Patrick or John Carlson on stage, and I said, “Raise your hand if …” SaaS companies all abounding. And “Raise your hand if you use Stripe.” And it’s like 90% of the … Yeah. It was crazy, right?
Courtland:
Yeah. Yeah.
Rob Walling:
I totally get that it’s good for them. Companies don’t think that way and that honestly is one of the reasons I have respect. Tons. Just loads. They run it. I have similar respect for Ben Chestnut at MailChimp. There’s only a handful. Dharmesh at HubSpot. There’s a handful that I’m like, you are super legit and you are very wise, and you make decisions that are very mature.
Channing:
Also, Cortland, do you remember? I think it literally was the week before Patrick reached out to you via email to ask about acquiring us, you and I were posting on the forum about new business model ideas we were thinking of, and one of those ideas, and this was at the top of the forum, was pay gate Indie Hackers. I don’t know what the name of the post was, but we were like, okay, why don’t we do a membership thing? Because we were just looking at revenue and a lot of our revenue ideas-
Courtland:
You own a community, you have to at least consider that.
Channing:
Yeah. A lot of our really public facing revenue ideas that we talked a lot about were 100% going to limit the impact that we had and probably be good for us in the bottom line. But yeah, if you’re a Stripe and you’re like, “Okay, well this thing is really useful for us,” all of those types of ideas are going to be good for them maybe in the short term, but they’re not going to help raise the GDP of the internet.
Rob Walling:
When Patrick approached you about this and said, in essence, would you prefer to be independent, did the two of you have any hesitations around that? Was it actually a decision?
Courtland:
Oh, yeah. Yeah. Yeah. Yeah.
Rob Walling:
Oh, really? What were the hesitations?
Courtland:
It’s nice to get paid a steady paycheck every single week. It’s really nice. It’s expensive to run Indie Hackers. We haven’t been focused on cutting costs that much, nor have we been focused on generating revenue in six years. So how are we going to turn that ship around? It’s risky. What if Indie Hackers dies if it’s on its own? There’s just a lot of considerations. Also, okay, this is an inflection point. What’s our opportunity cost? What if we just quit Indie Hackers and went and did something else? What if I became an investor? What if I decided to go start a different company? What would that look like? Is our heart really in it I think it was a big one for me. I think to some degree the answer is getting to be a little more leaning towards no for me. I’m just not as passionate about this as I once was.
I think the peak passion that I had was probably the very first year where it was like, hey, I have to make this work or I can’t pay rent. And then the next year it was like, hey, I just joined Stripe, I want to be a success and impress people. And those are the two years where Indie Hackers grew by far the most. And so the question was, okay, well if we are Indie again, is that passion going to come back? Because if it doesn’t, this is probably the wrong decision. And so it wasn’t something we just decided overnight. It took us literally a month of talking and figuring out everything we wanted and opportunity cost before we decided we wanted to do this. And now we’re still in the process of, okay, what’s next? By the end of this month, Channing and I were super excited.
We’re like, holy, this is going to be … I feel energy flowing into me that I haven’t felt in a while. So now the question is, what’s next for Indie Hackers? What do we do? The sky’s the limit. There’s a million and one things that we could do to make money, and also to do what you’re saying. To have a positive impact. And then the third thing, which is to enjoy our lives. To wake up every day and be excited about what we’re going to work on, which I think it’s not worth doing anything if I’m not excited to work on it at this point.
Rob Walling:
Yeah. I have a mental model, but it’s just borrowed from other things. Jeff Bezos has the regret minimization framework when you come to a decision. Which am I going to regret least? In my head, it’s usually if I come to a hard decision, I pick the path that will let me either learn more or that’s riskier within reason. Not risky like putting my house on the line, but that scares out of me. Those are the ones that I tend to lean towards. I wasn’t able to do that in my 20s. I was too scared. And then as I matured, I was like, oh, risk actually brings fun. It brings a little a little bit of-
Courtland:
Stakes in there.
Rob Walling:
Yeah. So the two of you as founders, as entrepreneurs, I feel like you would’ve regretted not going independent.
Courtland:
Oh, definitely.
Rob Walling:
I just can’t imagine not doing it. Even though it’s scary and you have to work through it as an emotional process, it doesn’t even seem like a decision to me. It’s just a foregone conclusion that you would do this.
Channing:
Yeah. The risk point reminds me … Have you ever read The War of Art by Steven Pressfield?
Rob Walling:
Yep.
Courtland:
Yeah.
Channing:
In his way of seeing the world, if you look at something and you’re terrified of it, you almost should just assume, I need to go do that thing because I’m terrified. Obviously, this doesn’t apply to all things. It typically applies to … You clearly say, this is a way that I want to express myself. Whether it’s through writing something or creating something. Like Courtland said, I don’t think that there was an option where we didn’t go and do something that in a sense scared us. It was like, do we want to do it with Indie Hackers? Is this the best platform? And ultimately I think, obviously the answer ended up being yes, which I want to now leverage the fact that you just wrote a book called The SaaS Playbook. It sounds like you heard our last episode where we talked about some of our ideas, but we have a lot of ideas. And I feel like it, we’d be remiss to not try to use you to give us a thumbs up or thumbs down on some of those ideas. Courtland, do you have that list up?
Courtland:
Well, I’m curious, off the top of your head, Rob, what would you do in our situation? What do you want to see us do if anything?
Rob Walling:
Oh, that’s so interesting. It’s interesting because MicroConf and Indie Hackers are very similar, but I’ve seen Indie Hackers as definitely more early stages maybe not, but it’s definitely folks who maybe want to work on multiple projects at once. Yeah. There’s a tie in there. I’m not sure I have an idea off the top of my head of where I think Indie Hackers should go. And there’s a big reason for that. Is while you’re a community and MicroConf’s a community, you’re different. You’re like a social news site for bootstrappers. And I’ve never run one of those. So I actually don’t know where I would take it aside from … We can come up with revenue ideas and all that stuff, but I liked your idea of the Kickstarter before. I think that’s clever. But that’s got to be on your longer term. You need a shorter term of ads and or pay gating, right?
Courtland:
Yeah. Right now it’s ads, it’s pay gating. We were thinking of almost a Indie Hackers VIP. A little bit like Amazon Prime. You’d be like, sign up for Amazon, you get Prime. And they just stuff a whole bunch of features into Prime that have nothing to do with each other. Hey, do you want to stream videos? Do you want faster delivery? None of these things are related, but the more value they put in Prime, the more of a no-brainer it is to not only sign up, but to not churn. And I think running an online community, it feels like, well, there’s lots of different things you want to do. I want to have these new cool Indie hacker profile pages that people will actually link to on their Twitter. But is anybody going to pay for that? And if they do, it’s just going to be a super low price point.
Well, if we stuff that into some sort of Indie Hackers Prime subscription, or we add a few features, gradually over time as we build more and more things just makes that more and more valuable to opt into. And there’s lots of different things we can build that are just generally helpful for the community and impactful that don’t have to on their own be this amazingly killer SaaS idea. That appeals to me a lot because I just want to build small things. I don’t want to build some gigantic hairy SaaS that’s going to take eight years.
Rob Walling:
And you have a luxury of the community trust you. You have such a strong brand that people will … If you say, “Hey, this is what we’re launching and we’re going to keep building,” it’s going to be a bunch of people like myself who are going to throw their credit card in and be like, I’m sure they’re going to deliver.
Courtland:
Right. Yeah.
Rob Walling:
So here’s Breaking news that … Producer Xander’s probably going to be mad at me for saying this, but this is already in the works for us. We have MicroConf Connect, which is a Slack channel. It has 5,100 founders and aspiring founders. We are going to be offering a premium paid version of that, which just has five or 10 perks and premier access to MicroConf videos and you get a bunch of private channels in the Slack and whatever else. There’s a whole list of it that I actually don’t remember. So if you’re asking me what you would do, that’s what I’m doing.
Courtland:
Yeah.
Channing:
Yeah. You’re like, why yes, that is a good idea, Courtland.
Courtland:
It’s a no-brainer to some degree. If you love MicroConf, you’re part of the community, you’re going to go. Why wouldn’t you pay some small amount more to get all these extra features and things that allow you to not only support the community, but also get access to more benefits.
Rob Walling:
Right. And that’s the same with Indie Hackers. And your community itself is much larger or a bit larger than ours. And I think you have … It’s a no-brainer that you could make some money there.
Channing:
A little bit easier when you can add someone as a member of your community by them clicking a few buttons on the internet than having them come all the way.
Courtland:
I’ve got some other ideas on this list. One thing that a lot of people have asked me about is this idea of … You know we have this giant directory of products on Indie Hackers, Rob?
Rob Walling:
Mm-hmm.
Courtland:
