Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike take a group of listener questions including Per User Pricing for SaaS, Drip Email Sequences for Freemium, and SaaS Subscription vs. Commission Pricing.
Items mentioned in this episode:
Transcript
Rob [00:00:00]: In this episode of “Startups for the Rest of Us,” Mike and I discuss per-user pricing for SaaS apps, Drip email sequences for Freemium and SaaS subscription versus commission pricing. This is “Startups for the Rest of Us,” episode 263.
[Theme Music]
Rob [00:00:21]: “Welcome to Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:00:30]: And I’m Mike.
Rob [00:00:30]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, where you this week, sir?
Mike [00:00:35]: Well, I’ve been spending the past couple of weeks working on getting the Founder Café data migrated over into Discourse and been working with a DBA who’s been extremely helpful on that front. I think you kind of referred him over to me, and his name is Creston. He runs Ruby Tree Software, so you can go to rubytreesoftware.com if you’re looking for a DBA. He’s done a really fantastic job of getting a lot of the data converted over into a format that we can use inside of Discourse using the [postgreSQL?] back end. I’m really happy with how things stand right now, and right now it’s just a matter of working on a lot of the mundane stuff like onboarding instructions, the terms of service, privacy policy, CSS and things like that. So, things are looking good.
Rob [00:01:13]: Yeah, and so far, so good with Discourse, huh? I mean it seems to be a pretty good platform. We had looked at it – was it two and-a-half years ago when we moved from basically WordPress forms over to our current platform, which is Communifire? I think it was –
Mike [00:01:25]: Yeah, it was about that.
Rob [00:01:26]: – a while ago.
Mike [00:01:26]: Yeah, it was –
Rob [00:01:27]: At the time, Discourse was, like – I don’t know – an alpha or something, because it was pretty early-stage. But we had our eye on it, and we actually looked at it at that point, and our experience with Communifire has been mixed, and it isn’t exactly meeting the needs of what we want to do. So, we feel like moving over to Discourse is a good choice. A lot of people are familiar with it, and the usability is really good, right? Jeff Howard has done a good job making really usable forms.
Mike [00:01:50]: Yeah, so definitely looking forward to that. Hopefully, we’ll be done by the end of the month.
Rob [00:01:53]: Awesome.
Mike [00:01:54]: What about you?
Rob [00:01:54]: Well, we have two job openings right now with Drip. If you’re a content marketer and you want to help us with the blog and help crank out content – it’s not just about writing, but it’s about promotion and all that stuff – definitely get in touch with me. I’m hiring in the next couple weeks, soon as I find someone. It’s pretty much, I would say, anywhere in the world. Ideally, it’s within three hours of Pacific time zone either way, but we’re looking for someone with experience. You can email me directly, or hit the Start Ups for the Rest of Us site and contact me through there. The other thing we’re looking for is someone with a lot of UX experience, like a mid-level to senior UX person. Some Rails experience would be ideal, but we can work. If you know Python or know some type of service ad language, even if you’re not an expert, what we really need is heavy UX experience.
[00:02:39] So, things are growing and moving, and I think we’re going to probably have some more job openings here in the next few months as well.
Mike [00:02:45]: Very cool. So, what are we talking about this week?
Rob [00:02:47]: Well, we’re going to answer a group of listener questions. They continue to stack up, and we have some pretty good ones related to SaaS – pricing and development platforms and stuff like that. So, let’s dive into our first one. This first question is from Vincent Pruyer [phonetic], and he’s from wearewizards.io. He says, “Hey, guys. Thanks for the podcast. Lots of interesting stuff every week. We currently have a side project. It’s a password manager called ‘Passopolis.com.’ It was originally from another company, and then they open-sourced it when they shut down, and we’re currently running it for free and thinking about how we can monetize it. Our main competitor is LastPass, and it’s around $24 per user per year, and this kind of pricing only seems sustainable once you get to 100,000 users because the pricing is so low. If we decide to monetize it, we’d need to invest in design and do some other stuff.”
[00:03:34] To summarize Vincent’s question, he’s wondering if they should do this low per-user pricing, if they could compete at that – looking at, like, 10 to 12 British pounds per user per year – or, doing tiers, where it’s like one to five users is 30 pounds a year and six to ten is 100 pounds. But, really, his question is, “Should we just keep running it for free and not try to actually monetize this? Or, do you see a way to make this work?”
Mike [00:03:57]: Well, I think this is a pretty hard question to answer. One of the things that I see here is that it’s definitely aimed at the consumer market, or at least it feels that way; because in order to monetize it, especially if you’re going to try and compete against LastPass, the pricing on LastPass is just so low that you’re going to need a ton of users in order to be able to make ends meet. You could run it as a side project, but that’s probably all it’s ever going to be; and your number of users still has to be very, very high in order for it to just work, in general, for you.
[00:04:26] I think that it’d probably make a little bit more sense to look at other ways that you can solve similar, but related, problems using the same type of technology and possibly target businesses instead. So, if you’re looking, for example, at – your main competitor’s LastPass at this point. I think I might try and compete against something like Passpack, where you are instead selling it to teams of people and specifically at teams of, let’s say, five people or more and then charge those people on a monthly basis and give them team management of accounts. You could use that in situations where you have a bunch of people who are working together, and they need shared credentials to different machines, for example; or, to different websites for a variety of different reasons. But I think that competing head-to-head against LastPass is probably not the wisest choice in this situation.
Rob [00:05:12]: Because you’re not just competing against LastPass. There’s one password and a bazillion other of these password managers; and trying to make money, if you’re bootstrapping, charging $10 or, I guess in this case, 10 pounds sterling per year is insane. I mean the price points just aren’t there, and as Vincent pointed out, you need 10,000 paying users to make $100,000 a year; and just trying to find 10,000 users, unless you have just this enormous funnel and enormous channel of people using it now, there’s just no way you’re going to get there. You don’t have the team. You don’t have the traffic sources to get that many people.
[00:05:48] The worst thing I think you could do is to try out that pricing and get 100 or 500 paying customers. The problem with that is once you’ve done that, now you kind of owe them something. They’ve paid for a year, and you’re stuck to supporting them, and you really haven’t made much money. If you got 10,000 customers, that’d be great. If you have zero paying customers, then you’re home free; but once you make this leap into this really cheap pricing and you have to support these people for a year, and you’ve only made hundreds or a few thousand bucks, it’s not going to be worth it.
[00:06:15] I agree with Mike. There’s no way I would try to compete directly with LastPass on this. They’re just so far ahead. Unless you have a major differentiator, that’s where I would look for – is the competitive advantage you have is that, since it’s open source, I imagine you have some type of user base. Well, what is that user base contributing or asking to be built that’s different than LastPass that would allow you, in one sentence or one headline, to describe how we are the opposite of LastPass, how we’re way better, or way different.
[00:06:40]: You look at how Gabriel Weinberg is competing with Google. He has DuckDuckGo as a search engine, and he’s been on the podcast a couple times, I think, now. He didn’t do it by trying to compete head-to-head with Google. He figured out “how can I be different than Google in a way that I can sum up in one sentence?” And, typically, he uses the phrase, “Google tracks you. We don’t.” Right? It’s about privacy and tracking. Now, there’s also some other points: where they’re only going to have one ad at the top. They do some other stuff, but that’s been his big focus, and that’s the only way he’s competing with Google. It’s not by trying to be better than Google, or cheaper than Google, or faster than Google; because you can’t out-Google them.
[00:07:13] I think the same goes with LastPass. They’re just too big. You can’t out-LastPass LastPass. Figure out a major differentiator, whether it’s what Mike said, where you’re actually pivoting into another space; or, that you just pick a niche and you are the best password manager for web designers, or whatever. Maybe you add something that allows them to share with their clients, that no one else does, then you have a real differentiator. Then you don’t charge 10 pounds per year. That’s when you charge 50 or 100, or you charge monthly because you are so much better for that small group of people, that it’s warranted and they’re willing to pay for it. I hope that helps, Vincent.
[00:07:46] Our next question is from Chris Sciora [phonetic]. He’s from gomobileiq.com. and he says, “Hey, guys. It sounds like both of you started with a handful of different languages in the past. Maybe C# for Mike, and Rob has also definitely used .NET. Rob recently using Rails for developing the last, two web applications; and he’s indicated he doesn’t have much experience with it, certainly not enough to actually write the apps. Without arguing about the merits of the different frameworks, I’m curious what benefits you saw by making that change. It effectively removes you permanently from the development review process, while adding another layer of complexity. What were the reasons for dropping a familiar platform and effectively starting from scratch?”
Mike [00:08:24]: Well, I think this is mainly aimed at you. My take on the different languages is, in most cases, you’re going to use the best tool for the job; and I think that if you’re going to go in a direction for using something where you don’t know the technology at all, then it would probably be an intentional choice to help keep you out of the technology. That would probably be the main reason that I would go in that direction; but, Rob, obviously you have your own reasons for having chosen Rails. Was it based on pricing? Just finding people who knew that technology? What was it?
Rob [00:08:53]: Your first point of intentionally keeping yourself out of the development is actually a good one. That was part of the reason, is that I found with all the products I had – from Dot Invoice to HitTail to WeddingToolbox and the other ones that I was managing – that I kept getting pulled into these little fixes and these little issues and these little bugs, and I would kill half a day troubleshooting something in PHP or, heaven forbid, in ColdFusion with WeddingToolbox. Not being able to do it is actually a benefit to me, because it means that I just can’t these days. That’s giving something up. You have to get over the fact that you can’t go in and do it.
[00:09:33] At the same time, though, I was able to find a trusted resource who I knew could help support it, and that was Derek, right? He was contracting for me at the time. He’s now cofounder of Drip, and early on, we discussed what language should we build Drip in. He knows Rails like the back of his hand. He’s very knowledgeable and just a senior, senior dev in it; knows about architecture and how it works. So, that was kind of a no-brainer, right – the fact that he knew it so well. Then, you can find Rails developers. Rails developers have heavy UX emphasis, typically, and wanted to make it very UX-friendly.
[00:10:04] Finally, I had run into real issues. I got an acquisition offer on HitTail several years ago, and since it was written in ASP.net stuff, the person didn’t want it. They really wanted something in PHP, Python, or Rails. If you’re going to build line-of-business enterprise apps, then, yeah, Java.net – those are great. But if you’re going to build startups, essentially; or web applications, and you want to be able to find developers that aren’t really expensive, find developers that have the startup mentality in general and maybe someday be able to sell it, or transition it to another company – whether that’s your plan from the start, or not – building in an enterprise language like a .NET or a Java will be to your detriment. That’s where I’d say Python and Rails would be my top two choices. I think PHP would be another one that’s perfectly reasonable. We can go into the merits of doing everything in node and using bits and that, but it probably isn’t worth the time of it.
[00:10:56] The bottom line is the reason that I dropped the platform is: 1) so that I wouldn’t get sucked into development; 2) because Derek knew the language really well; and 3) because it makes it easier to find people to work on; and if someday there was some exit event, or someone merged, or there was ever that need to transition it to another team, it’s just an easier transition when you’re using a language like this.
Mike [00:11:17]: I’ll just interject here to point out that I’ve heard that as well in terms of using something like Rails, or Python, or anything like that. Those types of languages, it’s easier to find the developers, especially the ones who are motivated to self-teach and are in the startup space. The pricing for apps that are built with those tends to be a little bit higher, so if you’re looking longer-term, I’ve heard that as well. It’s just the types of technologies that people tend to be more interested in acquiring then the C#s and Javas of the world.
Rob 00:11:50]: All right. Our next question is from Nathan Rimmer. His subject line was “20 percent of IT spending creates no value. I need your advice on how to fix that.” He says, “I’m a requirements analyst and a startup fanatic. I’m a huge fan of the podcast. Studies show that about 20 percent of IT spending creates no value. It’s like throwing a fifth of your IT budget out the window. This is a huge problem for startups who have limited funding, which is pretty much everyone. Reclaiming the lost value would allow startups to employ more people,” et cetera, et cetera.
[00:12:18] As you know, there are frameworks for coding and product development, like Bootstrap [?] startup, but there’s no framework for creating, communicating and managing business requirements. I see there’s a fundamental need in reclaiming the lost 20 percent. I’d love to hear any thoughts you have on what a business requirements framework should contain or take into account. I’d even be interested to hear if you think it isn’t needed.” So, what do you think?
Mike [00:12:37]: I think the first mistake here is assuming that startups and enterprise companies that have a full-blown IT department are the same, and that’s just a blatant falsehood. I don’t think that those two things are even remotely close to each other, so when you start looking at studies like this that come back and say 20 percent of IT spending creates no value, my inclination would be to believe that something like that comes from Gartner or Forester. Those are wildly different environments than a startup that’s got less than ten employees, for example. So, to try and equate them is just a nonstarter. There’s just no equivalence there.
[00:13:12] The other inclination I have is that when you’re looking at this type of spending, that 20 percent of IT spending is probably on technologies that are purchased because they are – either this person was sold on a dream of – some sales rep came in and said, “Hey, buy this software, and these particular problems will go away.” Or, they purchased a bunch of consulting, and the project was mismanaged, so all that money basically went out the window. Those are very, very common things that I’ve seen when I’ve been doing consulting, so those are the types of things that would factor into studies like this. I think that, honestly, this is just probably bad data. Maybe that’s a gross assumption on my part; but my guess is that, because it’s not applicable to startups, you can’t really draw a line of equivalency between them.
Rob [00:13:56]: Yeah, I would second that. I also think that, since the environments are so different, that this requirements framework that Nathan was asking about is much, much less applicable, if not totally inapplicable. It depends on what you mean by “startup,” but let’s just say it’s someone that’s less than 20 employees or a company that’s less than 30 employees. At that level, basically just a kanban process, where you’re writing stuff down on notecards and you’re sticking them up on a wall, or you’re using a Trello board, is a really good way to get requirements across; or, simply using an issue tracker. We use Codetree, which is over GitHub issues, and there has not been a single feature that we have released in Drip that has required more than a few paragraphs of discussion and description in our issue tracker.
[00:14:40] We don’t spec out these massive, waterfall projects like you do in IT, where you have these requirements that you have to manage, and you have this – you know, you used to have the 300-page spec doc. None of that is done in the startups that I know that are moving quickly. We release multiple features per week, sometimes multiple per day, and so each is individually specked out and is its own, little, tiny micro issue. So, for startups, honestly, I just don’t see the need. Maybe for enterprise IT there needs to be some framework, but I wouldn’t even be able to speak to that now. I’ve been out of that so long.
I hope that helps, Nathan. Thanks for sending in your question.
[00:15:12] Our next question is from Christopher Gimmer, and he says, “Hi, Mike and Rob. Huge fan of the show. I had a question about auto responders for freemium SaaS products. With a typical SaaS trial, you’re hoping to help users find value and convert to paid before the trial runs out. With a freemium product, there’s no time limit and not everyone will be interested in a paid version. Just wondering what kind of advice you would give on how to set up an auto responder for a freemium product. Would it be any different than a normal trial sequence?”
Mike [00:15:39] Yeah, I think that there’s a couple of different things that you can do – different approaches, I’ll say. The first approach is when you have somebody come into a funnel like that, are you trying to sell them directly on the higher-level version of the product, or are you just trying to get them in the door to start using it? I think the answer to that depends a little bit on how complicated your product is to get up and running for people and how valuable it becomes to them over time. Obviously, in a SaaS scenario, you want to be charging people on a recurring basis if the value of your product goes up over time. So, something like – to throw to an example here, bug tracking software, or anything where you’re aggregating data over a time period. Over time, hopefully, the users are sending more data into that system so that as they use it more and more, it becomes more valuable to them.
[00:16:27] Now, if you’re trying to get them to just use the product, then you probably want to get them onto a paid version, assuming that they’re a big enough customer that they’re going to be using it extensively. Or, if they’re on the smaller side, you just want to encourage them to use it in case they end up larger companies later on and be able to bring it in the door. In each of those situations, you’re going to do one of two things. You’re going to try to get them onto a paid plan first and then essentially back off if they end up going into the freemium plan for the product and then over time, try and pitch them on the benefits.
[00:17:00] I think that when you start seeing their usage of the product over time, you can check to see whether or not they’re going to run up against any of your internal barriers for that freemium product. So, let’s say that you’ve got BugTracker. You only allow them to track 100 bugs, for example; or, only manage two or three projects at a time; or, only have a certain number of users. When they get close to that user limit, you hit them with an email that says, “Hey, you’re getting close to this limit. Would you like to upgrade?” That’s a trick that came from Patrick McKinsey at one of the previous MicroConfs, but there’s lots of ways that you can monitor what their usage is and then perform specific, targeted emails to identify those people and try and get them to upgrade; but I don’t think that you want to beat them over the head with it every, single week. Then just on a rolling basis, maybe every three or six months, try and pitch them on the benefits of upgrading to a paid plan.
[00:17:49] What about you, Rob? What do you think?
Rob [00:17:50] Yeah, the sequence is worlds different than free trial. When you have a free trial that runs out, you have a time pressure there, and you are trying to get them on board before the end of that free trial. With a freemium product, like you said, you’re trying to get them to activate. That’s the first thing I’d focus on – is just hitting them up once, twice a week and saying, “Hey, you haven’t done this yet.” “Hey, you haven’t set that up,” because if they never do that, then they’re never going to use the product, and they’re never going to upgrade to free. So, you really want to get them to use the product, or get them to say, “Stop emailing me.” It’s kind of like that follow-up thing from Steli. If you’re getting this big traffic of freemium and no one’s activating, that’s a real problem, so the email should gently nudge them to do that. Then as their usage increases, touch base with them via these point-in-time emails based on actions or based on levels in their account. Then let them know that, “Hey, we do have these extra features,” or, “We have more that you can get by using our paid plan.”
[00:18:40] Just like you said, I’d probably pitch it more often than every three to six months. I would think about, say, every six weeks to three months. If you do have this free user base and you really do have something that’s much more valuable to them, I feel like it’s worth mentioning. And you don’t do it directly. Maybe every six weeks you don’t pitch them with this direct hard sales pitch. Maybe that is every three to six months, but in between there you want to touch base with them about new stuff you’re releasing and then have just a little pitch. You know, if you’re using marketing automation and you have tags, then you’ll know that they’re freemium, and you can actually put something different in there than if they’re an actual paying customer. In even a feature announcement email, you can basically include a paragraph only if they’re on the free plan and say, “Hey, this stuff’s only available to paying customers.”
Rob [00:19:20] Yeah, I definitely think this trial sequence is quite a bit different than freemium. You really just need to think through what their journey is and how different it is from a typical paid trial. I hope that helps, Christopher.
[00:19:33] Our next question is from Caesar, and he asks about when to show pricing. He says, “I’m struggling a bit about when should I show pricing on my marketing website. Should I do this right from the beta? Should I do it after the beta? Should I show the cheapest tier first and for the rest have people contact us? Should I start inviting testers even if they don’t know about pricing? I realize most of the answers will be ‘it depends,’ but it’d probably be interesting to hear your experience about it.”
Mike [00:19:59]: I think when you’re early on and you’re still trying to figure out what the value of the product that you’re billing is worth to people, it’s a lot harder to figure out what to charge people. One thing that you might want to try is essentially just asking those people who are early on, “What is this worth to your business?” “Is it going to cost you to not use this particular software?” That will help give you an idea of what the value proposition is going to be to them in terms of dollars for the product.
[00:20:27] Once you’ve done that, you can start showing that information, but I think that you need to start taking orders from people. It can just be maybe your first 20, or 30, or even 50 customers. Maybe every, single one of them pays something different; but if you don’t post the pricing, then you can have each one of them pay something completely different, and nobody’s going to know anyone – not unless they start talking to each other and say, “Hey, I’m only paying this,” or, “I’m paying that.” You want to figure out what it is that people are willing to pay for it, and why; because your feelings of what the value are of the product are probably going to be different than what your customers feel it’s worth. That’s a common theme among people in the startup world – is that they’re essentially undercharging for their products because they don’t understand the value that it provides to their customers.
[00:21:12] Then there’s also – the flipside of it is maybe you think that it’s worth a lot more than it is, and the only people who are going to be able to tell you that is the people who are cutting you a check. So, charging them different amounts for the first 50 or 100 people is probably fine. Maybe it’s only the first ten or 15 people, but if you can get an idea of what those prices are and talk through why those beta customers think that those prices are justified, then it gives you a better idea of what to put on your home page.
Rob [00:21:37]: Yeah. If you’re pre-launch and you’re still hand-holding folks into your app – at that point with Drip, we didn’t even have a marketing website. I don’t even think we had placeholder text. We were literally just getting people in. I had told them in an early email, “I think our pricing for this long-term is going to be between 49 and 99 a month for our lowest plan.” That was kind of the first thing we said, but I did let them know up front that we were going to be charging. This was not going to be some free-forever plan. So, if you’re still handholding, you have the luxury of being able to do that one on one.
[00:22:11] If you’re not and you’re starting to let larger groups in, I would be charging by that point. If you’re starting to let 100, 200, 500 people in, that’s the point where I know my pricing; or, at least I have an idea of it, and I’ve picked a price. Then I’m going to test it with that first group. I don’t believe betas should be free. I think beta testing is you’re building it. You’re doing unit testing. Then you do integration testing with everything together. Then you test the crap out of it with your own stuff, and then you get maybe ten people who you one-on-one handhold through the app, and you get them all set up. You’re going to have worked out a ton of stuff by that point, and from then on you’re done. Beta’s done. This is not something where you let 100 people use it for free until you decide on pricing.
[00:22:52] Maybe you give them a really long trial, if that’s what it takes. We were doing – if I recall, with our early beta testers, I didn’t know how long the trial would be at all, and some people got months and months to try it out; because we just didn’t know. We were trying to build features to make it valuable enough for them. Once we got out of that, it’s pretty much been a 21-day trial since day one. A few people have asked for extensions based on extenuating circumstances, but that’s it.
[00:23:15] Then in terms of the other part of this question, he asked if you should show pricing on the marketing site, or just show the cheapest tier and have “Contact Us.” If you’re selling to enterprise and you’re going to do the whole figure out how much people can spend and negotiate pricing, then, yeah, everything should be “Contact Us.” But if you are just selling a typical SaaS app or a downloadable app, I think you should have all your tiers up there and then a big enterprise tier that says, “Contact Us” for people who do want to spend a lot of money and get more. There’s always a need for someone who wants to spend $10,000 on your software, but aside from that, I don’t see a ton of value in trying to obfuscate your tiers or hide pricing from people.
So, thanks for the question, Caesar. I hope that was helpful.
[00:23:53] Our next question is from Jeff, and he asks about SaaS subscriptions versus commission pricing. He says, “Hi, guys. I’ve listened to a couple shows where you discuss SaaS pricing models, and I haven’t heard you mention commission-based pricing at all. We recently launched our SaaS offering, which is a marketplace platform around the wedding industry.”
[00:24:11] So, stepping in here, I think what he’s saying is they have kind of a two-sided marketplace where they have brides and grooms who are about to get married, and then they have providers. I would guess it’s like people who sell wedding cakes and flowers and maybe wedding planning services and venues and that kind of stuff. So, I wouldn’t actually call this really a SaaS offering as much as it’s just a wedding marketplace. Now back to his email.
[00:24:32] He says, “We’ve had great traffic to the site, but our conversion rates have been pretty low. Our packages include a percentage commission on sales, and I’m wondering if that is turning people off to the product. We’ve tried emailing our customers along with everyone that’s expressed interest, but we didn’t get much of a response. I’m curious to hear your thoughts on commission-based pricing for a marketplace site like this. My gut is telling me that it must not work in most instances since there doesn’t appear to be many SaaS offerings out there that are using this pricing model.”
Mike [00:24:59] If I understand this correctly, what he’s essentially saying is they have a marketplace platform for the wedding industry, and they have brides and grooms who’re getting married on one side of it and then the vendors on the other side. One of the two complaints, or issues, that they have is they’ve got a lot of traffic, but their conversion rates have been really low.
If you’re charging the vendors, but not the brides and grooms, then that would almost be expected; because the brides and grooms that are visiting the website are probably going to outnumber the vendors by a pretty wide margin. That’s going to drive your apparent conversion rate pretty far lower than it probably otherwise should be counted. You might have, let’s say, 10,000 brides and grooms who visit, but you only have 200 vendors that visit. Well –
Rob [00:25:43]: Right.
Mike [00:25:43]: – how do you know which 200 vendors there are versus the 10,000 people? And what number are you going to count it against?
Rob [00:25:48]: I would agree –
Mike [00:25:49]: So, I think that –
Rob [00:25:49]: – and I think we should clarify here he says, “We’ve had great traffic, but our conversion rate has been pretty low.” We’re making the assumption that he means that it’s the vendor conversion rate.
Mike [00:26:01]: Yeah, so that’s –
Rob [00:26:01]: And I’m not 100 percent sure.
Mike [00:26:03]: Yeah, I’m not either, so – that’s just a point for him to take home, though, is that might be an issue if that’s what he’s looking at and he’s just not thinking about that piece of that – that division between the two – as one issue.
[00:26:15] The other thing is that if you are charging the vendors and you’re charging them on a commission basis, essentially what you’re doing is – let’s say that somebody buys a $50,000 wedding package and you’re charging the vendor, let’s say, 5 percent, something like that. Well, that becomes a $2500 fee that that vendor has to pay versus if you have a static pricing tier for each of these things, then it would be, let’s say, $500 for them.
[00:26:42] Since you and I run MicroConf, one of the things that we really don’t like is having to deal with any sort of variable costs. It is a lot easier to run an event when you know exactly how many people are going to show up, because you know exactly what your budget is, and you can plan and anticipate things in advance. You can make decisions about what you’re going to spend and what you’re not going to spend. But if you’re a vendor, and you’re on this marketplace, and your costs are going to be variable, it makes it much more difficult to get a handle on some of that stuff. Quite frankly, there’s a lot to be said for just avoiding the hassle of even bothering.
[00:27:19] I would wonder whether or not a commission-based pricing structure is even the way to go here. Maybe it’s a flat fee on a per-event basis. That would be my thought; but, again, if you’re having a hard time seeking feedback from people and getting responses from them, then it seems to me like there’s a completely different problem that you actually have to tackle, which is why are you even not getting feedback from these people?
Rob [00:27:43]: Yeah. Let’s just be clear here. In no circumstance should you charge the consumers here, because they’re going to be super price-sensitive. It’s the vendors that you should be charging, so I think we’re just making the assumption that that’s going on. If not, then you should definitely do that. I can’t imagine at this stage charging a subscription fee to the vendors, because I can’t imagine a vendor that’s going to want to pay for a completely unproven solution. Maybe if you have millions of people coming and you have tons of money going through your system, you can move to subscription fees; but at this point, you’re probably going to need either a flat fee per event like Mike said, or a flat commission.
[00:28:18] I think a flat commission is fine. I probably wouldn’t call it a “commission,” though. I typically call it, like, a “transaction fee.” If you look at Gumroad, or another platform like this, that’s what they add on. If you’re going to pick 5 percent or 10 percent, that’s fine. Mike’s objection to it being variable, I think, is a valid one; and I think the way you could get around that is have a maximum. You could say it’s 5 or 10 percent, and it’s capped at 250 bucks, or 500 bucks – just a maximum somewhere. Maybe for different vendor types, it’s different amounts because, obviously, flowers might only be a few thousand and a venue might be more than that.
[00:28:51] To be honest, it doesn’t sound to me like this is the major issue, if you have all this in place. I would guess that there’s something else at play here, and that people aren’t engaged – or, that none of the people who visited were actually vendors and that everybody who came in was a consumer, and that’s why you got a lot of traffic and no one converted. So, this is a tricky one. There’s a lot to dig in here.
[00:29:11] I think, in general, my advice would be don’t try to bootstrap a marketplace; because they’re really, really hard. Even if you make this work and you start getting people signed up, making 5 or 10 percent on a fraction of these transactions, you have to be at scale to make any money at it. We just saw last week Gumroad laid off 90 percent of their employees. If you go to Tech [?] and search for it, you can see that even them, who – everybody in our space knows who they are, but they’re trying to take these tiny, tiny, little snippets of fees from these transactions; and it seems to me that they just couldn’t get enough volume, because unless you’re doing Uber-level, or Stripe-level volumes of transactions, then you’re not making any real money. You’re making thousands or tens of thousands a month, and that’s not enough to justify all the employees and all the support you need to handle a set like this.
[00:29:59] So, that’s our two cents. Hope that’s helpful, Jeff.
[00:30:01] Our last question for the day is from Ely Gescheit [phonetic], and he says, “I’m a big fan of the show. I’ve listened to you for the past couple years. My startup is focused on helping the building industry, such as town planners, architects, et cetera. However, the app could also be applied to the legal profession, because it essentially converts boring legislation into a more user-friendly format. There are around 600 town planners listed in Sydney, Australia, on Yellow Pages and around 10,000 lawyers. My initial idea was to focus the app on the building industry and later pivot to the legal profession. The idea behind this was to test the waters with a smaller target market. Given the app will be more scalable in the legal profession, I’m thinking of switching my strategy and focusing on legal first and then moving into building.”
[00:30:43] To me, the risk trying to target a smaller market is really high, and I’m not sure whether it will even be worth all the effort for just a small market. What are your thoughts?
Mike [00:30:51]: I think I’d be very hesitant to target either town planners or lawyers, regardless of the numbers. Essentially, when you start weighing these against each other – the numbers he throws out are 600 town planners versus 10,000 lawyers that he’s identified. With town planners, you’re going to be dealing with government paperwork and government budgets, and they’re going to be on strict timelines. They’re going to have to plan it in advance, and your sales cycle is probably going to be longer for most of them. That’s a blatant assumption, but you could just make some phone calls to five or ten town planners and ask what their purchasing process looks like and find out pretty quickly how long it’s going to take to onboard them as a customer based on however much it is that you’re going to be charging them.
[00:31:31] For the lawyers, I know people who have startups in the legal space, and it’s not always easy to get customers. Sometimes it is. Sometimes you can get to the right people very quickly and they are willing to talk to you as long as you are going to be providing a service to them that you can essentially pitch very quickly and that they can see a justifiable ROI on it; but you’re still probably going to do a lot of handholding, because those types of customers are probably not searching online for stuff. The legal profession is – in a way, they’re stuck in the ‘80s. They use fax machines for everything. They’re somewhat technology-averse, and you’re probably going to have to find a way to gather them as customers, and it’s not going to be through a lot of the things that we talk about on this podcast, like SEO and online marketing and things like that. You’re going to have to really go after them.
[00:32:19] With those things said, I don’t know if it actually makes a heck of a lot of difference which one you go after. What I would do is, if you’re still in this early stage, talk to ten, or 15, or 20 of them and test the waters a little bit and see which one of those two things is going to do better for you. Come up with a short list of identifying factors or traits that you would like to see and then ask those questions and find out if those are actually present in that particular market. If they’re not, maybe you kill the idea and move on to something else, or move over to the other market instead. Come up with a list of pros and cons for each of them, iterate through them and then see what the numbers come out; because it seems like you can get a lot of the information you need just by talking to ten or 15 people in each of those two industries.
Rob [00:33:03]: Yeah, I’m also pretty bearish on this idea, especially if it’s your first app. I would go for a smaller, easier win that you can market online. But if you really enjoy high-tech sales and you’re willing to do six-month sales cycles, and you’re building something that either of these niches would pay – let’s say $12,000 a year is probably the smallest annual contract value I would do when targeting these niches. I’m pulling that out of the air a little bit, but if you build something that’s 50 bucks a month or 99 bucks a month, you’re nuts to try to go after these markets. They’re just too hard to sell into when you’re getting started, especially if it’s your first time doing it. You don’t have any competitive advantage in these markets.
[00:33:42] So, all that to say I would think really hard if not all of those things are in place. If you’re thinking that you can set up a marketing side and drive SEO traffic and pay-per-click traffic and convert on an app that’s 20, 50, $100 a month, this does not sound like that idea.
Mike [00:33:59] Thanks for the question, Ely. Hope you found it helpful.
[00:34:01] If you have a question for us, you can call it in to our voicemail number at 1.888.801.9690, or you can email it to us at: questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
[00:38:18] Thanks for listening, and we’ll see you next time.
Episode 262 | 13 Signs You Should Kill an Idea You’re Validating
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike make a list of 13 signs you should kill an idea you’re validating. These are different signals that can be negative to the idea actually working.
Items mentioned in this episode:
Transcript
Mike [00:00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about 13 signs you should kill an idea you’re validating. This is “Startups for the Rest of Us,” episode 262.
[Theme Music]
Mike [00:00:16]: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built you first product or you’re just thinking about it. I’m Mike.
Rob [00:00:24]: And I’m Rob.
Mike [00:00:25]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
Rob [00:00:29]: Well, I was just looking back at my 2015 goals, because it’s early November now, and so it’s kind of time for things to start winding down. I’m starting a new [?] what I would like my 2016 to look like. I’ll do a retreat around the end of the year, but so far, so good on the goals. There was a revenue goal for Drip that we passed a couple months ago. I hadn’t even realized it. I probably should’ve celebrated, and I definitely think I’m actually not great at is celebrating my victories. I tend to be happy for five minutes and then say, “All right. What’s next?” I actually think that one should celebrate them more, actually. I think it brings you – it just adds longevity to what you’re doing, because we all have a lot of downs. It’s like take the opportunity to have an up once in a while.
Mike [00:01:09]: Well, if you’re not celebrating those opportunities for where things are going well, then it can also be a long time between certain types of goals that you have, just because the nature of some of them is an extended time period. If the reward pattern is off a little bit, then it can be difficult for you to stay motivated to go after those goals.
Rob [00:01:27]: Yeah, that’s right. So, it was quite – I looked at a list. There were, like, four or five goals; and I think I achieved four of them. The fifth one was to write another book, or rewrite my last year’s book and within probably 60 days of saying that, I called that off. There’s no chance it was going to happen, so it’s kind of an honorable mention, I guess; and I feel okay about not hitting that one. We’ll talk more in depth about this probably in December, when we review our 2015 goals and set goals for 2016.
How about you? What’s going on?
Mike [00:01:53]: Not much. Just doing more design work for the app that I’m working on so that I can go back to people that said that they were interested in it.
One thing I saw that was completely unrelated to that was that Google has started selling domains. I think that they announced that they were going to be acquiring some top-level domains, but I hadn’t really heard anything about it. Ironically enough, I saw that they were advertising for these Google domains on Facebook.
Rob [00:02:15]: That is so cool. So, Google is running Facebook ads is what you’re saying?
Mike [00:02:19]: Yes, because –
Rob [00:02:19]: That’s great.
Mike [00:02:20]: – it was – yeah, and I looked at it, and I was like, “Oh. I feel like I have to click on this just to make them spend money.” [Laughs]
Rob [00:02:25]: Are you sure it wasn’t more of, like, an affiliate or something that maybe was getting a –
Mike [00:02:31]: I don’t –
Rob [00:02:30]: – commission?
Mike [00:02:31]: – no, I don’t think so. I don’t know. Maybe it was. Maybe it was. It was in the main activity area of Facebook, and it looked like a Google ad. It went directly to domains.google.com.
Rob [00:02:42]: Yeah. The other thing regarding Google domains is – did you hear someone registered google.com through the google domain engine, and they owned it –
Mike [00:02:48]: Oh, yes.
Rob [00:02:48]: – for, like, two minutes, 12 seconds?
Mike [00:02:50]: A minute. A minute.
Rob [00:02:51]: I don’t know.
Mike [00:02:51]: Two minutes.
Rob [00:02:51]: Yeah, or something like that, and Google caught it. They didn’t even get access to the DNS or anything, but I thought that was funny that they sold their own domain.
I want to give a shout-out and congratulations to the guys at Less Everything, Allan and Steve, for launching lesschurn.io. Lesschurn.io is a little software widget – it’s in JavaScript – that you put in place of a cancellation button in your SaaS app and, instead of just having a “cancel now,” it does some cool stuff. You can have it ask some questions, or you can have it offer them help, or you can just have it do some stuff that they’ve used in their own SaaS apps. They’re trying the product [?] to make it easier for folks to get the help they need instead of canceling, because a lot of people just go by default to that cancellation button; and they’re just using their best practices and baking them into the software product. I always like seeing approaches like that. So, again, that was lesschurn.io.
Mike [00:03:40]: Yeah. I think I saw a blog post from either Steven or Allan a while back that discussed their own approach within Less Accounting, and that’s how they were getting information back from their users, so it was to intercept those people and ask them questions about why they were cancelling so it’s interesting to see them turn this into a product other people can use.
Rob [00:03:58]: So, what are we talking about today?
Mike [00:03:59]: Well, we got an email from Jeff Madsen, who asked when is it time to call it quits on validating an idea? He says, “Hi, guys. Listen to all the shows. Have a question I’d really love to hear your input on. When do you call it quits on validating an idea? I know this feels like a ‘that depends’ type question, but I think there has to be some science behind it – or, at least some good ground rules. Appreciate your input. Keep up the great work.”
[00:04:18] So, what we did was we put together 13 signs that you should kill an idea that you’re validating. Essentially, these are things that you might be doing as part of the customer development process, or even before you started building. Quite frankly, some of them might come after you’ve started building, so it’s important to take a look at these things and keep in mind that, depending on where you’re at with your application, you may need to rethink where you’re at. The other thing to keep in mind is that not all of these things mean that you need to walk away from it. Some of them just mean that you need to rethink it, maybe take a couple of steps back, or re-validate certain parts of it. So, it doesn’t mean that outright it’s time to kill it, but it’s time to reevaluate where you’re at.
Rob [00:04:58]: Yeah, I think these are more signals than true deal breakers, show stoppers, red flags. That’s not what they are. They’re really signs or signals that are negative towards the outcome of this actually working, so the more of them that stack up, you really need to take notice and think twice about continuing with the validation.
Mike [00:05:17]: I think one of the things that’s worth pointing out here is that when you’re talking about validation, there are different stages to the product development process. There’s the part where you’re very, very early on and you’re just validating whether or not people are interested in something. Then you move on to say, “Are people not just interested in this, but interested enough to the point that they’re willing to pay for it?” Are you trying to validate that your idea is actually solving somebody’s problem? I think that there’s different angles that this validation comes up on and, depending on the specifics of what part of it you’re validating, then that’s going to play a role in some of these different signs.
Rob [00:05:54]: Yeah, you can certainly be pre-problem-solution fit, where you’re just saying, “Boy, is there a problem?” Right? You’re just trying to validate if there’s a problem. Then next you’re saying, “I now have a solution. Is that the solution to this problem?” Then the next thing is, “Is this product going to be that solution to the problem?” Then, “Will people pay for the product if I build it?” Then, “Can I reach people who will pay for the product if I build it?” Right? I just outlined five steps right in a row that I would want to validate each individually.
[00:06:23] Then there’s also validation like – let’s say you have a product, and you have 500 customers, and you’re wondering, “Should we build this major, new feature?” or, “Should we go in this major, new direction?” Oftentimes, you need to validate that. You don’t just want to go out and spend two months building something. You actually want to validate that by talking to your existing customers, talking to prospective customers. Validation should not just be something you do once at the very early stages of building a product. I believe it’s something that you want to do all the time, because it just saves you so much time in terms of not building features that no one wants.
Mike [00:06:54]: I think with that said, we’ll just dive right into the first one. The first one is that you’re avoiding talking to prospective customers. I think there’s a natural inclination to just start building because you have a good idea of what it’s going to take to solve a particular problem, but sometimes you really need to start talking to those prospective customers to figure out whether or not they’re actually interested in solving that particular problem. It’s very easy to say, “Oh, this is going to be a really cool technology,” or even just finding a cool technology that you want to work with and starting to build something and then saying, “Oh, I’ll figure out who I’m going to sell it to later.” I think it’s a different story if you’re just trying it out to learn something versus you’re going to try and figure out how to make it into a product later.
Rob [00:07:34]: I think especially for technicians and whether you’re a developer or a designer, just someone who likes to build and create things. Most of us – especially if you’re introverted, you don’t like talking to people. You don’t like going out of your comfort zone. You feel like that’s probably more for salespeople. This does get easier over time but, to be honest, early on I had a really time with it as well. You might have a vision that you want to launch a website and never have to talk to a single person and that they’re going to come and sign up for your SaaS app and then hang around, and maybe you can email with them and support a few times, but that’ll be it. That’s not impossible; but it’s very, very rare. You’re not going to build a long-term business.
[00:08:10] Even if you don’t want to build something huge, if you just want something to stick around over time and pass the test of time, you really are going to have to talk to your customers and get to know them. It’s just in every business that I see that’s successful and that’s been around for many years at this point. In SaaS, “many years” is – what – four? Five? Six? You really are going to get to know your customers, and I think the more that you get to know them and the more that you talk to people, the easier this gets later on. So, this is an acquired skill just like delegating, just like marketing, just like development. Just being able to speak one-on-one with customers and talk to prospective customers and not feel anxiety about that anymore – I think that is a learned skill. And it’s one that, if you’re not good at it already, that you should really focus on improving over the next six to 12 months if you are, in fact, trying to validate an idea.
Mike [00:08:55]: The second sign you should kill an idea you’re validating is that you’re having a difficult time finding people in your target market to talk about the idea. I think that there’s two, different pieces that come into play there. One of them is that you don’t even really know what your target market looks like, so you don’t know the type of people that are going to use it, whether it’s realtors or real estate developers. Obviously, those two are different things, but they’re related. So, you might have an idea of who you should talk to, but if you’re having a hard time getting them on the phone or getting them to give you any sort of attention, then that right there is a signal that you might need to just take a step back and reevaluate where you’re at.
Rob [00:09:31]: It’s important to have at least an idea up front how you’re ultimately going to sell this product; because if the product requires you to do high-touch sales, then you’re going to need a very high price point, which means it’s going to be more of either enterprise pricing or at least several hundred dollars a month if you’re going to have to speak to everyone on the phone before you close them. And if you are selling to realtors, or lawyers, or more non-technical brick-and-mortar stuff, the odds are that you are going to need that several-hundred-dollar price point. It can scale really well, but you need to know that you’re going to be talking to folks. And like you said, if you’re having a difficult time, whether it’s through cold calling, or whether it’s doing some type of inbound lead gen and talking to them on the phone, and you’re not able to get them up front just to validate the idea, then imagine how hard it’s going to be once you’re actually trying to sell them something.
[00:10:18] The same thing goes if you’re going to sell online. If you want to set up a landing page, you do some SEO, or do some pay-per-click ads – whatever you’re going to do to drive traffic to that – you’re going to know pretty quickly whether that traffic’s converting, if you have a nice headline and you’re offering something in exchange for an email address, even if that thing is just a sneak peek at the product, or early access, or whatever it is. And, again, if you’re having trouble driving traffic to that or getting people to convert, then imagine how hard it’s going to be once you actually have a product. This kind of plays hand in hand with validation. It’s can you even get people interested.
[00:10:48] So, if you can’t get over the hurdle of just finding people who are willing to talk to you about the idea, then it’s probably not enough of a pain point either. There’s one of two things happening. It’s not enough of a pain point for them, or you’re just really bad at this, in which case you need to get better. And you need to identify which of those it is, but I agree that this one is definitely not a good sign.