A lot of people have asked about Indie Hackers investing in other Indie Hackers. In fact, Erik Torenberg DM’d me. Three months ago, he started On Deck, which is this … I don’t know how to explain. A school for people in the tech industry to help each other with these different topics. And he’s like, hey, why isn’t there a way for people who love these small Indie projects to basically support each other financially and invest in each other? I’m not sure how it would work, but why haven’t you figured that out? And it’s been in the back of my mind for a long time, but I haven’t just sat down and thought, how would that work?
And Rob, you’re the best person to talk to me about this because you actually invest in “bootstrapped” startups. You see what are the returns like? How does it actually work? And I think no one’s really cracks this. Not because generally speaking, people invest in tech companies hoping for a unicorn. And the average Indie Hacker is not trying to make a unicorn. They’re trying to pay their rent. And so something that I’m noodling on is there some way to financially … Because partly it’s just fun. If I could go to a giant directory of Indie Hackers and see all my favorite people building their stuff, and I could throw money at them to help them be able to take off work and launch earlier, et cetera, and expect not some huge return, but something that makes it somewhat worthwhile, that would be dope. I’m not sure what the numbers are like for that though. Realistically, is that even possible to get a return?
Rob Walling:
Yeah. That’s the complex … So there’s two complexities that I’m going to introduce. I love this idea as well because I would love to go to a directory of Indie Hacker Projects or MicroConf project and just be like a hundred bucks, 500 bucks, whatever. This is great. This is super fun. I think there’s two things that are going to get in your way or going to make it complicated. Number one, return drivers. Making your money back will be very, very difficult. Even if you go across all these Indie Hacker projects … As you said, people are trying to make their rent. Maybe they get to 20K or 30K. The money that’s thrown off from there just isn’t a lot. So the valuations would to be very … I’ll say they’d have to be very reasonable compared. It’s like if you raise at a million dollar valuation and you put in a $1,000, you own 1/1000 of that company.
And so as you throw dividends off … We can do quick math is nothing. So you can’t raise at a million. So you got to raise at maybe a hundred thousand valuation. And will people allow that? Will they say, “I’ll sell 20% of my Indie Hacker project for 20 grand.”? So that’s one thing. To make the economics work it will have to be different than … Certainly than Silicon Valley, but even then, the TinySeeds and the Indie VCs, you would be at I would say, a level lower just in valuations in order to make the economics ever work.
The other thing is on the … My God, the laws in this country. The securities laws. We spend so much money on lawyers, and we are literally lobbying Congress to try to get the 99 investor rule changed. We’ve raised a fund. We can only have 99 investors. They all have to be accredited. They’re already accredited. These are millionaires. And yet I can’t have more than 99 people in that fund. It’s ridiculous, right?
Courtland:
Yeah.
Rob Walling:
We’re working with a group to try to get that changed. But all that said, in your case with Indie Hackers, I think you’d want to go more the red CF. The crowdfunding route, right? Because then you can just put in a few hundred bucks. Because if you were to try to raise from accredited investors, A, there’s just only so many, and B, if you raise a thousand dollars from an accredited investor, the legal fees alone to just put that together are cost prohibitive. So I think with crowdfunding, I would then logistically want to go out to one of the crowdfunding platforms and partner with them.
Almost like you’d have a crowdfunding syndicate. Like a syndicate is, you go on AngelList and we run this, We get a SaaS deal, and they’re outside of TinySeed, but they’re in the TinySeed syndicate. And we can raise 100 grand, 200, 300 grand to help them raise a round from our investors. Now in a syndicate, they all have to be accredited. And I don’t know that that’s the best idea. I don’t know that’s the best option for Indie Hackers. But I’ve never seen a crowdfunding syndicate and I don’t know if that could exist. Because you don’t want to deal with the legal, trust me. It is mind-boggling. It’s expensive and time-consuming. Talk about stuff we don’t want to deal with. It’s the worst. It’s like-
Channing:
Yeah. It just seems like crowdfunding sidesteps so many of those issues. You get to invest. Let’s say you get to … Let’s call it invest, but you’re not necessarily only just buying equity. You allow for say, the founder of a company to innovate what they want to give people such that maybe there are way easier returns. Like, hey, if you invest this much money … They can do the tiers. Then you can be someone who has access to these features for my product. We’ll always have you on this page. Who knows, right? But it just allows-
Courtland:
Some benefit that’s not equity.
Channing:
Right. It just allows for some innovation on the kinds of returns. And we talk about markets and the personalities that go into markets. Well, it just so happens that if this happens on Indie Hackers, you’re dealing with people on the supply and the demand side who have a lot of initiative, have a lot of creativity, and have a lot of goodwill with one another. So that’s something that I’m … It’s a really fascinating idea.
Rob Walling:
If you remove equity, it becomes a lot simpler.
Channing:
Exactly. Exactly.
Rob Walling:
And if you go to the more … You talked about doing a crowdfunding model that isn’t equity. More of a Kickstarter model built into Indie Hackers, right?
Channing:
Yeah.
Rob Walling:
That’s where you get back to, I could see people needing … It would be a brand. The most famous Indie Hackers who … Like John Yong Fu. He’s big on the side. And I actually don’t … Is Pieter Levels a big Indie-
Courtland:
Yeah. Pieter’s on there.
Rob Walling:
So if they came on and we’re raising, a bunch of us would throw in money. I think people who have done less work and who have less of a following might struggle a bit more but that would be the game, right?
Courtland:
Yeah. That’s the game. Can you discover the diamonds in the rough? Can you be there when no one else is? Anyway, Rob, thanks a ton. I appreciate your ideas and your feedback.
Rob Walling:
Absolutely, sir.
Courtland:
I feel like we can work together in ways that we haven’t been able to in the past, which is cool. We’re just in a whole different playing field now and so excited to go to MicroConf next year. Excited to stay in touch. Excited to talk to you about being an investor because I think I might be an investor going forward. Stripe just did their tender offer and so my money is no longer just all on paper which is cool.
Rob Walling:
I was going to say. Yeah. Now you’re rolling. That’s great.
Courtland:
Yeah. Yeah. So life’s exciting. I’m excited for your new book. I ordered, I think the option on Kickstarter to give me two hardcover copies so I can give one away. And then I think the audiobook or the ebook. And then I’ll probably buy whichever one I didn’t get afterwards because I want every format possible.
Rob Walling:
All the formats. Yeah.
Courtland:
What’s your-
Channing:
And you know how I can tell that we’re beyond the Stripe tinder offer?
Courtland:
What?
Channing:
For once you’re not wearing your robe. You’re wearing an actual shirt.
Courtland:
I can afford clothes.
Channing:
It’s either the money or you just have a lot of respect for Rob because you really dressed up.
Courtland:
He just need to see my [inaudible 01:08:00].
Channing:
You have a whole T-shirt on.
Rob Walling:
Got dressed up.
Courtland:
I subjected Wes to my robe book the other day.
Rob Walling:
Epic.
Courtland:
So Rob, you get to see me fully clothed.
Rob Walling:
Appreciate it.
Courtland:
Thanks a ton for coming on, dude. What’s your parting advice for people listening who are trying to figure out what to do now that they’ve hit product market fit? This is where your head’s at nowadays. Besides just buying your book, which of course they should go out and do, what’s something you want founders to take away from your learnings?
Rob Walling:
I think founders should … There’s so many, right? But man, one thing I really regret is I didn’t delegate more.
Courtland:
Oh yeah.
Rob Walling:
That I didn’t hire more senior people. I hired a lot of junior people because I didn’t have money and I was always the bottleneck. Managing junior people. And I think one thing that’s on my mind these days is the luxury that I have, we talked about earlier of being able to work on what I want is because we have very senior people. And so the moment you can, hire someone who’s really good, even if they’re expensive, and that will allow you to 10X your business.
Courtland:
Love it. Feels amazing hiring somebody who’s good and then suddenly all this stuff is getting done and it’s getting done better than you would’ve done it and you’re just like-
Rob Walling:
It is. Crazy.
Courtland:
Yeah. It’s nice.
Channing:
It’s really a matter of inertia too. I say that to go from zero to one as a founder, you have to learn how to wear all the hats. But to go from one to two, you have to learn how to take them off. And it’s really a question of habit. But that’s awesome advice. Where can people go to find more about you?
Rob Walling:
Startups For The Rest of Us if they want to listen to podcasts or Twitter, @RobWalling.
Channing:
Boom.
Courtland:
Startups For The Rest of Us, highly recommend it. One of the longest running podcasts in the space. Super good. Rob’s silky voice coming through every episode. Like what you heard here.
Channing:
This is a three host episode.
Rob Walling:
It really is. Well, and people listening to this on my feed, Startups For The Rest of Us, should go check out indiehackers.com. These gentlemen need some more signups so they can get some ad revenue.
Courtland:
Survive.
Rob Walling:
And of course, the Indie Hackers podcast, which I’m glad you’re back because there were a few months there that were touch and go.
Courtland:
Glad to be back.
Rob Walling:
And I was like, what’s happening? They need to keep producing this.
Courtland:
All right. Thanks Rob.
Rob Walling:
Absolutely. Great to be here. Thanks so much to Courtland and Channing for joining me this week. You can find them on Twitter at CS Allen and Channing Allen. That’s A-L-L-EN. As well as obviously @IndieHackers. It’s always great to have them on the show. The conversation flows very naturally. So I hope you enjoyed this episode. This is Rob Walling signing off from episode 659.
 