Mike [00:11:08]: The third sign is that you find it difficult to describe the idea or the value proposition quickly and easily. I don’t think that this in and of itself is a deal breaker, because early on you’re not necessarily going to have the best handle on exactly what that is. Sometimes you fully understand what the value proposition is, but you make that pitch to people, and they don’t care. Unless you’re going back to number one, if you’re avoiding talking to people, even if you have a solid value proposition for it, if they’re not really that interested in it, it doesn’t really matter what you come up with because they’re not going to buy it anyway. So, you really have to be careful that you can describe that idea in a way that doesn’t confuse people; because if people find the idea confusing and you’re talking to them over the phone or in person, how confused are they going to be when they hit a landing page or a website? You really have to be able to target those things in, because you have much less time to explain it to people. When you’re talking to somebody one on one and you have them as a captive audience, it’s a lot easier to convince them to give you a little bit of extra time to explain it, but on a website you don’t really have that option. So, you have to be able to narrow it down exactly what it is that you’re offering and what problem you’re solving. And, again, this just takes time. It’s going to take some of those conversations to really narrow in exactly what it is that you’re talking about.
Rob [00:12:24]: Ninety-nine times out of a hundred, you will not get the value proposition right the first time. It’s just too ambiguous and amorphous until you’ve talked to dozens of prospective customers and really understood the language that you’re using and really understood where they’re at in terms of their understanding of this problem; because if you come in and you start talking right away about SEO, or email marketing and DNS, or marketing automation – I mean you throw these terms around – a lot of people have no idea what they mean. Suddenly, you’re going to realize, “Oh. Calling myself ‘Marketing Automation for Realtors’ has no meaning for them, because they don’t even understand what that term means.” Maybe you have to say, “Boy, I have to start asking realtors, ‘Do you know what email marketing is?’” Maybe they don’t know what that is, so then you say, “Boy, do you know what Constant Contact is? Or, MailChimp?” You just have to seek which terms they’re familiar with and then piggyback on those in order to describe your product; because most people, when they see or hear about a new product, they try to categorize it in their head, and they try to relate it to products that they already know exist. Right? They try to figure it out in relation to one of those, so that’s what you have to do here.
[00:13:25] You’re highly unlikely to get this right the first time; but you start with something, and then as you talk to these prospects, you’re going to hone that value proposition, and you’re going to arrive at something where you start saying it, and eight times out of ten, it really resonates with people. That’s when you know: a) you’ve made a bunch of progress, because you have a clearer idea of what people want. You’ve written the headline for your home page, probably, and that’s how I would look at it, and you’ve done a lot of learning. Even if you haven’t validated the idea fully, you at least know how to describe it now – which is a big step.
Mike [00:13:57]: The fourth sign you should kill an idea is that you’re having a difficult time identifying a specific group of people who will use it. By this, what I really mean is that if you can’t narrow down the type of person who would use this — you can’t put together a customer avatar for them, so you can’t say, “Oh, it’s somebody who works in a company from 10 to 50 employees, who works in the accounting department,” for example. That would be a good mechanism for identifying a specific type of person, or a specific group of people. As soon as you start out with, “Anyone who,” and you’re not able to really narrow down to being able to say, like, exactly what I just said about the person in the accounting department in a small company; if it’s just, “Anyone who works in an accounting department,” that is going to fall over on itself some point along the way.
[00:14:40] If you are having a hard time differentiating between multiple groups of people and you’ve got maybe three, or four, or five different categories of people who could use it, then you really need to start digging a little bit further and identify one of them, or the one that you think is the most likely to be a good candidate and then validate whether or not they are a good candidate or not. I don’t necessarily think I would worry too much about which one is the best candidate, over finding one that is a reasonably good candidate.
Rob [00:15:08]: And our fifth sign that you should kill an idea is really a list of general disqualifiers. So, this is not something that you’re doing during validation, but more of just some not-to-do’s, especially if you’re a bootstrapper trying to validate an idea. I’ve seen some of these. Jason Cohen talked about them in his MicroConf talk a couple years ago. We’ve mentioned several of these on the podcast. You had them in your book. I have them in my book. These are things that I think overall are just anti-patterns for trying to bootstrap a startup, so early on in validation, if you find yourself doing one of these, the sign is not good for you.
[00:15:41] The first one is that you’re not able to directly charge your customers, meaning that – now, again, this is for bootstrappers, right? If you’re going to raise 10 million bucks, then that’s fine. You can try to do an ad revenue model, or you’re going to take a tiny, 5 percent cut off of each transaction. You go do that. But if you’re trying to bootstrap off of revenue, you really need to think about directly charging your customers, because you just need so much more revenue. You need to provide so much more value to a smaller group of people rather than looking to make a dollar per month off of 10 million users.
[00:16:09] The second disqualifier, or negative signal, is to try to develop a two-sided market. It’s not impossible, but it’s really hard to do as a bootstrapper. There’s so much work involved, and you basically have two marketing efforts. You’re trying to bring in the supply side and the demand side. So, trying to bootstrap Uber, as an example, or bootstrap eBay – which I know they did for a very, very short amount of time – it would be nigh impossible at this point. That’s why these guys do raise buckets of capital, tens and hundreds of millions of dollars to develop both sides of a marketplace. So, for bootstrappers, something we definitely do not recommend. The other problem with two-sided markets is you’re typically just taking a little cut – let’s say 10 percent, 20 percent – of that revenue. Unless you’re at scale – meaning tens of millions of users – you can’t make enough money to keep the doors open.
[00:16:43] The third negative sign of these general disqualifiers is you’re dealing with difficult customers, really enterprise customers, government customers. Education tends to have very long sales cycles. Consumers often have a lot of support. Consumers it’s not a “never do that,” but it’s not a great sign. You typically want to be dealing with small and medium size businesses. It’s kind of the rule; and, hopefully, if they’re online, even better, if you have those skills.
[00:17:17] The fourth one is don’t try to build a social network. What’s funny is – you know, I’m on Cora pretty frequently kind of looking around, and there’re so many people that are posting like, “I have the idea for the next Facebook. What should I do?” And it’s crazy. I think in our circles, it’s just understood you should not do this, namely because it tends to be difficult consumers. See one above, that I just talked about. And you’re not able to directly charge customers, so it’s kind of a tiny, tiny ad percentage revenue model. Most importantly, you just need tens, if not hundreds, of millions of dollars to even have a shot at this; and the odds of it succeeding are infinitesimal. Just because something’s popular or hot today, and we see everybody – you know, the Instagrams and let’s say a Whatsapp – I know it’s a messaging app, but there’s a social aspect to it – and Facebook and Twitter and all that stuff – you don’t go there. Just don’t go there if you’re going to bootstrap. You’re going to need to raise funding.
[00:18:03] The last one is, frankly, if it doesn’t have a revenue model; or, more commonly, if you have multiple revenue models – and that’s the worst thing. I’ve talked to folks. See, I’m starting to do a little more angel investing these days, and I’ve talked to a few folks who have three or four different revenue models. It’s like, “Well, we’re going to do ads, and we’re going to have a premium marketplace, and we’re going to have a this and that.” For me, I like to keep it simple. Especially if you’re going to bootstrap, or just raise a really small amount of funding and do the fundstrapping route where you’re going to get to profitability, if you pick multiple revenue models, it’s not a good sign, in general – unless you really know what you’re doing; because just like having a two-sided marketplace, where you’re trying to market to two groups of people, having multiple revenue models means you have to manage and maintain all of these things. You have upsells all over the place. It becomes very, very complex to manage and to actually close some of those sales. The simpler you keep it, especially early on, when you’re low revenue numbers, the better off you’re going to be.
Mike [00:18:56] I think the important point to keep in mind about all those general disqualifiers is that you may try to avoid them up front, but you also may find out through your discovery process that the path of, quote-unquote, “least resistance” is actually through one of those disqualifiers. At that point, you really need to take a step back and say, “Okay, now what do I do?” And if you want to go the funded route, then that’s perfectly fine; but if you’re going to try to go the bootstrapped route, it’s probably not a good idea to keep going in that direction.
[00:19:24] The sixth sign you should kill an idea is that you’re having a difficult time identifying a common problem among the people that you’ve spoken to. So, for example, there’s a lot of heavily fragmented markets out there, including help desk software, bug tracking software – those types of things. If you start asking those people, “What do you really need from the software? What is it lacking?” chances are really good that you’re not going to find a lot of commonality between those people. There’s just a lot of different products on the market that do those types of things, and it can be very difficult to identify a small slice of the market that you’re going to be able to peel off and be successful in just because of the sheer number of competitors that are out there and the size of the people who run in your circles and the number of the people who you’re going to be able to talk to. So, if you can’t find a common problem among them, it’s going to be very difficult to get a product off the ground just because you can’t find enough of those types of people.
Rob [00:20:17]: The seventh sign is that people say it’s interesting, but nobody’s actually willing to pay for it. There’s different levels of “willing to pay for it.” Some people will just verbally commit, and you can trust that they’ll pay for it. Some will. Some won’t. You can take their credit card number, but not charge it. You can get a check from them, but not cash it. You can take their credit card number and charge for three months of service. Obviously, you let them know up front. So, there’s varying degrees, and I think we could probably do a whole episode on the merits of that. I think maybe we have done a whole episode on the merits of charging up front during validation versus not, but the idea here is that you really want to get someone to commit either by giving you money, or verbally committing to give you money. If no one is willing to do that, then it is definitely a bad sign for your product.
Mike [00:21:03]: The eighth sign is that you can’t see yourself working on this or being interested in this in the next four or five years because you’re doing it for the money. I think this one’s really hard to address directly just because of the fact that there are certain ideas out there that you look at, and you’re like, “Wow. I’m not particularly interested in this, but I think that there’s a lot of money here.” It can be very difficult to maintain the level of motivation that you need in order to be able to follow through with that and maintain it as long as you’re going to need to, because if it’s successful – and you want it to be successful – then you’re going to be working on it for probably a long time.
[00:21:37] Now, you could certainly get partially down the road and, assuming that it’s at least moderately successful, you could end up selling it off; but at the same time, you don’t necessarily want to sell something that is on a hockey-stick growth curve, for example. So, you do have to be a little bit careful about whether or not this is something that you’re interested in or not.
Rob [00:21:53]: The ninth sign is that you’ve spent more than a month doing customer development, and you still haven’t been able to answer basic, objective questions about the idea: who it’s for, the price range – the fundamental things you need to know to move to the next step. I think a month is a good, round timeframe. This is an arbitrary amount of time we’re choosing here, but a month is nice because even if you’re doing it on the side, it’s enough time to get something done and get some hard questions asked; but it’s not so much time that you’re going to do this perpetually.
Mike [00:22:24]: The tenth sign is that you can’t quantify how much the idea is worth to somebody. You can say that it either saves time, or it saves money, or it makes money; but unless you have a benchmark to measure that against, it can be very difficult to really understand what you should be charging for it. I think that there’s another side of it, too, which is what you believe it’s worth to people and what they believe it’s worth. Those two things, hopefully, will intersect; but there are occasions where those things are just wildly different from one another. If your expectations for it are much higher than that of your intended market, then you have to think about whether or not that’s a direction that you want to keep going, because that’s a bad signal. If you’re expecting to be able to charge $500 a month and people are only willing to pay $50 a month, you have to think about, “Well, is there additional value that I can add that will make it a $500-a-month product?” Or, is there just really nothing that you’re going to be able to do? You can either accept that it’s a $50-a-month product and go down in that direction, or you can walk away from it and go find something else that is going to be in that level.
Rob [00:23:24]: The exception to this is if you’re doing business-to-consumer stuff, because there can be a lot of entertainment, or other aspects that it doesn’t necessarily save time, make money or save money; but you’ll notice that, in sign five, we talked about “don’t do business-to-consumer stuff.” That’s why we’re focusing here on actually quantifying what the idea is worth.
Rob [00:23:42]: The eleventh sign is that you’re finding it hard to be objective. In other words, getting emotionally wrapped up in an idea, kind of like an “I’ll show you I can do it” attitude; or, instead of trying to disprove the hypothesis, pushing really hard to try to prove the hypothesis and really forcing it and looking for any way that you can find an affirmative answer to the theory that you’ve posed.
Mike [00:24:03]: I think that’s very difficult to do is to be able to look at that objectively enough to try and not prove yourself right, but to prove your theories wrong. I think it’s a different way of looking at it. I think it was – Heaton and Steli talked about this on the Startup chat about validating and kind of a popular misconception around Lean Startup, which is simply trying to prove different hypotheses wrong and not be emotionally attached to them. I think that in certain cases, especially if you are invested in an idea because you have this particular problem and you say, “Oh, I know exactly how to solve this, and this is how I’m going to do it,” it can be very difficult to separate yourself and your own ideas about how to solve that problem from those of the people who you are supposedly trying to serve; because it’s the people who you’re trying to serve that are going to be paying you – not you.
Mike [00:24:49]: The twelfth sign is what people want is something that you can’t deliver. There’s certainly going to be times where you’re doing customer development and you’re talking to people, and they say, “Hey, it’d be really great if you could do this.” For example, if you’re dealing with stacks and stacks of paperwork from the government, for example, and somebody needs to go get something notarized and there’s no electronic equivalent of a notary, for example, it could be very difficult – virtually impossible – to get that done if there’s no electronic equivalent. So, either you have to find a way to manually handle that particular process, or you have to just say, “Look, I can’t do this. Maybe there’s somebody else who could.” Or, if they had millions of dollars, maybe you’d go out and get some laws changed, for example; but it may be bordering on impossible to get certain things done.
[00:25:34] There are certain a lot of other examples as well. For example, if you’re building software that will integrate in with a platform and you don’t have direct access to that platform, that’s another place where it may be technically possible to do it; but for you it’s going to be almost impossible just because you can’t deliver something like that. Another one that I’ve heard a lot of people in different circles complain about is the fact that when they start building on certain platforms, those platforms can change underneath them. I think Twitter was kind of notorious several years ago for constantly changing the rules about how they operated and how people would integrate into their systems, and it just made it very difficult to build additional products that would hook into Twitter just because they would change the rules all the time.
[00:26:13] So, if those types of things are going to cause you an extensive number of problems and you’re not ultimately going to be able to deliver the experience that people are looking for, then that’s also a negative sign.
Rob [00:26:23]: Another good example of this recently in the bootstrapping community is Justin Vincent from Texting was validating an idea, and it had something to do with transcribing meetings for development teams. People seemed to really want it, and he described it, and they liked it; but the technology wasn’t there. He wasn’t going to himself write the transcription engine. He wanted to use an off-the-shelf one, because obviously you’d have to be an expert in voice transcription. He went and used several different APIs, and none of them could do it. So, frankly, what people wanted was something he could not deliver at this point.
[00:26:52] Maybe in the future, transcription software will catch up, and he’ll be able to launch the product, but for now he said he just had to shut it down, because he couldn’t get the results that he wanted in order to actually have people pay for it.
Mike [00:27:02]: The thirteenth sign you should kill an idea you’re validating is that you’re not learning anything new. If you have come to the conclusion that the people that you’ve talked to have essentially told you all the things that you could possibly learn, then it’s time to either move on to the next step of validation or walk away from it. I think that applies more to moving on to the next step than it does to walking away from the idea; because if you’re having, let’s say, 20, 30, 40 conversations with people and you start hearing the same things over and over again and you’re simply not learning anything new, then at that point you’ve got the information that you need in order to make a decision one way or the other.
Rob [00:27:38]: To recap our 13 signs you should kill an idea you’re validating. Number one was you’re avoiding talking to prospective customers. Number two, you’re having a difficult time finding people in your target market to talk to. Number three, it’s difficult to describe the idea or the value proposition. Number four, you’re having a difficult time identifying a specific group of people who will use it. Number five, we gave general disqualifiers about several factors that make an idea very hard to bootstrap. Number 6, you’re having a difficult time identifying a common problem among people you’ve spoken to.
Mike [00:28:06]: Number seven is that people say that it’s interesting, but nobody’s actually willing to pay for it. Number eight, you’re interested in it just for the money, and you can’t see yourself working on it for an extended period of time. Number nine, you’ve spent more than a month doing customer development and still haven’t been able to answer some basic, objective questions about it. Number ten, you can’t quantify how much the idea is worth. Number 11, you’re finding it hard to be objective. Number 12, what people want is something that you can’t deliver; and 13, you’re not learning anything new.
Rob [00:28:30]: If you have a question for us, call our voicemail number at (888) 801-9690; or, email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening, we’ll see you next time.
Episode 261 | Interview with Nathan Chan of Foundr Magazine
Show Notes
In this episode of Startups For The Rest Of Us, Rob interviews Nathan Chan of Foundr Magazine about his journey to success and what he has learned along the way.
Items mentioned in this episode:
Transcript
Rob [00:00]: In this episode of “Startups for the Rest of Us,” I interview Nathan Chan of “Foundr” magazine. “Foundr” magazine is an online magazine, and Nathan bootstrapped this completely on his own two years ago, starting in about 2013. He was sued by one of the biggest magazine publishers in the U.S. within the first four months of starting. He’s gotten interviews with folks like Richard Branson, Ariana Huffington, Tony Robbins and Seth Godin; and he’s really stair-stepped his way up from not knowing what he was doing or how to do it into building a really solid brand and a profitable online magazine. This is “Startups for the Rest of Us,” episode 261.
[Theme Music]
Rob [00:47]: “Welcome to Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built you first product or you’re just thinking about it. I’m Rob, and today with Nathan Chan, we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, today I’d like to welcome Nathan Chan of “Foundr” magazine. “Foundr” is a tablet-based magazine, so on your iPad, or your android; or, I’m assuming you probably get it on – can you get it on Kindle Fire as well?
Nathan [01:14]: No, you can’t.
Rob [01:15]: Okay.
Nathan [01:16]: You can’t, but you can get it on mobile, too.
Rob [01:18]: On mobile. Okay. You can download the Founder app. It’s spelled F-O-U-N-D-R, and Nathan has somehow been able to secure interviews with some pretty amazing people: Steve Blank, Richard Branson –
Nathan [01:31]: Ariana Huffington, Tony Robbins, Seth Godin –
Rob [01:34]: – very nice.
Nathan [01:35]: – various – many more.
Rob [01:36]: He’s a bootstrap startup founder, and that’s why I wanted to have him on the show, just to talk about his experiences. The magazine’s been out since 2013. He’s learned a ton on his journey, and so although listening to this podcast, you may be thinking, “Well, I’m not going to start a magazine,” there’re so many lessons that Nathan has experienced and learned through his time that we’re going to dive into over the next 30 minutes.
Thank you so much for joining me today, Nathan.
Nathan [02:00]: Thank you so much for having me, Rob. It’s an absolute pleasure. I’m a massive fan of the show.
Rob [02:04]: Very cool. Talk to us a little bit about “Foundr” magazine: why’d you start it, and maybe give us maybe a little background about what it is and what the goal is.
Nathan [02:12]: Yeah, sure thing. I started, actually, Foundr while I was working my full-time job. I bootstrapped it, as you mentioned, from the ground up. I actually didn’t even leave my day job until I fully replaced my income, and that’s something that a lot of people don’t do. They usually go cold and just leave their job and just make it work; but for me, I’m a very risk-averse person. It all started because – also, you mentioned that “Foundr” is my first business. I’ve never ran a business before, and it all started from just the curiosity of always wanting to become an entrepreneur and not really knowing where to start, what it takes; and also the fact that I identified that there wasn’t really a publication out there – an entrepreneurial, business publication – that myself, as an aspiring entrepreneur, could relate to. I think magazines like “Forbes,” “Entrepreneur,” “Fast Company” – these are great magazines, and they produce great content, but I found it difficult to relate to. I think they go on the assumption that you’ve already started a business; or, you already have a business; or, you’re an experienced, accomplished entrepreneur, and I found it quite intimidating. I knew that podcasts were really not, and I also realized that there wasn’t really a magazine targeting the younger demographic as well – nothing that was known. So, I just thought to myself, “Well, let’s just give this magazine thing a try.” We launched just on the iPad while I was in my day job, and I said, “I’ll give it a good, hard crack for a year.” Then I built it up, left my job; and, yeah, here we are today. But I guess the magazine just stemmed from just my own curiosity and wanting, I think, to fill that void in the marketplace that I identified.
Rob [04:04]: Very cool. To give folks an idea of where you were at, you were basically working a full-time job. You bootstrapped this. You didn’t raise funding. Everyone who helped you work on the magazine is a contractor, you mentioned, so you have, I’m assuming, contract writers, contract photographers, contract designers and layout folks. I mean this really was the effort of one person and very doable. This type of thing is very doable by anyone – right – if you were able to pull it off?
Nathan [04:32]: Yeah, I think so, definitely. I’ll be very clear. We have a lot of people that are helping me behind the scenes, and we do have some full-time staff now; but, yeah, yeah. To pull it off it was just me, man, and just utilizing freelancers, contractors all around the world; and I think that’s the awesome thing about the Internet now.
Rob [04:50]: Yeah, for sure. This is really cool. You’re 31 episodes in. You started, it looks like, March of 2013. How did you get that initial kick-start? You probably spent months planning, designing, building that first issue; and you launch into the iOS App Store, I assume, the Android App Store at the time. What did you do? How did you try to find people and convince them to download the app?
Nathan [05:15]: Yeah. I remember the first day we launched, we had 70 downloads. I made $5, and that was the first $5 I’d ever made online [laughs].
Rob [05:24]: Wow. Very cool.