Rob Walling:
Welcome back to another episode of Startups For the Rest of Us, I’m Rob Walling. Today I sit down with Geoff Roberts, co-founder of Outseta. He wrote a 4,400 word article on global sales tax remittance, and I joke with him in today’s conversation about how it’s one of the most boring topics, but it’s something that people should be aware of and that’s why I titled this episode As a SaaS Founder, when Should You Care about Sales Tax?
Because the answer is likely not on day one, but there does come a point when you need to start thinking about sales tax, not only within your own country but globally. And that’s what Geoff and I dig into today. He’s done a ton of research on this topic. We define merchant of record, we talk about when you might want to be your own versus using a third party. The pros and cons, and we hear a little bit about Geoff’s own story as a founder of Outseta.
Before we dive into that, MicroConf Mastermind matching starts in just a week or two. Our applications open on May 3rd, and we’ve had incredible success connecting nearly 1000 founders around the world over the last three years with approaching $200 million in combined ARR. We have founders in the idea stage all the way up to making millions low eight figures, literally $10 million a year.
So whatever stage you’re at, if you’ve ever wanted to be connected with a small group of other like-minded founders who are likely at your stage or maybe just a little ahead of you for support and guidance and accountability, head to microconf.com/masterminds to learn more and to get matched. Applications open May 3rd. They close on May 12th, and we send matches by May 17th.
We only do matches two, maybe three times a year. And every time we do it, we have someone a protest after the applications close and beg to get in. And unfortunately we can’t do that. So make sure if you want to be matched in a mastermind that you hit microconf/masterminds before May 12th. And with that, let’s dive into my conversation.
Geoff Roberts, welcome to the show.