Nathan [05:27]: What I realized was I needed – I didn’t have any money, and we were bootstrapping, so I had to work out, “What is the lowest-hanging fruit?” I quickly worked out that one of the best ways for us to get more downloads – I kind of tracked it back. So, “What does it look like for someone to subscribe to the magazine?” Before that, they have to download the app. Then before that, how do they even find the app? I did all sorts of things – not too heavily, to be honest with you, Rob. I didn’t really do any social while I was in my day job, so it took me about a year to build up the magazine. For that whole year, all I focused on was shipping a monthly magazine every month and try and get as many readers as I could. I didn’t really touch social, didn’t really touch content marketing, couldn’t afford any paid customer acquisition; so, I really had to just took at my playing field and find, “What’s the lowest-hanging fruit?” “Where’s the starving crowd?” I identified if you have an app, one of the lowest-hanging fruits is App Store optimization. So, Google for the App Store, like SEO for the App Store. What I found was that there’s all these people looking for business-type magazines, and they’re searching for key search terms like “entrepreneur magazine,” “business magazine,” “startup magazine,” “startup.” So, what I got really, really good with was optimizing that whole funnel from finding the app to getting people to subscribe. I can tell you for a fact that anyone that first opens the magazine, we have a 30 percent uptake of people subscribing. Then from there, I can tell you, working backwards, that if you search for “entrepreneur magazine,” “fast company,” “Forbes,” we actually piggyback off all of those magazines. So, if you ever search for those magazines that you want to read digitally in the App Store or Google Play Store – not hardly ever our downloads come from the Google Play Store – I’ll be very clear – but in the App Store, if you search for that, any of those key terms, “Foundr” will come up. We play also on the fact that you get your free Richard Branson issue. We try and build that trust; make it a no-brainer; and, yeah, just take it from there. But App Store optimization has been massive for us, Rob.
Rob [07:47]: I like that, because I have this theory called the “stair-step approach” to bootstrapping, and typically it involves launching a small product with a single marketing channel that you get really good at, then expanding into others and moving up this ladder. Typically, it’s with different products; but it sounds like with Foundr, you launched it, and you got really good at App Store SEO and, for lack of a better term, and then you branched out from there. I’m assuming by this time, you’re doing social. You’re obviously doing podcasts to promote it and other avenues, but when you started out, just getting that single tool on your tool belt can be so valuable for a first-time entrepreneur.
Nathan [08:22]: Yeah, I agree. That’s pretty spot-on, Rob; because it was only actually when I left my job we went down the content path. We used to have a really crappy website. It was terrible. It was just a basic landing page to keep Apple happy; but, yeah, once I left my job, it actually freed me up to focus on the content marketing page, roll out the podcast and roll out social. Yeah, we’re kicking some goals with social now, like the stuff we do with Instagram. We’ve got an email database of 100,000 that we built in a year from 3,000. A lot of that traction’s come from Instagram. We’ve found a few other channels now as well.
Rob [08:56]: That’s pretty impressive. You said you built it on Instagram. Obviously, Instagram is heavily image-based, so was that pieces taken out of the magazine, like different pages or different stories that you’re putting up there?
Nathan [09:06]: Yeah. What I’ve found with Instagram is – same with all those social channels. If you go and look at “Entrepreneur” magazine, “Fast Company,” “Forbes,” a lot of them post quotes on Twitter, or Facebook. We do the same in Instagram. We post, like, 95 percent quote; and we post a little bit about the podcast, a little bit about the magazine, a little bit – it’s a very small portion – behind-the-scenes stuff. But the quotes work really, really well because they have that virality where people tag their friends. They share it. They screen-shot it. They repost it; and that’s worked very, very well for us.
Rob [09:39]: Yeah. See, I like this because anyone can take lessons away from this. Again, if you’re listening this, you’re not starting a magazine, per se, you hear what Nathan’s done as a first-time entrepreneur: a) he shipped. He just said, “I’m going to ship for a year, and I’m going to get 12 issues out, and I’m going to figure it out along the way. Then he focused on a single tool in his tool belt – it was this App Store optimization – and then expanded out from there. You’re now talking virality, which is how you went from 3,000 to 100,000 email addresses; and although Instagram may not be the particular channel if you’re running a B-to-B app, or if you’re doing other things there’s always byproducts. You’re basically taking byproducts of something you’ve already produced, which are quotes out of the magazine, which is your finished product that you’re selling. You’re taking these byproducts and figuring out where they’re going to catch. In your case, it is Instagram; but I can imagine for other apps there’re going to be other approaches. This is good stuff.
Nathan [10:29]: Yeah, I think it’s all about just, yeah, shipping every – producing something consistently every, single week; every, single day; every, single month and just focusing on it and just having a relentless ability to attack whatever it is you’re focusing on if you get a little bit of traction and just scaling that up.
Rob [10:48]: Speaking of scale, at this point, how many monthly readers to you have at this point?
Nathan [10:51]: We have 25,000 monthly readers.
Rob [10:53]: Got it. Looks like you have multiple channels now. You have the magazine, which is obviously your flagship. You’ve started a podcast. Are you interviewing folks that are also appearing in the magazine?
Nathan [11:05]: Yes. What we do with the magazine – and I didn’t realize this until later, but one thing we do is we do these interviews on Skype, just like me and you are doing, for the feature interviews in the magazine. Now, we’re actually repurposing – because we actually imbed those interviews within the magazine. What I realized after a year was I’ve got all these amazing interviews with all these super successful founders and hard-to-reach founders. Why not just get our best ones and put it out into the world with the podcasts? I know it’s a great tool, a great platform. I always said I didn’t want to do a podcast, and that was how we were going to differentiate ourself, and the podcast has really taken off. It’s been an amazing trust builder, so now it’s just like another, I guess, latch on our tool belt to build our platform, to build our reach and to spread the mission and the word of just really promoting entrepreneurship and showing people what it takes.
Rob [12:00]: Very cool. I’m curious. Do you do much of the writing in the magazine yourself? Or, is it all hired writers?
Nathan [12:05]: Yeah, no. We have a part-time editor who now helps with all of our content that goes out, because we’re pumping out a lot of content now, man. So, yeah, Tate, he’s from Boston. He manages all that, and then we have tons of contractor writers – you know, 15, 20 contract writers. I only write the “Editor’s Letter” –
Rob [12:24]: Got it.
Nathan [12:25]: – but in the early days when I first started and it was costing, like … oh, my God, man. It’s funny, thinking back. Operating costs to produce the first few issues was under $500 –
Rob [12:37]: Wow.
Nathan [12:38]: – and, yeah, I had to do some of the writing. I was getting my mom to help me do some stuff.
Rob [12:42]: Sure.
Nathan [12:42]: I was getting friends to help me do some stuff; but, yeah. No, long away from the writing and touching that now.
Rob [12:47]: Yeah, you were scrappy and lean at one point, and now you have to be –
Nathan [12:51]: [Laughs]
Rob [12:52]: – no, you have to be sane. You can’t work 80-hour weeks anymore. So, very cool. And then you’ve also branched out. I think folks will find this interesting. You’ve also branched in now to creating a couple of knowledge products, or information products. One is about marketing on Instagram.
Nathan [13:06]: Yeah, we have a crowd funding guide, but that’s just like an eBook that is very well-curated.
Rob [13:11]: Right, so you’re taking a little bit of a push into that area, right? What made you decide to start selling info products as well?
Nathan [13:18]: Yeah. What I realized was – the magazine was doing well, you know, a profitable, six-figure business – just the magazine alone. What I realized was a lot of people started asking me – because we were using Instagram as an amazing channel to grow the magazine and to build our awareness and reach and email database. What was interesting was I wrote this blog post and, still, to this day, it’s one of the most successful blog posts on our site. It was titled “How to Get 10,000 Followers in Two Weeks on Instagram,” and that just crushed it, man. Neil Patel always references it, all sorts of things. All these people would come up to me, and they found that blog post. What happened very quickly was a lot of people started asking me how I was doing this stuff, and then a lot of people started asking me to do consulting. I was like, “I don’t really have time.” “I don’t really want to focus on that.” I thought, “Why don’t I just create a course?” So, I just put out to our email list an email saying, “Guys, would this be something you’re interested in?” Even though our database was around 5,000, 7,000 at the time – this was very early, because we got some really great traction early on with Instagram within the first couple weeks. People were just like, “Yeah, I’d love” – hundreds and hundreds of responses from people writing back to me in our community. So, this was something our community as asking for. I launched a beta, and then we relaunched the full course, and then it’s been really, really lucrative for the business and also just the community that have signed up to the course, it’s amazing some of the results our students are getting. It was something that I was just like, “Wow! Okay, so this is something that our community wants. It’s something our community is asking for. They’re asking for more help,” and I’m constantly getting asked about all these other things around starting a business, how to scale – all these other things. So, what I’ve realized is “Foundr” is the front end of the business, and then we can further monetize and build it up for the back end. I’ll be very clear, Rob. I won’t be doing the teaching. I’ll have many other experts coming in, and we’ll be doing curated courses using the publishing model, where I offer somebody an opportunity to either white-light all their content, or their video course that they have existingly. Then we package it up in the Foundr way with our tools, with our platform, with our systems. Then we do a deal, like an ongoing profit split. That’s the model we’re going to scale up. So, “Foundr,” podcast, blog content, social content, all on the front end. Right now, 95 percent of our content is free; and then if people want more help, it is there. I speak to a lot of people in our community. I actually jump on the phone whenever I can and just find out what their biggest problems, frustrations, desires are. A lot of things I’m hearing is people are saying, “Nathan, we love the stuff you’re producing. We love the free stuff, everything you’re doing; but sometimes we just need more help,” “Need more help.” Like, “I want to try this.” “I want to do this.” “I want to do this.” People always love that handheld content if they don’t have time to stuff around, or – you know, a lot of people just want their hand held. So, I think this industry, the online education industry is a multi-billion-dollar industry; and I think we’re now better equipped, then, to tap into that.
Rob [16:44]: What I like about the approach that you’ve taken is the common approach for building an audience these days is to start a blog or a podcast; and then you build the audience up, you find out what they need, and then you build products for them. You’ve taken a different approach and started a magazine, then made that profitable and then are looking at basically these content upsells. I’ve seen a few others. I know “Entrepreneur” magazine has their book line, and they have some events that they throw. I guess a lot of magazines wind up throwing events in order to do it, but I do like this hybrid model; because – let’s be honest – just purely publishing a magazine or a newspaper these days, even online, is not a growth business, per se. People expect the content to be free. I know they do pay for yours; but it’s going to be very, very difficult to build that into, let’s say, a $10 million business, or a $20 million-dollar – I mean you just can’t get to the scale. Whereas, adding these upsells and actually charging money for really valuable information and being able to charge a premium for these courses that are put behind your brand name – because your brand name obviously has a lot of equity with the folks that are reading our magazine and respect what you’re doing. Then, if you can place that on front of some $19 eBooks at this point, and then maybe it’s a $100, $200 video course, maybe at some point you throw an event – that’s where you’re going to be able to really grow this business and increase your revenue.
Nathan [18:03]: Yeah, I agree. Look, don’t get me wrong, Rob. I’ve got my eyes on building an eight-figure business. I think we can do it, do be honest with you, probably in a couple of years. That’s my goal. Now, it’s all about just finding out further ways to serve our community; just keep producing epic content; and, yeah, just rolling out and serving as many of our people in our community as we can and just producing more epic content, whether that’s paid or free.
Rob [18:28]: Very cool. I’m interested to hear how – you started this magazine from scratch. You were, in essence, kind of an unknown, I’ll say; and within eight months, your eighth issue, you have Richard Branson on the cover. In fact, your sixth issue has Neil Patel. You got Ed Dale in issue two. You got some big names early on. How did you possibly pull that off?
Nathan [18:51]: Yeah. One thing I realized, Rob – I didn’t know this when I started, but having a magazine is very, very powerful for building authority; and people take you really seriously. Some of the people we’ve got lined up for 2016 for our covers is crazy, like really, really hard-to-reach founders. I don’t know if I can say, but we’re talking to billionaires and stuff like that to get on our front covers – more billionaires, not just Richard Branson. Yeah, people take you really seriously, Rob; and you have a little bit more weight as opposed to having a blog or a podcast. I didn’t realize this until – it took me a few months to work this out, because if you actually look at the front cover of the first issue, Rob, I didn’t even have a successful person on the front cover. I had a stock image [laughs], and that’s kind of funny, looking back; because now we don’t have any problem. The reason we had that stock image was because no one would get back to me, but I just kept pitching, man. I just kept hustling, and within the first four months, I realized, “Richard Branson’s been on the front cover of every, single business magazine. Why can’t he be on the front cover of ours?” I just went down this path of finding out how to contact him, and I made a lot of phone calls. One thing: if you want to get any ambassadors for your brand, well, here’s a few, quick hacks for people that I know all you guys that are listening are going to love. One, make phone calls. I found that they get so much better cut-through, if you want to find ambassadors for your brand, if they’re an influence in whatever niche you’re in. If they have a book, try and contact the publishers. Find out who publishes that book, like Random House. Find their PR team. Speak to them and then try and find either the company’s PR team, or the agency that represents that person or company’s brand – their PR team. Then just try and find those people, because they’re actually paid to find press, so they can make you look good whatever kind of mutually beneficial exchange in value you come up with. Then I found myself about four months into the magazine on the phone to Sir Richard Branson’s head of PR. I pitched her over the phone. I remember I was so nervous. I was stumbling, and she said, “Look, please understand we get, like, ten requests a day; but shoot me an email. I promise I will get back to you. It might be a while, but I will get back to you.” I pitched for a Skype interview, and she said, “Sir Richard’s really busy, but he can do an email interview.” Then from there, his team worked with me to get the photos, and we come up with a feature, and we ask the questions. We get the answers. Then we come to a story, an angle; and then from there, to be honest, Rob, that was Richard Branson. Then I’ve just used that as a springboard to gain influence in the space. Yeah, just keep pitching, man. I’m just very, very relentless and very organized now, too. We’ve got up until June 2016 covers booked with some very cool, hard-to-reach founders. They’re going to be amazing interviews, hard. It’s going to be really solid content. Yeah, I’ve just played on that springboard. Another good tool that I use in my arsenal, if you are pitching over email, is a Gmail plugin called “Rebump.” Because you come from an email marketing background, you might know of it. It’s amazing. It allows you pretty much to just “set and forget.” When you are pitching business development style, you send an email. You get the Gmail plugin installed on your Gmail, and then you tick that little box. Then there’ll be literally, like, templated emails that will follow up; and it knows, because it’s connected to your Gmail, if somebody writes back and just flat-out follows up for you. That works very, very well.
Rob [22:39]: Yeah, I use Boomerang for that –
Nathan [22:41]: Yeah.
Rob [22:42]: – but it doesn’t automatically follow up. It just boomerangs it back in, and then I have to do another reply; but that’s what I commonly use. I think that’s a really good tip. That ties back in with something Steli Efti was saying. He’s kind of the master of startup sales, and he was saying that at MicroConf last April – basically, that you just have to follow up. Oftentimes, he wouldn’t get a sale, or wouldn’t get an answer until he followed up 15, 20, 30 times; but the people who are doing that are the ones that probably are the ones that are getting Richard Branson and Daymond John and Seth Godin and Tony Robbins like you are. I’d imagine these days, though, with all the issues you have and with all the people you can mention that you’ve already interviewed, you just have such credibility that I bet – when you emailed Seth Godin, was it even that big of a deal? Or, did he say, “Sure, I’ll just come into the magazine”?
Nathan [23:27]: Yeah, you got it spot-on, Rob. I just had to build it up, just build up that credibility and just keep – I used Richard Branson as a springboard. Yeah, with Seth Godin, it was pretty much I emailed him; and then he emailed me back in the morning, saying, “Can you do it in two hours?” I was like, “Yeah, [?].”
Rob [23:43]: That’s great.
Nathan [23:43]: So, we had the podcast interview; and, yeah, it was really cool; really, really fun. Great guy.
Rob [23:48]: Yep, that’s what I’ve heard.
I want to wrap us up on this final topic. You told me offline that you were sued by one of the biggest magazines in the first four months of your starting. Obviously, you lived to tell about it. Talk to us a little bit about what happened there and how you recovered. I’m definitely interested to hear how you felt during that time.
Nathan [24:09]: What happened was – it’s funny, looking back. We were just talking about this offline. It is not a very nice feeling to be sued, especially when it’s your first-ever business, and especially when you have no money and you don’t never, ever in the world ever expect that to happen. Just always play it really smart. Don’t ever think it won’t happen to you, because it might. You just never know. What happened to me was the magazine actually wasn’t called “Foundr.” We had to change it four months in. I remember we’d just locked down the interview with Richard Branson, and I was just thinking, “Wow. We’re kicking some [grows?].” Then I woke up in the morning about 7 a.m., about to go to my day job, and I checked my email. I got this email from this lawyer saying, “Hey, Nathan. I’m from so-and-so. I just want to know if you weren’t aware. You’re being sued by this company. They’re one of the biggest print magazines in the States.” He said, “Yeah, I just wanted to let you know you’re being state in Dallas, State [of] Texas. You’re being sued by this company.” He’s like, “You probably want to move fast.” He’s like, “I actually have a really good relationship with the judge on this case, so you should totally get me to represent you.” [Laughs] And I was just like – 7 a.m. in the morning, I was freaking out. I was like, “Is this sophisticated spam?” I haven’t been served. I didn’t know what the hell was going on, man. You know, it was crazy! A long story short, I had to change the name. I’m so glad that it happened now when it did, because we got a ten times better name, ten times better branding. It was such a blessing in disguise; but at the time, Rob, I was so stressed out. It was really, really crazy. I was lucky enough I didn’t even have to pay any money just because I had some amazing mentors that helped me through that whole process. Some of my mentors had been sued before. We just changed the name, and they left us alone. It was, yeah, really a blessing in disguise, [a] great lesson to be learned early on. But for the audience, when it comes to trademark infringement, if you’re erring on the side of caution, just don’t even do it. Make sure that your name, your branding is very individual and unique. If you think to yourself that it might be a little bit similar, or it might be a concern, just, yeah, go down the path of making sure you protect yourself. I think that’s really important.
Rob [26:34]: Right. Then the other lesson – because I’ve heard from several folks who’ve had run-ins like this – is that when you’re contacted – in an ideal world, they wouldn’t have just sued you. They would have sent you a letter letting you know about the issue, and then – you know what I’m saying – and then send a [?] – I’ve had a friend who’s had a couple different WordPress plugins, and as it turns out, it accidentally infringed on trademarks of company names, because they were helping people use that company through WordPress. So, it’s a natural thing to include the name in there. But they’ve been nice enough not to just sue him. They sent him a letter. Typically, it’s an email. It says, “Hey, I’m in the so-and-so department. This has come to our attention. We want to work with you to help you transition,” you know? They don’t give some hardline. There’s two ways to go about this, right? You can come in swinging and be like, “My lawyer will be in touch!” Or, you can say, “Let’s work with you on this.” That’s the way that I think so many of these cases turn out, and I think it’s such a better approach to just be able to resolve it without going to court; because let’s be honest. If you actually go to court, the only people that win there are the lawyers. They get paid a lot of money, and even if you win in –
Nathan [27:39]: [Laughs] That’s right.
Rob [27:39]: – court, you almost never really win in court. There’s just not that much money that comes out of it for either side.
Nathan [27:45]: Yeah, that’s exactly right. And, look, dude, I had no money at all. So, [laughs] you know.
Rob [27:49]: Wasn’t gonna happen, yeah.
Nathan [27:50]: [Laughs] Yeah, that’s right. We weren’t really making much money at all, anyways.
Rob [27:55]: Yeah. Well, very cool. Thanks again for coming on the show. If folks want to keep up with you online, where should they look?
Nathan [28:01]: You’re welcome, Rob. Best place is just hit up our website: foundrmag.com, F-O-U-N-D-Rmag.com. Now you know why we spell it “Foundr” without the “e,” because there was no one in the world that had that name, so we can be protected.
Rob [28:19]: Very cool. Thanks again.
Nathan [28:21]: You’re welcome. Absolute pleasure.
Rob [28:23]: If you have a question for us, call our voicemail at 888.801.9690, or email us at: questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, and we’ll see you next tim
e.
Episode 260 | What is the One Metric That Matters?
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the one metric that matters. The idea of focusing on one metric at a time, the metric that is helping move your business forward.
Items mentioned in this episode:
Transcript
Mike [0:00:00]: In this episode of “Startups For the Rest of Us,”
Rob and I are going to be talking about the one metric that matters. This is “Startups For the Rest of Us” Episode 260.
[Theme Music plays]
Mike [0:00:16]: Welcome to “Startups For the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [0:00:23]: And I’m Rob.
Mike [0:00:24]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week Rob?
Rob [0:00:28]: MicroConf 2016 in Las Vegas, the dates are set. We signed a contract, although we haven’t received the counter-signed as of today, but as far as we know, everything’s in place. Las Vegas, April 3rd through 5th. So if you’re interested in hanging out with about 200 of your closest founder friends, a lot of bootstrapped founders heading over there out in early April. Go to MicroConf.com, enter your email address. The tickets every year sell out way before they make it to the open market. So if you are interested in coming, you want to get on the list.
Mike [0:01:01]: You know, it’s always a little disconcerting talking to people about the dates before we have that counter-signed contract.
Rob [0:01:06]: I know, I know. I’m such a more conservative in terms of stuff, and I like to have everything signed and known, but boy, we’ve been talking to the hotel for months and the odds are pretty good it’s going to go through.
Mike [0:01:17]: Yeah, I think I even remembered that there’s a clause, kind of early on that they kind of throw in there that just says that if they kind of offer us right of first refusal. So if somebody else comes in and says, Oh, we want that date, they have to come to us first and offer it to us, or at least try and get something signed. But because we don’t have a counter-signed contract, I guess it’s, I don’t know, I guess it seems less official.
Rob [0:01:39]: Sure. Well it is, it’s not legally binding at this point. So feasibly there could be a screw up at some point, where they get our signed contract and go to hand it to whatever the VP in charge of signing contracts, and someone else hands him one for the same dates, and they’ve just totally screwed up. It’s within the realm of possibility. But knock on wood, this is what our eighth or ninth conference? And we haven’t ran into any major issues like that. How about you, what’s going on?