Geoff Roberts :
Thanks for having me, Rob.

Rob Walling:
It’s great to have you on, man. I’m looking forward to hanging out next week or by the time this goes live, I think it’ll be last week at MicroConf US in Denver. But today we’re going to talk about one of the most boring topics that I can think of, but we’re going to make it interesting, right? I recorded it YouTube video a couple weeks ago about SOC 2 compliance, and I started it by saying, yeah, you think this is going to be boring, but it’s really important, but so is global sales tax compliance and remittance.
You wrote this article on your company blog, so you’re a startup founder at Outseta.com and it’s all in one membership software, but you’ve obviously had to deal with some global sales tax compliance and remittance because you wrote this article, subheading, “what I’ve learned over the last 18 months about when to use a third party merchant of record versus when to act on your own”.
So first question is, hey, why is this so important? Why should people listen to this episode and learn about it?

Geoff Roberts :
Yeah, I think the reason it’s important is an obligation for any SaaS founder to figure out what they need to do around global sales tax compliance and remittance. And more importantly, nobody understands it. It is completely confusing. Everybody that I’ve spoken to, even people that think they understand this subject well, don’t understand it a hundred percent, myself included. And it really came to the forefront for us because we are a SaaS company ourselves. We need to figure this out as a business ourselves, but we are a billing system.
We do process payments and we need to productize a solution to this problem for our customers. And we spent the better part of 18 months evaluating every option on the market from using a third party merchant of record to all of the different tax software products that are out there. And during this 18 month period, we had customers kind of asking us for solutions and asking us for solutions and asking us for solutions. And I felt guilty. I was like, we’re a billing system. We need to have a good answer to this problem.
But the conclusion that I’ve come to after spending so much time thinking about this is there really isn’t a good solution to this problem today. So it’s kind of a pick your poison scenario and that’s what the article I wrote is all about.