Mike [0:02:02]: Well, I’ve been doing a little bit more customer validation on the new idea I’ve been working on, and that’s been going well. I’ve had a couple more conversations this past week. And right now, something else I’m working on is I’m testing whether or not it makes sense for us to move Founder Café off of the Communifire platform and onto Discourse. So I don’t know how that’s eventually going play out, but so far it seems to be going reasonably well. I don’t know all the details of it. It’s kind of the unfortunate part. I know about half of it, because I don’t know the Discourse side of it, or Rails or Postgres. But I’ve got all the Communifire stuff that I’ve been working on. I’ve been working with a contractor to help with the other side of things. And we’ll see how things work out. I’m not real sure it.
Rob [0:02:45]: All right, cool. You mentioned that you’ve been doing a small amount of validation for your new idea. How come so little? I would imagine that you’d be fired up, cranking away on it.
Mike [0:02:55]: So what I did, when I was going through my validation steps, was every conversation I was having with people, I would basically just take a ton of notes during the conversation. And I’m starting to get, probably more towards the end of my list of people that I’m talking to, and I’m starting to hear the same types of things over and over again. So I’m going back through and I’m probably having less conversations now than I have in the past couple of weeks, but it’s more because I’m sifting through all that data I have to try and find overlap between different people and figure out exactly where to go. And I’m at the point right now, where I’m probably going to start – I am at the point where I’m starting to kind of draw up designs for what it’s going to look like and then take those designs back to them as kind of a double check.
Rob [0:03:37]: Is that your next step?
Mike [0:03:38]: Yeah, that’s what I’m working on right now is, as I said, just sifting through the things that they’ve told me, figuring out where those overlaps are and seeing what the lowest common denominator is that I can put in front of them that they’ll say, that they’ll still continue to say, “yes, I’ll pay for that.” And then kind of get the commitments from everybody to move forward.
Rob [0:03:55]: What’s your ETA on doing that?
Mike [0:03:56]: I’d probably say, I started working on the designs this past week, and it’s taken longer than I expected it would to go through some of those designs. So I want to say one week, but I’m guessing it’s probably going to be closer to two or three.
Rob [0:04:10]: Those things are always hard to estimate, kind of like building software. We’re working on some pretty cool stuff inside the Drip walls, and our end growth is continuing like as it has been for the last several months, things are going well. We’re actually hiring another developer, more of a front-end emphasis. And we just have so many features that need to get built, and now there’s even marketing stuff that I want to do where you just need some code and you need some design work and you need some Javascript and some CSS, so that it’s just enough that I can’t sit down and bang it out and I can’t get everything else done that I’m trying to do, so we’re probably going to hire someone and have him or her help do the majority of their time in hardcore development, but then also helping out with kind of marketing tasks, because that need front-end work and development.
Mike [0:04:58]: Cool. So this week, what we’re going to be talking about is the one metric that matters. And this is inspired by a couple of articles that I’ve come across online, one of which is from the Kissmetrics blog, and the other one is from leanstack.com, and then a third is from the leananalyticsbook.com. And all three of these articles refer back to the one true metric that matters. And essentially the idea here is that you should only focus at one metric at a time. And that metric is the one that is supposed to be moving the needle in your business. And we’ll link up all three of these articles in the show notes. But again, going back to this point, the idea is that you can track other metrics, but there’s one that’s going to be the most critical to you, which is going to depend a lot on the goals that you’re trying to reach at that time. So for example, the one key metric that I’m tracking right now is the number of prospect conversations per week. And because I’m kind of moving into the design phase, that’s probably going to change. But that’s the one metric that I was tracking over the past three weeks.
Rob [0:05:55]: And for me, I haven’t given it any thought in advance of recording this episode, and I guess we’ll see as we go through this if mine fits this criteria because I know we have some kind of does and don’ts of how to do it, but I would say it’s MRR for me. And so you might look at that as MRR growth, how much did it grow this month and is it going to grow more next month than last month. But really the one I look at is just MRR since it is a recurring metric itself, that’s what I have tended to focus on. And I think if I were to commit, of course, there’s everything then falls below that, right, of I could look at the trial count for the past 30 days. I could tell you if we’re going to grow and by how much at this point at the trial. The paid conversion and what we’re going to turn out and the upgrades and all that stuff. But the real focus that all feeds into, MRR.
Mike [0:06:39]: So the first thing we’re going to talk about is why? Why is it that we’re only looking at one particular metric? And the first thing to keep in mind is that these metrics encourage focus. If you only have one metric that really matters, then you can essentially ignore everything else that’s going on, whether – and in your case, for example, you’re tracking MRR and that’s the one metric that matters the most, then you can essentially ignore all these other things like the conversion rate and the number of visitors to your website. A lot of those things can just go right out the window because they don’t necessarily matter. And sometimes these metrics will play into one another and influence each other, so that’s something else to keep in mind when you’re looking at these metrics. And it’s especially important when you’re looking at something like MRR because all those things do essentially influence MRR, but not directly.
Rob [0:07:26]: Yeah, I would agree with that. I mean, I think being able to focus on one thing and not be distracted by trying to chase after a lot of things all at once is going to be a good thing. One point, early on, when Noah Kagan was building AppSumo, I had talked to him and we were talking about kind of what you’re focused on, it was like focusing on one thing. And at the time, I think I was doing, it was early in HitTail, and I was talking about, yeah, it’s just MRR I was focused on. And he said, I’m focused on growing my list. He said, it’s the number of subscribers total and the number of subscribers we’re adding each week or each day. And I remember thinking, oh, how interesting that he wasn’t focused on – there was not, he wasn’t focused on revenue, wasn’t focused on profit, wasn’t focused on deals per month, there’s a bunch of other things that you could look at, but at that point he knew that to get where he wanted to go, he had to build that list. And that’s kind of why I look at MRR as SaaS founder, is that to get where I want to go, I need to get that to increase. Now there’s a bunch of ways to do it, but it does give you focus. The other thing is it tells me what not to look at. As an example, I don’t, at this point, when we’re in heavy growth mode, I don’t look at profitability. Now, we are a profitable company, but I’m not measuring my success based on how much cash we can make in a month on a net basis. I am looking at that growth number as long as we are not doing stupid things like paying more than our customers’ lifetime value in order to acquire them or something like that. If you keep that in mind, I think that focusing on that one thing and then looking at all things that lead to it is a good way to go.
Mike [0:08:49]: And that’s the second on the list of why you should be looking at just one metric, because it helps narrow the field of things that you need to pay attention to. And even if you can’t pick just one, if it really boils down to like two or three, then at least it’s eliminated a lot of the other things that could potentially be distracting. If you’re looking at too many of these different metrics, essentially what happens is it just becomes noise, because it’s hard to get everybody to look at the same thing at that particular moment. If you have everyone looking at the same thing, then what it does is it helps create accountability for everyone. Everyone’s all focused on the same goal, and it becomes very easy to relate the different things that people are working on to the projects or the tasks that other people are working on.
Rob [0:09:30]: This also creates accountability for your team because folks can kind of focus on a single metric and then all be working towards a higher level metric. When I say that, to come back to the MRR example, that as a founder of a SaaS company, that’s what I’m looking to grow. But perhaps the person sitting next to me is working in marketing, her goal may not be to grow MRR directly. Her goal may be to drive more trials. I know that is going to feed towards the company goal of increasing MRR. But then she doesn’t have to look at her job and say, boy, how did I myself increase MRR this month? She can just say, I know I drove this many trials and directly measured that based on her efforts, so I think that having a single company goal as well as individual goals for each person or kind of individual metrics based on what they’re working on that they can directly influence, that all lead up to that company-wide goal, is I think a good way to do it. Or it’s at least something that we found success with at Drip.
Mike [0:10:24]: It also encourages people to kind of experiment within the guidelines of that because you can always look at something that is not necessarily related to that KPI and say, well, I’m going to do this A-B test over here. And that could be very well be optimize a specific part of your sales funnel, but it’s not necessarily related to your goal. And it’s not to say that doesn’t help the business in some way, shape and form, but if it’s not what you’re focused on, then essentially what you’re doing is you’re spending time improving something that isn’t directly related to the company’s current goals. So the next part of this process is figuring out which metric matters. And essentially, there’s four tenets of how to pick the metric that does matter. There are four pieces of this. There are things that you know, which are essentially facts. There are things that you don’t know, which are questions that you have, which you know the questions to ask. Then there’s things that you don’t know that you know. And those are essentially things that are driven by your intuition. You have a gut feel about something. And then the last one is probably the most mysterious of all these is those are the things that you don’t know, that you don’t know. And a lot of times if you start exploring these areas, this is where you’re going to find those unfair advantages. You’re going to uncover things that other people in the market haven’t really figured out yet, and those could substantially drive your business forward.
Rob [0:11:39]: I’m not sure I understand these four in terms of how they relate to picking that metric.
Mike [0:11:45]: So the idea with these four tenets is that essentially what you’re trying to do, is you’re trying to distill all of the things that you do know and that you don’t know into a mechanism for identifying the analytics and the metrics that you should be looking at. So for example, if you are able to directly measure what is going on in your website, the number of visitors that are coming, then you can interpret those as facts. So if you have Google Analytics installed you can, with giving some credit to Google for actually being accurate on all of this, you can look at that and say well, yes, I know that I’m getting ‘x’ number of visitors per month or per week to my website. So those are the facts that you know. And then there are things that you don’t know that you could answer by reporting, by saying, okay, well, we know that we’re getting this number of visitors to our website, how many people are coming over and viewing our pricing page, or visiting our pricing page and then going in and signing up for a trial? And for something like that, you might use Kissmetrics or Mixpanel or something along those lines. But those are questions that you have that you could ask that you just, you know the question, you just don’t know the answer because you haven’t gone and looked at the data yet. And then there’s things that you don’t know, that you know, which are things that you just have a gut feel about. So for example, you might say, well, I think that we’re getting a lot of our trials coming in through word-of-mouth. If your products are growing and your customers are telling other customers about it, then you might have an intuition about that. But you don’t necessarily know that, and it can be very difficult to figure out exactly how that’s happening without doing a lot of analysis of those people that are coming in and having direct conversations with those people one-on-one, for every single person who signs up for your service. And then the fourth category are the things that you don’t know, that you don’t know. And those are things that, honestly it’s going to change a lot based on your type of business, but you might find out that maybe you believe there is a viral component or that people were sharing a lot of information about, oh, you should sign up for this service and your customers were talking to other customers about it. But you may just find out that, oh, it was posted on some forum someplace, and you didn’t even know that that was a great way for people to find out about your service.
Rob [0:13:53]: Okay, cool, that helps clear it up. Finding the metric that matters also depends on what kind of business you’re in. If you’re running a SaaS app, maybe it’s MRR, maybe it’s MRR growth. Maybe if you’re at an earlier stage, it’s just trying to get some customers in the door, customer count. If you’re like in a collaborative or a community software company, maybe something like StackExchange or Reddit, then maybe it’s the number of votes, the number of comments, the number of new content pieces that are created for you by the community. If you’re a media company, maybe it’s the number of page views that you’re getting. If you sell games, maybe it’s the number of in-app purchases. Or if you sell apps and maybe don’t have direct access to your customers, you’re obviously going to have less data than if you’re dealing directly with folks, so maybe you sell a mobile app through the iOS app store, then you might have to look at a higher level thing, like the number of downloads of your free version and then the number of purchases or number of dollars coming from your paid version. And finally, if you have just a transactional business with like one-time sales, so maybe you have desktop ftp client, or you have invoicing software that someone can download and install and it’s not a subscription, obviously your metric is going to be different than a SaaS app, because you don’t have monthly recurring revenue. At that point, maybe it just is total revenue per month of total downloads of your free version, if those tend to highly correlate with getting more downloads and more sales of your paid version.
Mike [0:15:20]: The other thing that factors heavily into this is what stage of your business are you at. So are you really in the early, early stages where you’re just talking to people and you’re just trying to get attention for a landing page that you’ve put up. Are you actively having conversations with people and doing a needs discovery? Are you at the validation stage, where you are creating an MVP for the product? Or have you even gotten past that point and you’ve launched the product and now you’re looking at doing feature optimizations and implementing customer requests, or even further than that where you’ve got a stable app and you’ve hit product market and you’re really just trying to optimize the entire business, based on which of those stages you’re at, your metric that you’re looking at is going to change kind of dramatically from one stage to the next.
Rob [0:16:03]: Yeah, absolutely. I mean, if you’re pre-launch, then I’d say a big metric is how many email addresses can you get on that pre-launch list. If you have a few customers, beta customers in there early and you’re doing customer development, maybe it’s the engagement, maybe it’s like the amount of times they log in or the amount of features that they’re using. Or even like the number of features that they suggest that kind of fit within your vision. I mean, it could be as simple as that, when you’re trying to get to that next step, it actually comes easier and more clear once you’ve broken past, I’ll say product market fit, but once you know that you’ve built something that people want, it becomes easier because then you tend to just have a pretty straightforward metric that you’re trying to grow. It’s going to be probably revenue or trial downloads or there’s something there, but before that at each stage it’s going to be changing pretty frequently as you move between the stages.
Mike [0:16:53]: Right, I remember kind of a specific example from when Facebook was kind of building up in the early stages. One of their metrics was that they wanted somebody to sign up and add, I think the number was like 10 or 20 friends, within seven days. And those people were going to have a dramatically experience and be more “successful” with their product than the people who did not. So that was one of their key metrics that they used very early on. So it was very feature driven at that point. They said if somebody uses this particular feature which is just adding friends, then they will be more successful with the product, and we want to be able to identify those people and figure out how to get more of those people. So the next thing to think about is who is this metric for, you know, who is the intended audience for this metric? If it’s MRR, then it might be to management, but there are different metrics that you can track that could go to internal groups. It might go to the marketing team or the developer team. You might have metrics that you’re developing for investors or for the press, or as part of a marketing campaign. There’s lots of different reasons why you might have these metrics, but you want to be able to make sure that you are identifying these metrics for a very specific reason. And you want to know who those metrics are going to, because that’s going to make a difference. And the specifics of which metrics you’re tracking.
Mike [0:18:10]: So let’s start talking about what makes a good metric. And the first part of this is make sure that your metric is a rate or ratio, because those are going to be better than an absolute or a cumulative value of any kind. So, I’ll give you an example, from earlier in this particular podcast I talked about the fact that I was measuring the number of conversations per week. Now, if I were just measuring the total number of conversations I had, then that wouldn’t necessarily be a good metric. But the fact that I’m measuring them on a per week basis, I’m able to relate one week to the next and figure out whether or not I’m maintaining progress or declining or exceeding the expected rate.
Rob [0:18:51]: And I think it’s interesting to think about with the SaaS app, we never even talk about what’s the total aggregate revenue that the app has ever generated, right? That would be a very bad metric, that’d be an absolute number and it would grow every month, right, because as long as you have revenue coming in, you would just add it to it. And that number could be hundreds of thousands of dollars or millions of dollars, but that doesn’t give you a really good picture of what the business is doing because there’s no rate or ratio to it. So I think, if you think about MRR as it’s basically the recurring revenue that you have at the end of that one month, so that gives you kind of a rate there, and then I think growth, like MRR growth is a ratio as well, right, because it is the amount of new revenue, new MRR you’ve added compared to your total. And so, I know that a lot of start-ups look at their month over month percentage growth, and that’s a big thing that [YEC?] looks at and a lot of these accelerators look at. I personally don’t track, I’ve gone back and calculated it for particular purposes when the audience, whether I’m giving a talk or whether I know someone is actually looking for that number, it’s easy enough to calculate going back, that is not a key driver that I look at when managing the business, but that’s not a bad thing. I think if you are a startup like Paul Graham says, growth is everything, and so for them, even if you’re doing revenue growth, they probably lose sight of the absolute revenue because that’s less important than the growth and the rate of growth that they’re experiencing as they’re working on it. Because growth has a lot to do with whether or not you have traction. And traction has a lot to do with whether or not you’re going to be able to raise that next funding round. So if you’re in the V.C. space, the venture funded space, about every 18 months you tend to have to raise a round. And even if your MRR is going up, if your growth numbers don’t hit the ranges that they need, it’ll be pretty hard for you to raise a round. So you can see how for those guys, given their audience, they’re tracking more growth, whereas someone who’s maybe boot-strapping a business, and probably has other goals, might look at something a little more solid like monthly recurring revenue or some people might even look at monthly net profit.
Mike [0:20:56]: But I think the key point that you’re making there is that those are monthly numbers, that it’s monthly recurring revenue or monthly profit. And it’s important to have that monthly piece of it, because if you don’t have a time period of any kind, then really it’s just a number, it’s a vanity metric at that point, which is essentially meaningless to the business. You can’t compare it to other time periods because it’s just a number. If you are able to compare it to other time periods, that’s when it becomes meaningful, that’s the important piece, and that’s what makes it a good metric.
Rob [0:21:25]: Yeah, it also makes predictions a lot more easy to come up with and probably more accurate. If you’ve been tracking this number over time for these small time periods, so let’s say weekly growth or monthly revenue, you get a sense of where this thing’s going. You can notice pretty early on if you’re looking at the rate of change, you’ll notice on a graph or even intuitively in the numbers, if you’ve been following this, you can kind of feel the pulse of it. And you’ll notice as things are changing, you’ll be able to predict out a month or two. I don’t tend to do predictions for predictions sake, but there are a few conversations I’ve been in where people have asked me, now where do you think you’ll be in three months or six months or whatever, and I have a decent idea. And so far the predictions that I made during the summer were hitting those, barring some unforeseen circumstances, you can get pretty good, if you’re doing this ratio per time period, you can project out and be reasonable as long as a major roadblock that’s unexpected doesn’t crop up.
Mike [0:22:18]: Another thing that makes a good metric is that it’s easy to understand. So for example, monthly recurring revenue, is very cut and dry. You can easily understand that. Same thing when it goes to like profit or conversion rates. But I think that once you start getting into some of the super advanced metrics that are much more difficult to understand, so if you’re aggregating a bunch of data, and then trying to use that to compare against other aggregated data over different time periods, as soon as it becomes a lot more difficult to understand, it becomes much more difficult to also figure out what it is that you need to do in order to start making changes to that number or how to influence it. So you want to try and choose a metric that’s simple and easy for everybody in the organization to understand so that they know what their capabilities are around influencing that number.
Rob [0:23:06]: And another piece that makes a good metric is if the metric helps you make predictions more accurate. I already touched on this a little bit, but I kind of went about it the other way, saying that if you have a good metric, it makes it more accurate. But you’ll want to choose a metric that actually helps you make better predictions. I think that’s a key piece. If you find that yours is not, then it’s probably not a very good metric.
Mike [0:23:30]: And the last thing that makes a good metric is that, the metric has to change your behavior. And one of the things that I’ve seen a lot over the years is that when people are doing A-B testing, for example, they’ll do A-B testing just to do A-B testing. And it doesn’t change what they do. They’ll pick it up, they’ll do it for a little while, and then they’ll stop. And whether they see results or not, the fact is they don’t carry that forward. So it doesn’t change their behavior. So the fact of the matter is, like why are you even bothering. If those numbers that you’re getting out of that aren’t going to change or influence what you do, then why are you even tracking that. It’s essentially immaterial at that point.
Rob [0:24:05]: If you’re interested in learning more about finding your one key metric, we have three links for that we’ll put in the show notes that Mike used to help put together this episode. And if you haven’t read it, you’ll probably want to check out “Lean Analytics.” It’s a book from O’Reilly Press. It’s written by Ben Yoskovitz and Alistair Croll. And it is worth looking at, if you are looking for the single metric that matters. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our them music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us in iTunes by searching for “startups,” and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 259 | Making Your First $2k from Products, Whether to Look For a Co-Founder, Rehabbing an Existing Product, and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike take a number of listener questions including talking about making your first $2k from products, whether to look for a Co-Founder, and rehabbing an existing product.
Items mentioned in this episode:
Transcript
Rob [00:29]: In this episode of Startups For the Rest of Us, Mike and I talk about making your first $2,000 from products, whether to look for a co-founder, re-habing an existing product, and more listener questions. This is Startups For the Rest of Us, episode 259.
Welcome to Startups For the Rest of Us, the podcast helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:30]: And I’m Mike.
Rob [00:34]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike [00:39]: Well, tomorrow at precisely 4:29 p.m., Marty McFly arrives from the past.
Rob [00:46]: Very nice. I’ve heard a lot of folks talking about it, and then asking where the hoverboards and the nuclear fusion thing that straps to your car.
Mike [00:47]: And the fax machines, you know, don’t forget those.
Rob [00:49]: Indeed. What else is going on?
Mike [01:40]: So I spent the past couple of weeks doing, essentially market validation for a couple of the different ideas that I’ve had, and I’ve been focusing really in on the one-to-one email sequences. And so far I’ve had 23 conversations with people, and of those 23 conversations 11 people have said that they would pay me for it. So I’m still trying to work things out because from one person to the next there seems to be a lot of variation between the specifics of what they are looking for and the problem that they’re trying to solve. They’re all very, very similar, but trying to nail down exactly what would work for the vast majority of them is, kind of, the hard part. I’m figuring out where that is and where I can get the most traction, I guess that’s the challenging part right now. And people are using different terminology for the same types of things, too. So that makes it even harder.
Rob [02:15]: For sure. For sure. And that’s the hard part about customer development is that you’re either going to get 20 different opinions, or you’re going to get several opinions that are the same but you don’t realize they’re the same because they’re using different vocabulary. And it’s hard if something doesn’t exist and you can’t just show it to them to figure out if it’s actually A, going to do what they want, or B- the little subtleties with email. It could be cold email, it could be warm email, it could be bulk email. There’s so many things. So until you can figure out which stage they’re using it at and how much value it has to them. Like, have you talked price point at all?
Mike [02:19]: I have. I’ve talked price point with virtually every single one of them.
Rob [02:19]: Good.