Rob Walling:
And if I’m a startup founder running a bootstrap business, doing 10 grand a month, 20 grand a month, can I just ignore all of this? Do I need to pay attention? Or I guess what I’m asking is does it only hit you at scale? What is the downside and when do you think it becomes important?

Geoff Roberts :
Yeah, so I would say first of all, the legal advice that anyone would give you is there are different revenue thresholds in each country after which you need to worry about this. Some of them are when you process your very first payment in a given country, others are hundreds of thousands of dollars of payments processed.
So the technical legal answer is, it kind of depends. That being said, I think that you really don’t need to worry about this particularly on your way to 10K in MRR. I think it’s much like all other aspects of building a startup. You need to create good problems. And I would turn my attention to this personally, probably somewhere between 500K and a million dollars a year in revenue. I think that’s a point where you will be processing enough payments that you’ll have sort of a significant tax obligation in a number of jurisdictions that warrant’s actually figuring this all out. Before that, I think it’s honestly not something you need to worry about too much.

Rob Walling:
And I should caveat this whole conversation with, neither you or I are lawyers, we’re not accountants, we’re not legal nor tax advice. These are just opinions of two people on the internet who happen to have read some stuff, right? I mean, this is it, but no, I agree with you. So when I was growing my startups, it was always, it’s like I don’t need insurance early on, I didn’t have an LLC for a long time because I was a sole proprietor until I hit about 70K, 80K a year. There were just certain moments where it’s like, of course it’s risk tolerance. Of course if you talk to the most strict lawyer, then they will say, do all this stuff up front. And it’s like, well, that’s 20 grand in fees and I don’t have a business yet. So it’s like you have to take this with a grain of salt.
In terms of this post or this essay, which is a 19 minute read you have at the top, which is a warning like, slow down, if you really want to do it, do it. But otherwise. It’s global sales tax. So is this about country to country stuff or does this apply, let’s say I’m in the US there are 50 states, different counties have different sales tax, all that. Do you address any of that in this post?

Geoff Roberts :
Yeah, it’s all discussed in this post. Basically at this point you probably have a tax obligation in any country where you have a customer at least to some extent including your own country. But the part that is really crazy about this topic to me is these are not taxes that your business owes. These are taxes that your customers owe and it is you, the small business owner who is supposed to keep track of all this stuff and remit taxes on behalf of all of those customers.
The whole system is kind of crazy if you ask me. And one of the realizations that I came to in writing this post is just the frequency in which the actual tax rates and tax laws change even within your own country. So within the United States in 2021, there were 600 plus different tax rate changes that went into effect that year. And to get just keep track of that within your own country, let alone every country in the world, every municipality in the world is kind of ridiculous. And even the companies that do this full-time, like that’s what their products are based around the idea that you would ever be fully in compliant at any point in time is sort of a ridiculous notion in and of itself.

Rob Walling:
Obviously with Outseta, you are a membership website platform and so I could go set up a membership website for MicroConf for example, and then I could charge folks in MicroConf to pay a membership fee. In essence, money would be flowing through Outseta to me, and that’s when this becomes more complicated. Is that right? Because I’m imagining, let’s say I had a email service provider like Drip or MailChimp, my customers are not charging their customers for anything, they’re just paying me money. How is that maybe more or less complex than the situation you’re dealing with?

Geoff Roberts :
I think the only thing that is more complex is we have to pay taxes ourselves as a company, but we provide tools to our customers to do the same thing. That’s the only additional level of complexity here. But within our customer base, we have hundreds of companies that are looking to us and saying, what is this global sales tax remittance stuff? Do I need to worry about this? When do I need to worry about this? Is Outseta a merchant of record? Can it be a merchant of record? Do you integrate with other tax software products? So we’ve just been barraged with these questions and we’re trying to provide some clear cut advice to our customers so they can sort of wade through the scenario that they find themselves in and have a workable solution.

Rob Walling:
So that begs the question, can you define what a merchant of record is?

Geoff Roberts :
Yes, A merchant of record is who you are actually interacting with. If you’re processing credit and debit card payments, it’s the person or the organizations that’s going to show up on your bank statement. It’s the person that is sort of liable for those transactions.
So most SaaS companies today, ourselves included, will use Stripe for payment processing. They set up their own what’s called merchant account with Stripe, and they’re basically responsible for all of the transactions processed through Stripe on behalf of their business. If that’s the case, that means you do need to be applying tax to your invoices and remitting tax and all these different jurisdictions where you do business.
But a third party merchant of record is a newer option that’s become quite popular. The popular merchant of record products out there today are Paddle, Lemon Squeezy Gumroad, those sorts of customers where essentially they create one master merchant of record account for all of their customers and they’re actually processing payments on behalf of your business.
Your customers aren’t interacting with your business, in that case, they’re interacting with the merchant of record and the merchant of record then sort of issues a payout to your company after they’ve remitted all the taxes that are required.
So there’s sort of this perception that if you use a third party merchant of record, your problems are just solved. And to some extent that is true. You don’t need to think to the same level about global sales, tax remittance and compliance because the merchant of record is doing it for you. But there are downsides ranging from higher payment processing fees to platform risk that you need to consider. So I don’t think one is a clear cut better option, frankly.

Rob Walling:
Got it. And at Outseta, are you a merchant of record?

Geoff Roberts :
We are not a merchant of record. Part of this post was me just kind of being honest with our customer base saying, we’ve been thinking about this for 18 months, we still don’t have a great solution to this problem. And I think the article, I hope I sort of bring some credibility to the discussion because we’re not trying to sell you anything. We don’t have a great solution at this point in time.
But where we’ve landed as a company is we want to offer both options. I think most SaaS businesses will probably opt towards continuing to use Stripe. And I know for a fact since publishing this article, there is a huge influx of remittance related products and services that are being built right now that aim to make this whole process easier for companies that do use Stripe.
But we also sell to a lot of more creator focused businesses where I think a merchant of record maybe does make more sense for them and we are looking for a viable partner to offer a merchant of record solution ourselves too.

Rob Walling:
I imagine it’s pretty complicated to be a merchant of record.

Geoff Roberts :
It is. It’s a lot of administrative work. I mean, you look at the companies that have done this, Paddle’s raised 300 million in funding largely because they need to figure out how to do all this on behalf of their customer base. And I think it’s even telling that Stripe has not prioritized their own merchant of record solution, at least at this point. I suspect they will at some point, but there’s just a lot that goes into it, frankly. So it would be really hard for a small business like Outseta to become a merchant of record ourselves.

Rob Walling:
Yeah, I would imagine. Is Outseta bootstrapped or if you raised funding?

Geoff Roberts :
We are.

Rob Walling:
Okay. Yeah, that would make it especially difficult. I remember back in the day, Gumroad raised money, they raised like 7 million bucks in whatever the year was, 2013, 2014. And their head of growth, Ryan Dell came and spoke at MicroConf and I asked him why didn’t Gumroad bootstrap was number one, and then why did they raise so much money? Because it just seemed like a big amount for what they were doing. The software wasn’t that complicated, I just didn’t get it and I’m not anti funding, but raising half a million dollars makes sold sense, but raising 7 million was like, what is happening? And he said one of the reasons was that they needed to become their own. The way he said it was credit card processor, payment processor. But I think it really was merchant a record.
And in order to do that, you need to work directly with banks in a fashion where they need to have confidence in you, in your company and they need to trust you, the company. And that was one signal they could say, well, we raised this much money from these top tier VCs. I think you’d have a pretty challenging time. Maybe today it’s a little easier, but I think becoming a merchant of record when you’re just a little bootstrap company no one’s heard of I think could be challenging.

Geoff Roberts :
Absolutely. Yeah. I think the path for us would be an integration with a Paddle, Lemon Squeezy, et cetera. Those platforms charge pretty high payment processing fees for being a merchant of record. And that’s part of our revenue model too. So everything we’ve looked at so far would just result in, at least in my opinion, payment processing fees that are prohibitively high. And the other concern for a company like us is we’ve built all of our own UI around signup forms and whatnot. If we go with one of these third party merchant of records, you almost definitely have to use their own UI on the front end.
So we’d have two different implementation paths for our product, one focused on Stripe, one focused on whatever merchant of record solution we integrate with. Long story short, we haven’t found an option that we think is really viable and a good solution for our customers yet.

Rob Walling:
So you wrote this post, which I’m doing a word count on it as we speak. It’s a lot. It’s what, more than 4,000 words. It’s like a book chapter.

Geoff Roberts :
It is.

Rob Walling:
It must take me a lot of time. Why did you do it? Other than just to be a nice person and help the internet and helps SaaS companies was there other motivation?

Geoff Roberts :
I wouldn’t say there was any particular motivation other than trying to bring sense to this topic for our customers. I mean, our support inbox is filled with people asking questions, do I need to worry about this? Do I not need to worry about this? And frankly, we wanted our own customers to know we’ve been looking into this, we’ve been exploring it from all angles.
My own perspectives have changed on this topic. When I really all of 2022, I was talking to our product team saying, I think we need to be a merchant of record. We sell to early stage companies. Let’s just take this topic off their plate completely. But the further I went down this path, the more founders I spoke to, the more I actually started kind of backtracking on that perspective and I just wanted to share everything I’d learned on the topic and also communicate that. I think ideally for a payment processing company like us, offering both options and giving your customers that level of optionality is the best solution.

Rob Walling:
And something you say in the article is if you’re a SaaS company that’s just starting out, I would act as my own merchant or record. In fact, I wouldn’t worry about global sales tax remittance at all yet. Which I think ties into what we said earlier of, hey, if you’re trying to get to 10K, 20K, quit the job. Again, not advice because you should be a hundred percent compliant with all laws at all time, but it’s like realistically, that’s just how it works.
But what’s funny is, you have this really nice diagram and it says the question of merchant record using a merchant record, pros and cons, the only pro is convenience. That’s it. There’s one, it’s because it’s more convenient. The cons are slower, approval process, customer confusion. You want to define that on why customers could be confused.

Geoff Roberts :
So customer confusion, I think it’s one of those things you’re going to see a lot of initially with new customers if you are using a third party merchant of record. So if a customer looks at their bank statement and you are buying a product from a company that uses a third party merchant of record, they’re not going to see the company’s name on their bank statement. They’re going to see paddle or they’re going to see Gumroad or they’re going to see Lemon Squeezy, the name of the third party merchant of record. And a lot of times that causes customers to kind of freak out and say, why am I getting charged by this business I have no relationship with. All these companies have addressed this in various ways. It’s something I think once you receive an invoice and are confused, you probably figure it out and it’s not that big of a deal, but it is certainly something to consider.