Mike [02:38]: So I have a ballpark idea so far of where the MRR would come from if they were all to sign up today. But I’m at the process where I’m still just gathering information right now, and then once I have a better idea of what it is that the solution would look like, then I’m basically going to draw up the designs, go back to every single one of them and say, “Can I get a pre-order for this?”
Rob [02:45]: Mm-hmm. You said you have 11 commitments, how many are you going for before you start moving forward?
Mike [03:12]: I want to be able to get to the point where I have at least 10 who are willing to move forward on that commitment. So it’s kind of nebulous as to how many I have to get to. Is it 15, is it 20, is it 25. It really depends on one, how far I want to take it, how much variation I see between people. If I think I have something that is going to fit for at least 12 to 15 people, then I’ll probably start moving forward. But, again, like I said, some of them are all over the map, so it’s still up in the air right now.
Rob [04:21]: For sure. Well while you’re in the process of adding to your product portfolio, I’ve actually been in the process of paring mine down so that I can focus on, essentially, on Drip and MicroConf and the podcast, and my blog and the other stuff. But really have been either selling or I’ve actually given, DotNetInvoice to my business partner. And HitTail is up for sale right now through Thomas Smale at FE International. If someone is interested it is still on the market. So it feels good to be able to focus more on the things that are really working. Double and triple down on Drip in essence, because that is where I’ve been spending the bulk of my time, and it’s where I think it should be spent for the next “until it’s done”, is what it is. And if that’s five years or ten years, that’s where I’m at. I’m not in the mode anymore of the “starting the next one after one to two years”, which I was for a while, and building up the portfolio. I think I’m ready to head in the opposite direction and really build this one up. There’s just a lot more opportunity and a lot more growth going on than anything I’ve done in the past. So I’m doubling down on that.
Mike [04:30]: Do you think that’s a byproduct of the type of product this is in relation to some of the previous ones, or is it more of a career trajectory sort of thing?
Rob [05:05]: Yeah, you know that’s a good question to ask. I think it’s partly both. Certainly, I’m at the point in my career where I do want to focus on some things that I really enjoy, and I kind of want to take things to the next level because it allows me to learn and that’s when I’m happy. That’s one of my definitions of success is learning a lot of stuff and being in control of what I’m working on. But I also think that if you look at Drip, and you look at how large the market is, and if you look at the opportunity here and the price point, the average MRR per customer. Just all these things are completely different than everything I’ve done in the past. So I think it’s some of both, to answer your question.
Mike [05:06]: So what are we talking about this week?
Rob [06:16]: We have a slew of listener questions. We’re actually backlogged. Some of these are from almost a year ago. And apologies to folks who sent them in and haven’t had us answer them yet. But we still want to answer ones that are general enough that I think they’ll apply to most folks listening. Our first question is from Daniel McCraty and it’s actually not a question. It was just an email to say thank you. He says, “Hi Mike and Rob. I really wanted to say thank you. I’m a long time listener who’s starting to see some success from your advice. As a full-time developer and now a technical lead, I don’t get a lot of experience with marketing in my day-to-day job. Listening to your podcast has helped fill in some gaps and kept me from going down the wrong path. I’ve created a minimal product and nice clean landing page that people actually purchase my product from, and I’m getting great feedback on feature enhancements that the customers want. I know I have a lot of work to do but 20 sales in the first two months is a success in my book.” And his subject line was “I made $2,000 in the first two months.” Yeah, thanks a lot for writing in, Daniel. His app, if you want to take a look at it is at Woo Ticket Studio, that’s W-O-O, ticketstudio.com if you’re interested in checking it out. And thanks, as always, for writing in with success stories. We love to hear from folks who have been long time listeners and have implemented what we said, whether to launch product, make the first couple thousand online or to quit your job.
Mike [06:17]: Yeah, great job, Dan.
Rob [06:37]: All right. Now let’s queue us up for our first question. So this is from Justin McGill and he sent it over a year ago. Sorry about that Justin. But he asked us “What do your daily and weekly schedules look like? Rob with his multiple projects and Mike with whatever he’s working on at the time. I think both perspectives would be helpful.” Why don’t you kick us off, Mike.
Mike [07:42]: I guess, in terms of my daily schedule, I try to get up before eight o’clock, and there are definitely days where that just simply does not happen. A lot of times, my schedule for the day tends to be dictated by how late I worked the previous day. So if I were working until five or six and then spent time with the family, and then if I decide for whatever reason to go back and sit on my computer and do some work or fool around or anything, there are definitely times where I stayed up until 12, one o’clock in the morning. And that will have a severely negative impact on my following day. So I try to avoid it as much as I can, but it does still creep in there one and a while. And then for the rest of the time, I try to stick to a schedule where roughly from eight to five I’m working, and then after that lately it’s been up until about three to four o’clock, where after that it’s been difficult to get things done, just because my office has now moved upstairs. So the kids get home at three, so there’s definitely a lot more pressure to get everything done by three o’clock or four o’clock because the kids will start to interrupt. So that’s generally what my schedule looks like. I try to avoid working on Saturdays or Sundays, just kind of out of matter of principle. What about you?
Rob [09:56]: I think I’m pretty similar to you. My schedule used to be very different. Obviously it was all nights and weekends for a long time, for the first several years, because I was typically doing salary work, or in the later days, consulting, you know, in 2000, let’s say, 5, 6, and 7. I was doing 30, 40 hours a week consulting during the day, and then working on products on the side. And then I hit a certain point where I just decided I really didn’t want to do that anymore. I didn’t want to do the night and weekend stuff. And so I will do some work in the evenings, sometimes. And especially if Sherry’s out with the kids and I’m home alone, unfortunately, I will tend to veer by the computer and either do email or work on something that needs to get done. I’ve been trying lately to not do that, because I find that if I work too much, I just become not productive. Your work expands to fill whatever time you give it. And so I’ve really been trying to avoid that. I listen to a lot of audio books, I read a lot. I listen to a lot of podcasts and I do find myself thinking about work, jotting notes down, doing a lot of strategy type stuff in the evening if I have free time, or on the weekends if I’m out and about running errands or just doing stuff around the property. I wind up coming up with a lot of, what I think, are my best ideas when I’m not sitting behind my desk – because that’s when you’re actually getting work done – but I’m out and about, I’m doing stuff. So I wouldn’t say I work on the weekends or the evenings, but I do get kind of strategic thinking done. In terms of the daytime, I’m up by 7 a.m.. I make breakfast for the family and then take the kids to school, one or both of them. And then I head into the office two days a week, three days a week, it depends. And work from around 8:30 until whenever it’s done, which is between 3 and 5 depending on the day. And so if I don’t get a full workday in during that time I will add a little time in the evening or on a weekend to make up for it for sure.
Our next question is about entering a competitive SaaS market. And it’s from Scott Underwood and he said, “Here are some podcast ideas for you.” He says, “Do you have any thoughts or tips on entering a SaaS market with large competitors?” Meaning you take someone else’s SaaS app or niche and you innovate on it?”
Mike [11:32]: I think there’s some interesting opportunities in going into these types of markets because you can essentially build, not necessarily features, but add-ons or plug-ins for other vendors and essentially build on top of their platform or on top of their application. And there’s lots of people who’ve done this very successfully. I think the one thing you have to really be careful of is, I think, what Joel Spolsky at one point called “snatching nickels from a steamroller.” And his reference point was the fact that people were building a lot of copy-paste applications back when iOS was first released and it didn’t support copy-paste. And then all it takes for that entire business to go away is for them to implement that one feature. So there’s got to be a compelling reason for them to not do it. And if it’s a feature that is compelling enough for them to implement, you have to be careful just because they will eventually kill your business. So if you’re bolting something onto those larger applications, you do have to be a little bit careful of that. The other thing I’d say is if you’re taking a much larger application and just taking off a tiny little slice of it, you could probably do a much better job then they are. But you also have to find people who are willing to pay for just that tiny slice of the solution as opposed to the entire thing. So those are the caveats around it, I think. In terms of my general thoughts on it, I don’t think there’s anything inherently wrong with it, but you do have to pick and choose which of these battles you fight, because some of them are going to be worth it, some of them aren’t. And there’s going to be some where that larger competitor comes in and essentially, squishes you just because they come in and they have the resources to bare on a problem, and if it’s important enough to them and to their customers, they’re going to do it.
Rob [12:14]: So you were taking that from the angle of building like add-ons for larger products or in their ecosystem. I would look at this, I mean he’s asking more about how to take on a larger competitor. Yeah, obviously marketing automation would be an example. I’m not building add-ons for HubSpot or Infusionsoft or one of those guys, but we are taking them on kind of directly as a one-on-one competitor. So actually I do have a lot of thoughts on this. I got an interesting email. It was probably about a year and a half ago, from Drew Sinaki, a long time listener of the show. And he asked are you trying to do an innovators dilemma to Infusionsoft? And I thought that was a really interesting way to put it. Have you read that book?
Mike [12:15]: Yes, I have.
Rob [14:13]: So the “innovators dilemma” is where you’re a big company in a market that’s existed for ten or 20 years and the market’s starting to shift and there’s a lower cost or an easier solution that’s coming in front of you, but you won’t cannibalize your business in order to take advantage of that new market opportunity. And so IBM has seen this, Microsoft is seeing this. It happens with a lot of larger technology companies, in general, as the technology changes. And I thought it was a really interesting way Drew put that in the email. It got me thinking. I actually went back and listened to the book again. I hadn’t listened to it in a few years. And I think that that’s the tactic that you need to take if you’re going to go after. Or I think it’s probably the optimal tactic. There’s probably many that you can do, but that’s the approach that I would look at doing is to basically [couch?] yourself as the opposite of whatever they are. So if they are big and cumbersome and clumsy and they don’t have a lot of features and they’re expensive, well, start off as being the opposite of all that. And you can be pretty intentional about marketing yourself as that. If you go to the Drip homepage, there’s a couple thousand words on that page that really are positioning us as the opposite of the larger players. And after that, it’s execution, right? I mean you actually have to really build a better app. You can’t just build a clunky app and expect that since you have fewer features you’re going to be easier to use, because that’s not the case. So you need to focus a lot on usability and really double down on your differences and also try not to get the feature bloat that a lot of these larger apps have. So you can’t build everything that everyone’s asking for. So those would be my thoughts about kind of early advantages when heading into a market with heavy competition.
The other question Scott had for us, he said, “Do you have any data or lessons learned from Drip for the most effective opt-ins for building an email list? I know you don’t like the exit pop-up forms but I’ve seen several people tweeting how effective they are.” He’s talking like a bounce exchange exit intent pop-up. Do you have thoughts on those? Do you use one of those?
Mike [15:28]: I have tested them. I’d have to go back and look. I think that I might actually have it on my blog. I don’t remember if I ever went back and either disabled that or changed it. But I do remember testing it. And now that you bring it up, I don’t remember if I ever actually went back and looked at the results of that test, because I probably got distracted so that’s totally on me. I’ve heard similar things like people have said over and over and over again that the exit intent pop-ups convert better. Now I think the one point of caution I would say is they get you more email addresses, they don’t necessarily convert to sales any better. They may, they may not. I think that it depends on what your industry is. But at the same time if you don’t get an email address then you have no opportunity to sell to them. So in a way it makes more sense to get as many email addresses as you possibly can. There are, I’ll say, certain people, myself included, who kind of feel like, “Well I don’t want to be too intrusive about it.” But at the same time, if you’re offering a product of a solution that is extremely helpful to that audience, then it’s kind of an obligation to get in front of those types of people in any way, shape or form because you can give them a lot of value. So there’s different schools of thought on that. I’m kind of in the middle. I think that it really depends on what type of product that you’re selling as to whether or not I’d do it.
Rob [18:00]: Yeah, I have a personal take. I don’t like them as a user, and so I won’t put them on my sites because I find them irritating and I have heard that, like you said, you get more emails, but I use the justification of they’re probably not going to convert as well because you kind of forced people into it. I haven’t tested it. It’s just one of the things that I’m not willing to do. I think when I was back in the day, reading a bunch of Dan Kennedy stuff about copywriting, he’s a very good copywriter, I adopted the things that I was willing to ethically take on and the purchases I was willing to do and feel good about myself. I never say something in a sales letter or on a marketing website that I wouldn’t say face-to-face to someone at a conference or at a cocktail party, frankly. And that’s just a personal thing so that everyday I wake up and I feel good about myself, and I can tell my kids and my wife that this is stuff that I’m- I’m really proud of what I do and the value I give back. Now in theory, are you leaving, perhaps, something on the table by not using one of these exit intents, or by not using a more aggressive form of marketing? Yeah, in theory, sure. Is that extra five percent or ten percent or 20 percent over the course of your life, is it going to make a huge difference if you feel like you are sacrificing something internally? Whether you call it like a moral code or just something that you’re not comfortable with, that you don’t feel good about. It’s your choice. Different people have different lines. I think there’s a lot of things in business like that, right? There are some absolute lines of legality and illegality, and then a lot of things that have gray areas. And I feel like this is one of them. So certain people shout from the rooftops that exit intent is the way to go. And obviously they feel comfortable with it. Now when I visit their sites and I get irritated by it, I’m much, much less likely to go back to their site. And I also have never, I don’t think ever in my life, entered my email address into an exit intent pop-up. And I typically make a note like, “All right, this is definitely a site that I’m not in love with.” I don’t feel like they treat me with respect when they use it. I feel like they’re interrupting my flow and they’re bothering my flow of web surfing and consuming content on the Internet. But maybe the site owner doesn’t feel like that. And to kind of wrap it up, for a long time we didn’t build an exit intent pop-up, or exit triggered pop-up, in Drip. But we found that in certain industries and certain niches and just based on different marketers, certain people like them, and they work for them. And so I realize that applying that piece of judgment on exit triggered stuff wasn’t necessarily the way to go. And so we do offer it as a service if you enable it in Drip, but it’s not something I would personally use myself.
Mike [18:31]: Yeah, I went back and just double checked while you were talking. I disabled it. I don’t recall whether or not I looked over the details of what it was, but I definitely tried it out. I don’t think that there was a massive increase for me. It just didn’t seem worth it for wrecking the user experience, as you said. Because I’m kind of in the same camp as you, like when I start seeing those exit pop-ups, I just close the browser or if it’s an article I really want to read then I’ll read it or click by it. But if I have to enter an email address to read, out of principle, I just won’t.
Rob [20:32]: Yeah, and there may come a time when it’s the norm and you have to deal with it. There may be a backlash at some point. I mean ad blockers are coming up because of this type of thing. Because of the more aggressive advertising and these marketing approaches, ad blockers are being used by more and more people. And I think that’s kind of a shame, frankly. I think that if we were able to all agree on a decent level of advertising and marketing, I think that the Internet becomes a better place, and I think people don’t necessarily use that kind of stuff. I’ve been trying to go to just some basic news websites. Drip got written up on the Huffington Post yesterday. And just surfing around that site, it’s like there’s so much stuff. The site is slow. There’s Javascript, there’s videos autoplaying in front of me. It was crazy. I really haven’t read news online in a long time, because I consume most of it via podcast, but I hadn’t realized the state that we’re in and now I realize why these pop-up blockers are becoming so prominent.
Our next question is from Richard Garside. And his question is on breathing life into an old product. He says, “I really love the show and I find it very interesting. I’m setting my goals for the next year and one thing I’m thinking about is whether or not to breathe life back into an old software product of mine called Font Picker, Thefonticker.net. I created it when I had some spare time and it did quite well. Since then I have not had as much free time and I’ve just left it for almost two years. Sales have slowed and they continue to do so. I think I could both improve the product and the marketing. I continue to get good feedback and feature requests from customers and the app has a really good ranking in the Mac app store. In some ways, this is kind of like buying an existing product that you think you can improve. I think you’ve covered everything I need in various shows, but how would you approach saving an existing product from a slow death and bringing it back to full glory? Some things I’m thinking about are : improving the user interface design, improving the website, adding more features and just improving my marketing ability. As a developer, I want to get stuck into new features but perhaps that’s not the most important thing. I’m also fighting the urge to rewrite it in Swift. Time is limited and I don’t have time to do everything I want to do. Thanks for the shows and everything.” What do you think?
Mike [21:23]: Well I think the first thing I would say is do not rewrite it. If you’re trying to breathe life into an old product, especially one that’s on the decline, then I don’t think that rewriting it is going to make any difference. Your customers are not going to care that it’s rewritten. Unless you’re looking for some wholesale, complete UI redesign, which I don’t think entails a complete rewrite in a different language, then that’s probably not the way to go. In terms of a lot of the things that you mentioned, improving the UI, improving the website, I’m not so sure about adding new features but definitely getting better at the marketing aspect of it. Obviously, those are all good things to pursue. But I think at the end of the day you also have to ask yourself is this something that you really want to do, because if it’s not something that you want to do then you’re basically either going to half-ass it or just not be committed to it. And at that point the product itself is going to suffer.
Rob [25:21]: Yeah, I’d agree with Mike. I would not rewrite it yet. If you decide to get into it and it starts making quite a bit of money and you decide that it really is a hassle to add features, you could consider it at that point. But at this point, all you want to do it figure out, can you even rehab this thing? Can you get more sales out of it? Because if you can’t then none of the other stuff is worth doing. So the first thing I would look at is how are you going to drive more customers to it? That’s really what I would think. It’s like if you get a lot of your leads from the web, then I would probably redo your marketing website or at least improve the copy, make it look more modern. And if you have enough traffic to split test, that’s fine, but if not, just go with your gut on this and try to improve it there. Or if you get most of your customers from the Mac app store, then do some research on how to get your rankings up there. And if it’s releasing new features gets you mentioned or gets you reviewed or gets you whatever, then I’d do new features. But if not, then I would not be writing any code at this point. I would purely be looking at how to take the existing channels that are already driving customers, double down on those. How could you grow those by 50 percent, 100 percent, 200 percent, over the next three months without writing any code, right? Any production adjustments to the app. You can obviously write web code if you’re redoing the marketing side. So that’s the first thing I would do. Second thing I would think about is are there other marketing channels that you can start looking at? So with a small price point, obviously you’re not going to be able to do something like advertising, but if you’re not ranking well in Google, is there an SEO play here? If you’re not ranking well in the app store, obviously, that’s kind of a no-brainer to do it. Or there’s some JV partnerships where you could email your list and someone else emails their list. These are the types of things that I would start off right off the bat and attack. These are your early wins. It’s your low hanging fruit. Some of it’s not going to scale, but if it gets you a nice little bump in sales it all just aggregates and will build up over time. And then, if you’ve proven that you can grow this thing and it is doubled, tripled revenue, it’s making enough money to make it worthwhile, then you can think about, “I’m going to add a bunch of features,” and then you have something to talk about to your list. That’s the other thing I would do. I would definitely get – I don’t know if you’re already collecting email addresses – but build the list, right? Build the list on fontpicker.net for something really cool that folks would want to know about. They’re looking for font pickers then I’m assuming it’s a design audience so add a five day mini-course on how to pick the best font or how to have fonts interact with color, whatever it is. There’s certainly something off the top of your head that you’ll be able to do because that list will be huge for you. If you get a few thousand people on that, every time you release that new version you can email that list and get that bump in sales. But that’s probably where I would start. There’s obviously a lot to it.
Our next question is from Josh and he’s asking for some advice on either starting up a UX productized service, or buying an existing business. He says, “Hey guys. I love the show. Started dipping into old episodes and saving out things that you’ve talked about recently. Namely what to not focus so much on when you’re just starting out, etc. Here’s my dilemma. I used to run a UX consulting firm. It wasn’t scalable, and if I did it today I would do it way differently. I would offer it as a productized service to startups and small businesses. So I’m considering that as one route. Then I was listening to one of your episodes which mentioned buying existing business. I did some research and found that I would need around three times my salary to make this happen. This shouldn’t be an issue as I have some money saved up from investments that I can use and I can get 50 percent as a loan from the bank. So I’m debating either starting a UX productized service, or buying an existing company for cash flow and running both of them in tandem.” He has, “And/or, buying an existing company and running both in tandem. My question is, how do I structure this as a business? Right now I have a LLC and have it registered as doing Internet services. Would I be able to buy a company and roll it into the existing LLC or should I do another corporation?”
Wow, actually I don’t think that’s your question. I think your question is should you do the UX consulting thing or acquire a business. I obviously have a lot of thoughts but why don’t you kick us off, Mike.
Mike [26:12]: Yeah, I wouldn’t do both of them at the same time. I think the big red flag that pops out at me is buying something for three times your current salary when it seems to me like you’d also have to get a loan. I think that’s what he said, is that he’d also have to get a 50 percent loan from the bank. And that seems to me to be a huge chunk of money to go out and plunk down on something where typically the returns on those, you’re not going to get a full return on that for quite a while because you’re probably going to buy it for 3x the annual revenue or something along those lines. So I would have a really hard time going out and plunking down that kind of money for something that either I wasn’t necessarily passionate about, or didn’t necessarily know enough about. And I haven’t bought anything at that level. I think Rob, you, back in the day, you bought HitTail and that was for a good chunk of money, but at the same time it still had a lot of potential to it, I think.
Rob [26:14]: Yeah, it wasn’t nearly that amount.
Mike [26:43]: Yeah, so like the dollar amounts, I think, are significantly different. I wouldn’t personally feel comfortable dumping that much money into something if I wasn’t really, really sure. And for me to be really really sure, it would probably take a lot more than just a month or two or even six months of looking at the books and stuff. I’d want to be involved with the business before I bought it. I don’t have any good advice on that other than don’t do both at the same time. The other thing that does come to mind is look for something smaller to buy that you could run on the side.
Rob [26:43]: And grow it.
Mike [27:07]: Yeah, that seems to be like a better way to go because then you could at least learn, too. I think the last thing you want to do is essentially learn on a bigtime production app. I mean you’re basically saying, “I’m going to go play in the majors when you haven’t even really played around in the sandbox.” so to speak. It seems to me like a big risk. I wouldn’t be comfortable with it. Your mileage may vary on that one.