Rob Walling:
That makes sense. And then the other cons are significantly higher platform risk, which is pretty obvious. Imagine if your merchant a record went under that would be devastating. And then high payment processing fees, then you have a nice headline, I think kind of a nice summary of it. You’re like you say, if you’re just starting out, I wouldn’t worry about it yet. If I was a creator that sells one time fee digital products, I would recommend using a merchant or record. I can live with a extra 5% fee once, but I don’t want to live with it on an ongoing basis.
And then you say if I’m a SaaS company doing over a million a year, I would act as my own merchant record, which makes a lot of sense to me because again, it’s SaaS and so you’re getting all that recurring revenue and figuring it out was probably worth your time. Then should you deal with the global sales tax maintenance? Because it sounds like it’s a big fricking fiasco to figure out. I’ve heard of Stripe sales Tax or Stripe Tax or something, is that the kind of thing you would do?

Geoff Roberts :
Yeah, what I personally think is the best option and what we’re going to do in the context of our own business and also probably the first thing we’ll productize for our customers is I do think Stripe Tax has solved this better than anybody else when it comes to tracking the actual tax that you owe. And Stripe Tax will also tell you specifically what jurisdictions you need to remit taxes in.
So if there’s a particular sales threshold in a given country and you’re over that threshold, Stripe Tax notifies you. It says you’ve sold 50K worth of product in this jurisdiction, you need to remit taxes there. So I think the first step for any company is just going to be turning on Stripe tax. That’s what I’d recommend at least. So you at least have insight into where you owe taxes and you are starting to collect taxes as well.
The problem then becomes remittance, which is actually filing your taxes with all of these different countries, different geographies, et cetera. Stripe does have some partners that they recommend. They have Taxjar, their partner in the US. There’s a couple options in Asia, a couple options in Europe that they recommend, but for me it’s, turn on Stripe tax, start collecting tax, and then I would start to gradually remit taxes in any jurisdiction where I’m really processing significant volume, I would probably start in my home country. For most companies, I think you’ll probably go to Europe next, that that’s kind of a guess.
But I would sort of do it incrementally and over time, if you have a 50 million a year business, yeah, you’re probably going to be remitting taxes all over the place, but the cost of remitting these taxes doesn’t scale up dramatically and that’s why I’m uncomfortable saying I’m going to pay 7% or 10% or whatever it might be and perpetuity on every single recurring transaction. I would rather optimize for the lower payment processing fees and then just remit taxes as it sort of makes sensible sense to do so.

Rob Walling:
I can imagine someone doing a million or 2 million in ARR or even 5 million, it’s just still such a small business compared to the world and they’re domiciled in California, they’re California LLC or whatever, or Oregon llc, and they have some customers in Europe and it shows by their calculations that they owe $5,000 or $10,000 in taxes to England or the UK or whatever.
I can imagine someone thinking, I’m not going to pay these, what are they going to do come after me? But is that a sensible way to think about it or is it if you go over there, they scan your passport and then they’re like, haha, we got you. How does a European government come and get an American small business?

Geoff Roberts :
Yeah, so I would say one of my other learnings as I’ve explored this topic is I was not able to find a single person who had a horror story about a foreign government coming after them for some sort of sales tax that they did not remit. Now does that mean that you should not remit those taxes? No, I’m not advocating for that whatsoever. I think you probably should try to do the right thing, but I think from a sort of risk assessment standpoint, part of the reason small businesses like us are being asked to collect these taxes in the first place is these governments haven’t figured out how to do it on their own in any sort of scalable fashion. I don’t think there’s any great way that this is consistently sort of enforced.
So I’m not saying don’t do it. I’m saying use your own common sense when you think that number is large enough that it makes sense to be remitting tax in these jurisdictions permanently start to do so. Before that, I think your actual risk is extremely low.

Rob Walling:
Yeah, I can imagine the risk may increase someday. Don’t know. Some countries may get their act together and do it. The other thing is, I haven’t heard this either, but I could imagine if you went to raise a funding ground or sell a company that depending on who was investing or who was acquiring and how much money was involved, there could potentially be a liability there. And my guess is it wouldn’t scuttle an acquisition, but it might be a hold back type situation.
When you sell a company for $10 million, usually… I forget what the number is, if it’s 10% or 15% of that amount is held back for 18 months, two years just in case something happens. And I can imagine that might be something people would think about.

Geoff Roberts :
Yeah, it’s a concern that I hear all the time. Probably the number one case for a merchant of record that I’ve heard, at least from people that are kind of freaked out about this topic is what if there is an acquisition of my business someday and I haven’t done this, is that going to kill the deal? And I think it could certainly happen.
I will say in the context of writing this article, I talked to a founder who sold a business for between $500 million and a billion dollars, so a big acquisition to a publicly traded company. They just disclosed during the acquisition that they had never paid global sales tax and they didn’t know how the acquiring party was going to react to that. And they were sort of surprised. The acquiring party almost laughed it off and said to them, we would’ve been really surprised if you had paid global sales tax.
And maybe that’s going to change a little bit over the years to your point, but I think that’s very much the norm, and if someone is trying to kill a deal over this, they’re probably not like that serious about acquiring your company anyways.

Rob Walling:
It’s not where the market is today. Yeah. Well cool. If folks want to check out the post, obviously we’ll link it up in the show notes so they can go to Outseta.com/blog to see it. Before we wrap up though, I want to hear a little more about Outseta. So you’re bootstrapped, how long you’ve been in business, how many founders, how big’s the team, some idea of scale.