Rob [28:26]: Right, yeah, it’s funny. The corporate structure, I think, is certainly the least of your worries. I’ll talk a little bit about that in a second. I’ll cover it last because it’s the lowest priority. I wholeheartedly agree absolutely do not do both at once. Pick one and go all in on that thing and grow it and grow it as large as you can. And then either have an exit from that or use the cash flow to do your next thing. But I really, really would encourage you not to try to do both at once, to grow two things. It just does not work. In terms of acquiring, I agree, buying something for three times your salary, if you’re not already versed in marketing products, is quite a risk. I wouldn’t say never do it, but it’s a big risk. Probably bigger risk than I would be willing to take. It doesn’t feel like you’re stair-stepping up, you know. If you already had a few WordPress plugins or a small SaaS app and you were looking to buy something for $200,000 or $300,000, I’d say well you have the experience to do it. But just jumping up and trying to do that is really a big deal. I do know that in terms of, Mike you were concerned about the numbers not being valid or maybe the revenue not being there or whatever, I know that when the reputable brokers like FE International, they do a ton of vetting. So I think the odds are pretty good. Obviously it’s possible that there be an error and not have it actually be as successful as you want. But in my experience, the risk is going down now that these brokers are in here and actually doing a lot of vetting.
Mike [29:03]: Yeah, I don’t think it was the risk. For me I don’t think it’s the risk so much of like you getting ripped off or not a good valuation. But just the time that it would take to get a return on that, it seems to me like if you’re looking for something to just provide you with a stable income that you can grow incrementally over the next several years, great. But somebody got out of that business for a reason, and it may very well be that they took the business as far as they could and what guarantees do you have that you’re going to be able to do any better with it. And it’s not saying that you can’t. I’m just pointing out that there is an inherent risk that says that you can’t.
Rob [32:30]: But I think that’s kind of the entire opportunity of buying a business is that you may get someone who, like me is selling HitTail to focus on other things. I’ve seen HitTail do three or four times the revenue it’s doing right now. It was very successful, but I haven’t had time to focus on it. So the potential is there. I think you could also get someone selling- like a lot of the ones I’ve acquired where someone built it and it had a single traffic source and the developer didn’t know how to grow the thing. They didn’t know how to 5x it or 10x it. And that could be an opportunity. So I think that’s just part of the process of buying something based on an opportunity that you see. And so if you know how to do SEO or AdWords or content marketing or you have a skill that you can apply and you see that someone’s not doing any content marketing in a niche where it totally makes sense to do so, I think that’s an opportunity. That’s how I used to buy and grow things. But with that said, we don’t know Josh’s toolbelt. And so Josh, if you don’t have any marketing skills that are proven at this point that you’ve done really well in the past and had success with, then it is a bit of a risk. Now I will say that I’ve been surprised- you can actually take out an SBA loan, at least in the U.S., there’s a small business loan, and they just changed the rules in the past year to where you can now take it out to buy software products, or I’m assuming income generating online stuff. And the loan payment on a loan for, let’s say 200 or $250,000 is a lot less than the revenue, or even the net profit you’re going to make, from an app that costs that. So there is margin there. I don’t know if it’s enough to live on, but it’s an interesting approach. Personally I’m not the type to take out a loan to buy a business. It’s just not my style. I’m going to be more stair-stepping up to doing it. But if you’re all in and you need to go towards it right now, I do think it’s an interesting and/or creative way of doing it. The other approach I saw recently is someone actually raising a small seed round from friends, family and a couple more notable kind of adviser folks. Basically like a little angel round to go acquire a SaaS app that has a ton of potential. And I know about this because I talked to him as a potential investor. And it’s really interesting because the app already has product market fit, and with the team I think there’s a lot of potential there, and so it’s kind of a no brainer. Because getting to that point is always costly and takes a lot of time, but if you can buy something that already has it, I think you’re in a good boat.
I think to wrap it up, the product, as consulting, to be honest, is probably – I don’t know that I’d say your best bet – but I think it’s more of a sure thing. And I actually think that waiting around and trying to find something to buy, it could take a while. You can’t just make something appear in a niche that you want to be in. So if you’re in a hurry I’d probably do the productise. If you’re willing to wait around and take the risk, you could consider acquiring the app. The last piece of your question was, “How do I structure it as a business?” You said, “Would I be able to buy a company and roll it into the existing LLC?” Don’t buy the company. You don’t want to buy a company because a company comes with liabilities, meaning if someone did something, got sued later on for that time period, you now have taken that on because you own the company. All you want to do is buy the product, essentially the assets of the company. And so once you have a product you can of course roll that under an LLC or an existing corp structure. I am not a lawyer so you’ll want to consult one, but that is how I’ve seen it done many times here in the U.S..
Mike [32:51]: Thanks for the question, Josh. I think that about wraps us up for time today. If you have a question for us you can call it into our voicemail number at 1-888-801-9690. Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Out of Control by Moot. Used under Creative Commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 258 | 9 Common A/B Testing Mistakes
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the common mistakes people make when A/B testing.
Items mentioned in this episode:
Transcript
Mike [00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about nine common A-B testing mistakes people make. This is “Startups for the Rest of Us” Episode 258.
[00:07]: [music plays]
Mike [00:15]: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [00:24]: And I’m Rob.
Mike [00:25]: And we’re here to share experiences to help you avoid the same mistakes we’ve made. What’s going on this week Rob?
Rob [00:29]: You know, at this point, it’s almost October 1st, and that gives us just about six weeks to get our stuff done before Thanksgiving happens here in the States. And frankly, the world goes into kind of holiday mode, it seems. So I’ve really been thinking about what the next six or seven weeks holds. I know by the time this goes live, it’ll probably be mid-October. So you only have a month, but think about that with whatever you’re doing. If you have another two to three weeks left to develop a big feature that you wanted to launch, you’re probably not going to launch it until January at this point. Maybe you could launch it first week of December, but it’s just so choppy from here on out. And I know there’s still three months left in the year, but it just starts getting touch-and-go here over the next few months as kind of the retail space – it’s great for eCommerce, not typically that good for B-to-B apps in terms of growth, and in terms of finding new customers. Because our heads are with plans of hanging out with family and doing other things. And a lot of folks are not necessarily like about, what’s the new app that they can sign up with and have a new trial running over your Thanksgiving break or your Christmas break. How about you, what’s going on?
Mike [01:35]: Well, I went on a personal retreat last weekend. And I found it really helpful. I came out of it kind of settled and at peace with myself on a number of different fronts, and more or less really raring to go and go after a couple of different key points that came out of my retreat. So kind of looking forward to the next six to twelve weeks and see what happens.
Rob [01:53]: When you say personal retreat, was it, you thought about work stuff or personal as well?
Mike [01:58]: Personal and work, so like I kind of dedicated some time to think about like things that were going on in my personal life and then also, in terms of like the business, and where I want to go and kind of what I want to do next. So I definitely sat down and analyzed a lot of things that have gone on over the past few years. Again, both on the personal front and on the business front. And then just helps me to make decisions on where to go next.
Rob [02:19]: And where are you going next?
Mike [02:21]: Well, it’s going to be validation for a couple of different ideas. And I basically went through a process that I had laid out in my book last year, and started ranking some of the different ideas and trying to figure out which one I should start validating first. So I kind of got it narrowed down a little bit. And right now, I’m going through the validation process with a bunch of people. I’ve had half a dozen conversations, and I’ve got at least half a dozen more scheduled over the next several days. And basically, like every day one of my tasks is to go through and start lining up more people to talk to for those conversations. So they’re going well so far. And I’ll just kind of see where it takes us. Until I get further through the process, I’ll probably just keep it quiet, I guess a little bit quiet for the time being. But I will talk about it probably a lot more on the podcast as things progress.
Rob [03:03]: Very nice. We have a slew of new iTunes reviews, and I won’t go through them all, but we had one from a couple of months ago, and it says, “I listen while I eat sandwiches. Really enjoy listening to the show, general candor and advice. Your knowledge is being used directly to introduce [Deli?] Empire, which includes a couple of different brands,” he says, “called Sandwich [Knob?] and Seafood [Dial?] to the world. Looking forward to catching up on the newer episodes. Another review says, “The last couple of months has been like watching Netflix.” And EA760 says, “Binged on all Rob and Mike’s past episodes and now have to wait a whole week for new episodes. Each episode is full of so much great info for the self-fronted entrepreneur. It’s the only podcast I listen to at 1x speed, because I’m constantly rewinding to take down notes. Thank you for the consistently invaluable advice and insight.” So thanks so much for your 5-star reviews. Even if you don’t want to write a full commentary like that, if you could log into iTunes, Downcast, Stitcher and plunk us a 5-star if you get any value out of the show, we would really appreciate it.
Mike [04:03]: One other thing to note: about a month ago, I did an interview with Matthew Paulson on email marketing demystified. And his book just came out, so it’s listed on Amazon right now, and we’ll link that up onto the show. But I just wanted to mention that because the episode did come out a little while ago. So before we dive into today’s episode, there is a listener question that we want to address. And this one comes in from Christian, and he says, “Blockers like Ghost Read, Privacy Badger, etc. are blocking third-party widgets like Qualaroo, Mixpanel and others. As content blockers grow in popularity, do you think this will kill Java script widget products?”
Rob [04:35]: So I think that the answer is no. I do think it can have an impact on them. I also know that some of these third-party blockers are getting a little, I’ll say ambitious, and they’re blocking things that aren’t exactly ad widgets. And that if you report – like at one point, the Drip JavaScript got blocked by an ad blocker. And when I reported it, they said, “Oh, you’re not an advertising platform. That’s okay.” And they unblocked it. So I don’t have experience with Ghost Read, Privacy Badger, to know if they’re doing this intentionally or if it’s accidentally, because technically most of these guys don’t want to block non-ads. They really just want to block ad networks and that kind of tracking and cookie stuff. I think some of them are getting, like I said, a little ambitious. And if they start to dive in and block things like Qualaroo or Mixpanel and other things, they’re going to start breaking the web at some point. Because people are relying on these services often to have some mission critical functionality. So in my estimation, number one, most people aren’t going to install these ad blockers. I mean, it’s a lot of people in our circles. But if you look at the total number of people on the internet versus the total number of people with ad blockers, it’s a tiny, tiny percentage. And then secondarily, I think that it’s kind of like you can go around the internet with cookies blocked and JavaScript blocked, but it breaks a lot of things. And that’s where these guys are going to have to find their line, because if they push it too far and it actually starts breaking things that require the site needs to do the fundamental functions, then they’re going to have to back off with that. And I think there will be backlash if they push it too far. So to answer that, the original question, I don’t think these are going to kill JS widget products. They may put a small damper on it on the short term as things adjust, but long-term, I feel like these things are going to continue.
Mike [06:17]: Yeah, I’m in agreement with you. I don’t think that they’re going to take over the world and get rid of every JavaScript widget product that’s out there. The fact of the matter is there’s a bunch of these products out there, and these types of products have been around easily for at least 10 years. And so like ad blockers of some kind, and this is really a variation of those, is like an ad blocker. But those have been out for at least 10 years and like I still don’t use an ad blocker. I can’t name anybody off the top of my head who does. I know that people do use them and I know that historically I’ve seen them advertised around and seen different places where they are present. But the bulk of the internet is not using them, and I just don’t think they’re going to become popular enough to make that significant of a dent in the businesses that they’re trying to I guess go against.
Rob [07:02]: So what are we talking about today for the main topic?
Mike [07:04]: Well, today’s topic is nine common A-B testing mistakes that people make. And this topic doesn’t come from any specific source, but I did use a bunch of different resources from Kissmetrics and kickSprout and ConversionXL to essentially put together this list. So some of the things are repeated on their list, but they have, I guess if you were to total up all of theirs, there’s probably 25 or so. It seemed like there was a bunch of low-hanging fruit that were highly overlapped between them. So I essentially concentrated on those for the outline for this episode. But the main gist of this is that a lot of people will advocate that you do A-B testing, but when you start getting into A-B testing, there is a ton of things that people will simply accept as true or fact. And unfortunately those things have a lot of subtle nuances to them. And I think that the main idea that will become a little bit more clear as we start going through these different mistakes that people are making.
Rob [07:54]: Let’s dive in.
Mike [07:55]: So the first one, is testing random stuff. And everyone’s probably heard about the 41 shades of blue test at Google where they were testing 41 different shades of blue to figure out which one would convert better on one of the Google buttons. And I would classify that as essentially random stuff. Because I look at something like that, it’s like, why would you even test that? What would possess Google to do that? And the fact is that they’ve got that kind of time on their hands to be able to do something like that, and they don’t know what else to do. And my question would be, is that really the best place in your sales funnel to be testing. And in their case, it may very well have, because they’ve only got a one-page website that they want people to click through on that button. So for them, it kind of makes sense. But if you’re going to start A-B testing, really figure out where you could make it the biggest impact on your sales funnel. Don’t just randomly test stuff on your website, changing buttons from one color to another. Really look at your sales funnel and try to analyze where could you make the biggest impact. So for example, if you have a 10-stage sales funnel, and you have let’s say 10 sales per month, and at the last stage of your sales funnel, you have 60 people. Well, if you can increase that last stage by just 10%, that conversion rate from the last stage to the paying customer, then you’re going to convert an extra six customers. Well, that just raises your revenue by 60%. That 10% conversion rate increase will raise your revenue by 60%. So your definitely key piece is where you can increase revenue, but knowing where to tweak those buttons is really, really important.
Rob [09:25]: Yeah, and I mean, to answer your earlier kind of ponderance of Google is I think the reason they test all the shades of blue is because they have such an enormous volume, that they can, and they can get definitive results and they can repeat them. Whereas, with someone, if you have 10,000 uniques a month or 20-30,000 uniques a month, you can’t test that many things, and it does become a waste of time. So the point you’re making here is don’t test things that aren’t going to have a really big impact on your numbers, on the numbers that matter too, right? It’s what’s going to have the biggest impact on revenue or on trial count, and look at those. Focus on those first, because that is your low-hanging fruit. And you’re not off wandering, trying to test button colors, which at some point may be worthwhile, but with our meager 30-40,000 uniques a month, it might take you quite a long time to get any type of result from that.
Mike [10:13]: Yeah, and all of that is about, just having some sort of a methodology that you’re following and knowing where you can get the most reward for the things that you’re doing or identifying whether you’re at a local maximum to do broad testing or if you really need to narrow down your focus on to those little things, like as you mentioned, the button colors. I mean, maybe that’s the best place for your time. But again, just testing random things, is not a good strategy. Like, you have to have a strategy going into this.
Rob [10:40]: And the second common A-B testing mistake is assuming that tests other people have run are going to turn out the same for your business. So it’s basically looking at a website, reading a blog post about someone who ran a test where the red button outperformed the green button, and then just changing all your buttons to red without testing. The point here is that you shouldn’t take the stuff as face-value that you read on the internet. Not that it would be fake, but it’s just not going to work for your audience. So good examples of this are, do you ask for credit card up front, or do you allow credit card without a trial, right? So that could be one thing that you might read about and you hear the rules of thumb. We talk about them here on this show for sure, and there’s other discussions. And you can take that as a default and then test it. Same thing with button colors. There’s all this debate about what button colors work well and orange and yellow are often cited as the best. So that’s kind of the design rule of thumb that I would start with a my control, and then I would test from there – even long form versus short form, landing pages or home pages, same thing. You’ll hear certain copywriters swear by long form, and then you’ll hear people run tests and have there be no difference and even have the long form perform worse. We actually had this with Micropreneur.com landing page, where we had a short form, a long form and basically a medium form. And the middle one outperformed the other two in repeated split tests, and that’s never something that I’ve heard in particular, kind of a mid-form page would work. But once we tested it, we realized that was the best result for us.
Mike [12:10]: The third common mistake people make is not running tests long enough. Your tests need to be run long enough in order for it to be statistically significant. And I’m not going to go into the math behind that, but essentially you need to be reasonably sure and confident that enough people have gone through that test that you can look at that and say, yes, this is statistically significant. I would say rule of thumb for using something like this, is if you’re not sure what that really means, then you should have at least 100 conversions coming through on the tests that you’re running. And that’s not 100 visitors, it’s 100 conversions actually going through in both directions. And then you also want to run those tests for at least one to two weeks. Don’t run a test like over the weekend or for a partial week. Running it longer is generally better. Obviously there’s exceptions to that, but you want to run it for at least one week, if not at least two weeks, so that you’re not dealing with any sort of variation where you get this influx of traffic from a particular website, and then it drops off very quickly, because those types of events that happen can radically alter the skew of the numbers and the percentages and how those number map out inside of you’re A-B test.
Rob [13:13]: Yeah, the formulas for A-B testing and getting the statistical significance are a little bit complicated. And there is a website out there, and I forget who does this, but he basically split-tested the same two pages against each other, and they will have different statistical significance, like one will outperform the other by 10 or 20% with statistical significance. And that’s just kind of a downer to think about it, that split tests are not, they’re not fool-proof basically, right? You’re not going to get the exact same response from the same page if you split the audience. It is fallible. And that’s how I kind of think about split testing, is it’s like a good guide, it’s the best we can do, but there’s always room for error, not in terms of the math itself being wrong, but just that the way the audience is split is not going to be identical. And there’s room for it not to be statistically significant, even if it looks like it should be. It’s kind of easy to trip yourself up on that, I think. The fourth common A-B testing mistake is not killing insignificant tests. What you’ll notice is that most of the tests you run are not going to show statistically significant differences. And if you have a bunch of tests running or even if you have one test and it’s running for a long time, and there’s not a significant difference, then it’s basically a distraction, right? It could negatively influence other tests. It could also be a waste of your time because you only have so many visitors and so much time to run these tests that you really want bigger wins. You don’t want marginal ones that are going to take forever to identify themselves, but still not be significant. The nice part about getting something drastically different in terms of results is those tests tend to run very quickly, and those are the kind of wins you want to go after. So if you start a test and things are close, I tend to shut them down pretty early and try to do something more dramatic to get a more dramatic result.
Mike [15:02]: The flip side of that is that you don’t want to ignore small gains if they are significant. So if you’re able to get a small statistically significant gain over the course of two weeks or four weeks or something like that, there’s no reason to not implement it. Because if you can get a 1% day over day gain, then over a course of a year, that’s a 37x yearly gain. So there’s clearly benefits to doing that, but only if it actually is statistically significant. The fifth mistake is to not consider the needs of your prospects. So when you’re looking to determine which tests you’re going to run, think about how this test is going to impact your prospects. When they’re looking at a website that you’re changing, what information are you taking away or adding to the site, and specifically why are you doing that? How is it going to help them or how is it going to benefit them? Is it going to move them closer to a decision faster or is it going to do so at the expense of making them feel tricked down the road and experiencing some sort of buyer’s remorse. So that’s something you have to be a little bit careful of. And you could recognize that if you have higher conversions, but also a higher churn down the road. And unfortunately you’re not going to see that churn until they get past the point of paying you, and they’re going to ask for refunds or cancel your service. So you will see those a little bit further down the road, and you may have to back pedal on some of your tests, especially if it showed that significant increase and you implemented it as kind of a permanent change, and then down the road you see that churn. You’re going to have to back that out. But those are the types of things that you need to watch for and be mindful of what it is that the person who is looking at the website are seeing.
Rob [16:33]: Our sixth mistake is trying to move too fast. What we mean by that is testing too many things at the same time on the same page is really hard. This is multi-variant testing, you need a lot of traffic to do this. And you kind of need even more of a plan because of the complexity you run into. Same thing with running too many simultaneous tests, right? If you’re testing headlines on the homepage and then something on the tour page and then something else on the pricing page, these things can interact with each other. And it’s easy to make a mistake and either misattribute something or, like you said with the fifth mistake, it’s easy to make a change and then not realize there’s a kind of a downward element to it that doesn’t show up for two or three months. So if you’re just starting out or you’re really not an expert in split-testing, this is always something I say, tell people to do, is not to jump into multi-variant testing, but to kind of run one test at a time until you feel comfortable with it, and you feel like you’re able to make progress and interpret the results before you jump in to try to do any type of multi-variant stuff.
Mike [17:30]: The seventh mistake is to not use any widely accepted A-B testing tools. And there are a lot of A-B testing frameworks and libraries out there. Some people will decide that they’re going to build their own. I would question whether or not that’s a good use of your time, because there are so many good tools out there. In terms of the A-B testing frameworks and libraries themselves, I would be somewhat cautious about using something that was an open source library or something that was freely available, just in case the math behind it doesn’t work. And I did run into a case where I started using a library and then realized after the fact that some of my results didn’t seem to quite be matching up with what I would have expected, and I started digging. And I found out that the way they had implemented the A-B testing framework itself, was actually wrong. It wasn’t a real A-B test, it was actually kind of, I forget the specifics of it, but it literally did not work right. So you do have to be careful when you start going out and doing those things. The common wisdom is to basically do an A-A test where you’re testing the same thing against itself to be sure that the tool you’re using is a valid tool to be using. But there’s a lot of different things that you can use like Google Analytics, Optimizely, Visual Website Optimizer, Unbounce, all these types of things make your life easier when you’re trying to do A-B tests, and make sure you’re getting statistically significant results.
Rob [18:48]: Our eighth mistake for A-B testing is that your tests should have a specific hypothesis. In other words, don’t run a test just to “see what happens.” Run it with a desired result in mind, typically this is to increase the number of people who click to the next page, or it’s to increase the number of trials that you get out of this, or increasing engagement with a particular page. The problem with running one just to see what happens is it’s hard to learn anything unless you actually have a goal in mind. So you might see the result, but you aren’t able to match it against your beliefs about what is actually going on. And frankly, if you’re just testing to see what happens, your time is probably better spent elsewhere rewriting copy on another page or just doing some other type of marketing activity.