Geoff Roberts :
First of all, yes. You’re a hundred percent correct. It is membership software. We use membership software as a little bit of a broad catch all because our target market has switched a little bit, but we set out to build an all-in-one tech stack for SaaS founders building SaaS companies. We sort of built Stripe billing before Stripe billing was a thing. And then we said, you know what? All these SaaS founders need authentication and CRM and transactional emails. And the basic premise of the company is it’s just all the kind of table stakes functionality that you need to launch a SAS business.
And we also sell to less technical founders building membership sites that need comparable functionality today. But we’ve been at it for six years now. We’re a hundred percent bootstrapped. There are three founders and six people on the team at this point.

Rob Walling:
Wow, good for you guys. Did you get any type of Covid bump when that happened and how’s it been going since then in terms of growth and traction?

Geoff Roberts :
Yeah, it’s been interesting. We actually did get a little bit of a Covid bump. As everybody started getting laid off, everybody started launching their own companies and Outseta sort of a inexpensive way to do that. We really started to grow in earnest kind of through Covid and I would say since then, just in the last few months in terms of new customer signups, we’ve definitely felt the economy a little bit.
We’re still trending up into the right, but our growth in terms of new customers has slowed a little bit the last few months. But what we’ve seen is our real revenue model is we take a 1% fee on successfully processed transactions. So as our customers grow, we grow. And we’ve been growing pretty aggressively over the last year really based on the growth of our customers, more so than new customer signups, which is pretty cool.

Rob Walling:
Yeah, that’s interesting because when I went to the homepage the first time, it says membership software and I was thinking, oh, this is for membership websites, the information marketer, the knowledge marketer who has a personal brand selling, but then your H2 talks about monetize your website, your SaaS product or your online community. So there’s more to it. And you have billing, you have CRM, you have email automations, like you said, you have help desk, so you have some type of support and authentication. So there’s quite a bit here.

Geoff Roberts :
Yeah, we have a interesting marketing challenge in the sense that our customer base is roughly split between very technical founders building SaaS companies and no coders building membership websites. They all need CRM, they all need billing, they all need authentication. They’re sort of controlling access to their feature sets or their content based on your subscription. So they’re actually very similar, but how we speak to them and even the implementation process is quite different between those two target markets.
But for SaaS founders, the thing that tends to get them interestingly enough is not that your billing system and your email tools and your CRM is integrated, they’ve got the technical skill set to integrate best in class point solutions if they want to. It’s more all these little workflows that you typically need to write custom code on top of Stripe to support.
So things like if a subscription payment fails, do you want to lock the user out of their account and prompt them to update their payment information on login? Those are little workflows that we’ve built into Outseta, so you don’t need to code the stuff yourself. And because we offer both authentication and billing, it all just kind of works out of the box for you.

Rob Walling:
You have a neat little Twitter thread on Outseta.com/billing and it’s Derek Reimer asking SaaS developers, what was your last experience like integrating Stripe billing with your app and then Ruben Gomez who comes on this show all the time. Annoying, sucks. We did this twice, two different apps in the last few months, standard SaaS tier and monthly yearly billing options for all the hype about how easy it was. It took longer than it should have, and some parts were confusing.
Then Ben Orenstein, friend of the pod chimed in, I’d guess we’ve invested more than a hundred hours and we’re definitely not done. So it is interesting, like Stripe innovated, right? I mean before Stripe I used PayPal web payments pro and fricking authorized.net and I hated both of them. And so Stripe just did an amazing job there and then they built Stripe billing and they built all this stuff, but it’s still not there. And it sounds like you’re trying to build another layer on top of that.

Geoff Roberts :
Yeah, there’s two ways that people have described what we offer that I think are generally helpful. The first one is people will express a lot of frustration with Stripe because Stripe hasn’t sort of built this end-to-end solution for a SaaS business. But frankly, Stripe is a payments company and they have a lot of focus outside of SaaS. So a lot of people will say Outseta is sort of the tech stack Stripe would build if Stripe just completely focused on SaaS.
The other parallel we hear a lot is you are sort of Shopify for SaaS businesses. It’s an easy way to get up and running. It gives you all the core tools that you need. You go on to build a $50 million business, you’re probably going to want to integrate best in class tools and build sort of the picture perfect tech stack, but we’re more than enough to get you started and really how we think about ourselves and from a design perspective, what we always keep in the back of our minds is we want to take SaaS companies from zero to somewhere between $5 million and $10 million a year in revenue. We think we can support that journey really, really well. And if you get beyond that point, you’ll sort of outgrow Outseta.

Rob Walling:
Very nice, sir. The folks want to keep up with you. You are Geoff T. Roberts on Twitter. It’s G-E-O-F-F T Roberts as well as Outseta.com. And I wanted to thank you for being such like an active participant in MicroConf Connect. I actually was telling you before this, I hadn’t read your post about global sales tax remittance, but someone in MicroConf Connect pulled it to my attention. They said this would be a great topic to hear on the podcast. And so thanks for writing the piece, essentially giving back to the community and for being such a contributor to connect.

Geoff Roberts :
Yeah, thanks for having me today and looking forward to seeing everybody in that community next week in Denver.

Rob Walling:
Amazing. All right, sir. Thanks.

Geoff Roberts :
Take care.

Rob Walling:
Thanks again to Geoff for joining me today on the show. Can obviously read the article linked up in the show notes. I look forward to connecting with you on Twitter. I’m @robwalling. Thanks for listening this week and every week. And this is Rob Walling signing off from episode 658.