Mike [19:30]: Yeah, I think the basic idea behind this is to really kind of challenge what your own beliefs are. To make sure that, one, you’re on the right track, and, two, that if you’re not on the right track, that you can be corrected. As Rob said, if you’re just running the tests to see what happens, the reason you’re not learning anything is because there’s no opportunity for you to be wrong. And that’s really what you’re trying to do is try to find those places where you believe something to be true and you can either verifiably prove it, or verifiably disprove it. If you just do it to see what happens, there is no opportunity for that to happen. And the last A-B test mistake that people make is to ignore the potential for skewed or broken tests. Don’t ever assume that all your data is correct. There’s plenty of opportunities for either bad tooling or things to be blocked sometimes within the communication framework. There could be seasonal shifts. So for example, if you run a test in the middle of December, for example, then there’s probably a very high likelihood that that test is going to be dramatically impacted by the amount of online shopping that’s going on. There’s definitely seasonal things that can happen throughout the year. Over at the summer for example, people are searching for different things than they are in the winter. You can also run into issues where if you’re sending out emails to your email list, then those subscribers are going to have a bit of familiarity of who you are and what your website looks like. So those people are going to have different conversion rates than a new visitor to your website. And then of course, you have to also deal with the fact that there’s sometimes parts of your website that are just going to be broken within a web browser. And you may or may not know that. So those are the types of things that you need to be at least mindful of and realize that A-B testing itself, it does generally work mathematically, but there’s always those things that you have to be careful of because it’s not a foolproof mechanism. It’s a tool, and like any other tool, it can be broken in certain ways. So you have to be careful that you just don’t accept everything as fact, and dig a little bit to make sure that nothing’s going wrong. So to do a quick recap, the nine common A-B testing mistakes are: 1) Testing just randomly instead of having a plan. 2) Assuming that other tests are going to be valid for your business. 3) Not running tests long enough. 4) Not killing insignificant tests quickly enough. 5) Not considering the needs of your prospects. 6) Trying to go too fast too quickly. 7) Not using A-B testing tools. 8) Not having a specific hypothesis in mind when doing A-B tests. 9) Ignore the potential for skewed or broken tests.
Rob [22:02]: If you have a question for us, call our voicemail number at: (888) 801-9690, or email us at: questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOT used under Creative Commons. Subscribe to us on iTunes by searching for “startups.” And visit: startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 257 | Mistakes Founders Make in Getting Traction
Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Gabriel Weinberg, founder of DuckDuckGo, about the mistakes founders make in getting traction. They also discuss Gabriel’s new book “Traction: How Any Startup Can Achieve Exposlive Customer Growth”.
Items mentioned in this episode:
Transcript
Mike [00:00]: In this episode of Startups For the Rest of Us, I’m going to be talking with Gabriel Weinberg about the mistakes founders make in getting traction. This is Starups For the Rest of Us, Episode 257.
Mike [00:17]: Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products. Whether you built your first product or you’re just thinking about it. I’m Mike.
Gabriel [00:25]: Hey, I’m Gabriel.
Mike [00:26]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Gabriel?
Gabriel [00:30]: Great. Thank you for having me come back.
Mike [00:33]: Yeah, no problem. So to give the audience a little bit of preview here, we’re going to be talking to Gabriel Weinberg about the mistakes that founders make in getting traction. We talked to Gabriel back in Episode 199 about a year ago, and for those of you who don’t remember or didn’t listen to that episode, Gabriel was the co-founder and CEO of Opobox which sold for ten million dollars back in 2006. In 2008, he started DuckDuckGo which is an internet search engine that emphasizes protecting searchers’ privacy and avoiding the filter bubble that is offered by personalized search that you would be most familiar with from Google. So you’ve co-wrote the book ‘Traction’ with Justin Mares and people can find that at either tractionbook.com or Amazon or Barnes and Noble. The new version comes out today. In that book you talk mostly about the bullseye framework that people can apply to help them get traction. Because the second edition of the book is hitting shelves today, can you give us a little bit of a refresher for those people who didn’t catch that episode about the bullseye framework and what the book itself is about?
Gabriel [01:32]: Yeah, sure. I actually started working on this book a long time ago, back in 2009, when DuckDuckGo was just starting to get traction itself. I was trying to figure out how do I get more traction, which is obviously what almost every business sets out to do once they launch their product. How do I get this thing traction? I found out that there was no great framework for getting traction. There was nothing like a procedure you could do to really think about how to pick the best marketing channel for your business at the time. So I went out just to investigate that myself. Then after interviewing lots and lots of people, really hit upon this framework, and extracted it from their successes and called it the bullseye framework because of all the channels that you can use, and we identify 19 in the book, you’re really trying to hit that bullseye, the right channel for you to grow your startup and meet your traction goal. So once I had the framework, I realized there’s really a need in the market for this book just so that startups can use this. That’s when I got my co-author, Justin Mares, to help really flesh out the book. From then, I thought I was 70 percent done, but I was really 20 percent done and I had to really write the book, edit it, and put it out last year. People started using it right off the get go and it starting working really well for people. We sold 35,000 copies, sold out our three printings. Then I started talking to people, doing events, and all sorts of things and really understood where people were getting it wrong and where people were getting it right. From that, I wanted to do a re-write that more crisply helped people get traction and that is what this second edition is. In that context, the bullseye framework in the first edition was a five step process and we simplified it in the second to a three step process. That three step process is simpler and it is the following: the first step is to go through all the 19 channels, these are all the different ways you can get traction, SEO, search engine marketing, trade shows, etc., there’s 19 of them, and really brainstorm a test in each channel where you could possibly get traction from that channel. Then the second step, and we’re talking about this, but the visualization of this framework is a bullseye, like a target, with three rings. So that outer ring is these 19 channels. Then the middle ring is you pick three that seem the most promising tests to run then you run those tests. Those tests are meant to be very small, simple tests, take less than a month and $1,000 to figure out how many customers you can really get through that channel, how much it would cost to acquire the customers, and are those the right customers you need right now to achieve your traction goal. So you run those tests in the middle ring. Then hopefully we assume one of those middle tests look really promising. One of those channels seems like it could be the channel to move the needle for your business. Then you go down to the inner ring, the bullseye, and you double down on that channel and focus on it and try to achieve your traction goal through it by running additional sets of tests within the channel to discover the best strategies to do that. So that’s why it’s called the bullseye framework is because you’re trying to hit that bullseye and find that one channel of the 19 that is going to make you hit your traction goal.
Mike [04:49]: When you went about this new edition of the Traction book, what areas were you seeing where people were making mistakes in implementing it? Was it a result of the fact that it was a five step process and it needed to be cut down to the three step process or were they just kind of misinterpreting different things? Is it the difference between optimization or understanding?
Gabriel [05:07]: The three step process really simplified it and people were a little confused by some of the steps that we had cut out. They were things that you needed to do, like ranking the channels and prioritizing them; really we combined into just one step. There was a little confusion around that, but the bigger issue was in each of these now three steps there are ways that people routinely messed them up. We tried to reorganize those parts to really make it clear to not mess it up in those ways. They’re non-intuitive ways and I can go through each of those. Besides, that’s all in the intro, the first five chapters. Then the last 19 chapters are a chapter for each of the channels. For those, we updated them and we really tried to edit down the parts that were kind of too fluffy. We just did better editing. We ended cutting out about 50 pages of the book even though we added two additional sections, a preface which explains kind of my history of getting traction and some of the mistakes I made, and then a testing addendum at the end which is one of the things people really wanted and were messing up of how to do cheap tests in each of the channels. We have a list of all the channels and we give you a way to do cheap tests in each of them.
Mike [06:20]: I think those extra tests are extremely helpful just because it may not necessarily be clear for some people, for example, offline ads or viral marketing and things like that. You kind of have a conceptual idea of what it is, but you don’t necessarily know how to go about doing it because you’ve never done it before or you’ve never considered it before. I think the addition of those things can certainly help a lot of people. What are some of the broad non-intuitive mistakes that you were seeing people make over the last year of talking to people that are pretty common?
Gabriel [06:52]: Right. There’s four of them. Three of them relate to each step in the new process. The first one is over-arching before that and it’s not starting traction early enough. People think that they need to, and we did say this in the book, but you know now it’s says a lot more crisply, people think that you really need to launch a product before you start going to get traction. The reason is the ‘Leaky bucket’ metaphor. We reuse that in the book and try to use that to explain it. The ‘Leaky bucket’ metaphor is when you start your product it has a lot of holes in it, right? It’s essentially a leaky bucket and if you pour customers on the top, and you can think of customers as money because it costs to acquire customers, then that money is leaking out. So the intuitive answer is I should not spend money on traction efforts until my bucket holds water. The problem with that is that what people do instead is they get beta customers and they get these beta panels and they iterate on the product just off these beta customers. Those beta customers, they’re too close to you. Not only do you become friends with them and you kind of know them, but they are not getting first impressions of your product at any time. They are seeing this evolution of the product and they are primed with what they previously know whereas if you have a steady stream of cold customers coming through, through some traction efforts then you’re constantly seeing real market feedback and whether your product is really going to resonate in the market. You want that so you can really figure out where the holes in your bucket are or else what happens is, this is what usually happens, you then launch your product, start to get traction, try to get traction, and realize, “Oh, I thought my bucket wasn’t leaky from my beta customers but it really is still leaky.” So you really want to start that traction effort right away, right at the beginning of product development. We try to argue strongly in the book that you should spend 50 percent of your time on it. Just to make it even more clear of why you should do this is you think that you might be getting a lot of this information from your product development methodology from your beta customers, but what you’re getting in addition to finding the holes is when you’re testing these traction efforts, you don’t have to spend a lot of money on it just to get a few customers coming through cold, you’re figuring out what messaging is best. You’re figuring out what niche to focus on when you launch. So when you do launch you can figure out the right channel to launch with, the messaging, the niche to focus on, and you can really hit the ground running with a real useful product launch.
Mike [09:27]: Yeah, as you were talking, and I’m not sure this is a good analogy to make, but the whole leaky bucket, I think that people have this whole conceptual idea of like all the holes are exactly the same size and I just need to put a patch over each of them, but the reality is that depending on your product those holes can be different sizes. They can be different shapes and the solution to patching each of those holes can be completely different. You need the customers going through that bucket in order to get the information you need to figure out what the patch is for that. So whether it’s a new feature or whether it’s a new marketing message, every single patch is going to be different. You can’t just take a blanket approach of, “Oh, let me create this product and implement all these features because I think that’s what people want.” Those customers coming through and leaking out of the bucket is where you’re going to get the information you need in order to patch those holes. You can’t do it in advance. If you try to, your patch is not probably going to be the right size or shape and you’re going to end up doing too much work or not enough work. In either case you’ve either wasted effort or not done the things that need to be done and you’re still going to be leaking things out the bottom.
Gabriel [10:31]: That’s exactly right. I think the real known intuitive piece is that you have a false sense of security with beta customers. That’s been the product development methodology for a long time and it’s a good one. You should have beta customers, but it’s just not enough.
Mike [10:46]: What are some of the mistakes that people make in terms of the different channels? Because obviously there’s 19 different channels that you can choose from but there’s going to be certain ones that people are much more familiar with. Shouldn’t people be focusing on those?
Gabriel [11:00]: Right. That’s the number one mistake in the first step. When you’re brainstorming all these channels, people navigate towards the ones they’re already familiar with. That’s just availability bias. We saw more and more that people just wanted to ask us and say, “Okay, which of the channels are great for my type of business. Which are good for SaaS businesses, which are good for this offline retail business. That’s the wrong question to ask because you almost want to ask the opposite question. This is the non-intuitive piece of which are the most underutilized channels for my industry or business. Often those are the ones that are greenfield that you can have huge traction opportunities in. Unfortunately, the piece that people mess up is they often ignore these underutilized channels because they’re not familiar with them because they’re from that industry. Say everyone in that industry is using search engine marketing so therefore they need to use search engine marketing. That’s usually a bad idea because that channel is very competitive because all your competitors are using it. If you could find something better to do, even offline, that would be a good choice. A good example of this is WP Engine, the Word Press and hosting company which we profile in the book. They are an online hosting company for word press. A very competitive industry. They ended up going for two very underutilized channels through different parts of their growth. One was offline ads. So they ended up a lot in magazines which no one else was really doing. Then two, they built a side product, a speed tester for word press which we call as a channel engineer and as marketing where you build this other tool that’s completely free on another website that’s complementary to your product. Then everyone started using their speed tester and then they could capture their e-mail and upsell them on the hosting product. If they had just focused on the regular channels, search engine marketing is what people mainly use and SEO, they would have had a much harder time growing.
Mike [12:53]: Now isn’t the risk of doing that also that you are choosing channels that your existing competitors have tried to make work and were unsuccessful doing? That would be my natural inclination. My fear would be, “Oh well, I’m not sure about doing offline ads because there must be a reason that my competitors aren’t doing it.” Is that a fear that people should be concerned about? Is that a real fear or is that more imagined than anything else?
Gabriel [13:19]: I think that’s a fear that people really have. It’s an imagined fear in the sense that almost everyone has the same availability bias and so, quite honestly, no one is really testing these under utilized channels for the most part. But, you make a really good point which is it’s almost the highest leverage tactic you can do. Go talk to other founders, not currently competitors, but failed competitors in your space who are very willing to talk to people usually. They’ll go tell you about all the things they tried and why they failed. It may be the case that they did try something five years ago that didn’t work for x, y, or z reason that may work now or you may discover they tried a bunch of things that for good reason won’t work now. This is kind of the other broad area where people fail in this first step of brainstorming is that they don’t really brainstorm deep enough. You really want to have a good sense of your competitive landscape, whatever you think, marketing channels everyone’s tried, go talk to people of things they haven’t tried, go talk to complementary industries to see what they’re trying. There may be some overlap there. Really spend a lot of time thinking about each channel and how it could be used whereas what mostly happens is people say, “Oh, I don’t know much about that. I guess maybe I could use that for something,” and they give it maybe a minute of thought. The problem with that is that underutilized, overlooked channel may be the one that could just jump you to success.
Mike [14:46]: But I guess how would you know? That kind of comes back to the question of how to test these different things. If you’re looking at a particular channel and you’re not entirely sure how to go about testing that channel, there’s, I think, this bias towards not spending a heck of a lot of money or time doing it because you don’t know what you’re doing. How do you come and get past that? How do you scope the tests that you’re doing such that you’re not wasting time and money, but you’re still doing what would essentially be a definitive test to find out whether or not that channel is going to work for you?
Gabriel [15:18]: Right. That’s exactly why in the second edition we added this testing addendum where we’re giving you suggestions of how to test these channels. In the scope of these tests, you’re trying to answer three things again. You’re trying to answer how many customers could I get through this channel and how scalable it is; how cost effective it is, how much does it cost to acquire customers through the channel; and are these the right type of customers that I want right now because each channel can bring in slightly different demographics and types of customers. You’re measuring those against your traction goal which is also a hard number, which in the beginning is often how much traction do I need to get to profitability or financing. Say I need 1000 customers and I run a test and this channel we only think it’s going to give 100 then that’s probably not going to be a good one to focus on whereas one of these that say, “Oh, it seems like I can get 10,000 if I really blew this out.” That might be a good one to focus on. So what you’re doing in that first step is really identifying tests you can run in each of these channels and then you look at them and you say, “Okay, based on my guesstimates of these tests, I think these three tests are the most promising to run.” Then you literally run them in the second step. The part that people mess up in that second step is trying to optimize too early, premature optimization there, and if Facebook ads are the channel you’re going to test, you run 40 ads. You really shouldn’t be doing that. You should be running four ads and what we say in the book now is don’t run a test longer than a month or more than $1000 except in extenuating circumstances. Then from those tests you can have data to dump to the next step. So to really answer your question is you need a good way to run a cheap test in these channels and if it’s cheap and short then it’s really easy to test these underutilized channels because you have a good sense of what you can do that doesn’t take a lot of time or money to really bear out whether that’s going to work or not.
Mike [17:12]: Now are there any guiding principles around that $1000 versus the month of time? Is that just an arbitrary cap or is that something that is helpful for a founder who is trying to boost up a company and they have much more time than money versus somebody who says, “Hey, I really need to find this out fast, let me just blow $1000 in a week to try to test out say paid advertising or something like that.” Are there guiding principles around striking that balance or is it more just kind of what resources are available to the founder?
Gabriel [17:42]: Well we look at all, we try to come up with good cheap tests for all the channels. We looked at them and we said, “Okay, that cutoff seemed appropriate and it encompassed all these test ideas.” Then where we saw people messing up was they were spending either too much money or too much time on these tests and not cutting them off sooner when they had the information they needed. So, yeah, it is a guiding principle. I think that particularly is guiding for early founders trying to initially find their traction channel. The caveat there is like DuckDuckGo or I Am Now, we’re running tests of much greater magnitude because our traction goal is so much higher and we want to get the error bars down on our estimates so much lower. So we’ll run bigger tests that take longer and take more money. When you’re first starting out or just going into a channel for the first time, I think you should keep it really small, even if you had a lot more money and time. There’s no more reason because you reach diminishing returns very quickly on these tests.
Mike [18:43]: Got it. So the purpose of those principles of $1000 or no more than one month of time are really for newer businesses that are just going into a channel and those limits can fluctuate between the different types of channels that you’re going into. So when you’re targeting blogs, for example, you wouldn’t probably be spending $1000 but it might take you several weeks of back and forth with the relevant blog owners in order to get your product mentioned on their site or to kind of get through their process of doing guest posts versus something like paid advertising where you may very well spend up to $1000 and you can do it within a couple of days, but those bounds are really to encompass all of the different channels that you might try.
Gabriel [19:27]: That’s right. Exactly. A lot of the tests will be free. Some of them you can do very quickly. Yeah, they’re more like guidelines of limits. If you see yourself going over these limits early on, you might be doing something wrong.
Mike [19:39]: Right. That totally makes sense. I just wanted to make sure that we clarified it for the listeners. So are there any other mistakes that people are making when they’re going into specific channels? If you’re testing a specific channel, what sorts of things should you be focused on? Obviously there’s also the potential to focus on multiple channels. Why wouldn’t you try to do more than one at a time?
Gabriel [20:00]: Right. So in the testing phase, the things that people really messed up are the premature optimization, going too deep while you’re just trying to get error bars around these numbers, and the second is not really doing it quantitatively which we really haven’t mentioned. You have these three questions you’re trying to answer and you really should be trying to get hard numbers against them and then compare those numbers to another hard number which is your traction goal. Once you identify the right channel that is really promising that seems like it might actually work in the sense that the numbers look good, and if it looks like you started to optimize it and scale it, it would reach your traction goal, then you’re doubling down. This is the other area people mess up. This is the inner circle now. You hit the bullseye and you’re working on that channel not getting rid of the other channels. It’s really non-intuitive because say you have three promising tests in channels. Say you did a little PR and you did some social ads on Twitter and you did some offline meet ups. All three, they were promising. They had a little bit of success, but the Twitter ads were just well and above the rest. The right thing to do in our framework is to double down the Twitter ads and really focus on that. What people often do is they still focus a bit of their time on the PR and the meet ups because they know they are going to get some results out of them. The problem with that is their marginal benefit of focusing on the Twitter is much higher and when you really focus on it, what you’re really doing then is now focusing your testing effort on that one channel so now you’re uncovering the underutilized strategies and tactics within that channel. The only way to do that is to really focus. The time you’re spending on these other channels that yeah, they get you a little traction, but that’s time taken away from uncovering the best tactics you could use on the main channel. That’s the other area that people messed up when they’re focusing is not really doubling down on the one channel and getting rid of the other tests they were running.
Mike [22:03]: It almost seems like by focusing on the one channel you’re getting exponential results versus some of these other channels where you’re getting incremental or multiplicative results which are not comparable if you go far enough into that one channel that you’ve dug into or that you’ve identified as the one that’s going to give you the most traction. Is that an accurate way to portray that?
Gabriel [22:22]: Yeah. Not everyone can get the exponential growth, but that’s what you would hope. To do that, what you’re doing or advocating is you are becoming a worldwide expert at that channel. If you’re really focusing on say social ads via Twitter and Facebook, you’re really digging into all the case studies, all the forums, what people are on the platform cutting edge, what they’re saying about their own platform. For example, so right now Facebook video ads are kind of outperforming everything because Facebook is really focused on competing there. That may not be the case a month for now, but you want to be first to those tactics because when you’re first to those new tactics, those are where that exponential stuff really happens, the really high click-through rates and things like that. You want to be on the cutting edge of those. This just goes more into saying that going to underutilized places in the world gives you great conversion rates both channels and then tactics within channels. The only way to really do that is to really be in optimization mode and that requires a lot of effort and all that other effort is distracting you from getting there.
Mike [23:30]: Now one of the things that you talked about earlier was that you have to be in each of these channels and before you even do that you go and you define what your traction goal is going to be so that you have some sort of basis for measurement. Now how do you define that traction goal? What should that look like? Are there some ideas that you can share about how to define what that is or is that more specific to the type of product that you have?
Gabriel [23:54]: Yeah, I totally agree. That’s basically step zero. The other thing we added to the book was a preface about a little more of my history. That’s something I messed up early on. To give you a good example, I set out early on to get traction via SEO because that’s what I knew from my last business. But it turns out that I was pretty successful at that and spent a lot of time doing it and so I ranked really highly for the term new search engine to get to duckduckgo.com. I got number one on it, but it was just not enough people to really move the needle for what my traction goal really needed to be which ultimately was like 100,000 searches a day, not 10,000 which is where that ended up getting me. If I had sat down initially and realized my traction goal should be 100,000 searches a day, then I would have looked at SEO and either changed my SEO strategy completely or not done SEO to begin with. So it really is important to take a step back initially and figure out what your traction goal is. What I think that should be is a hard number that really moves the needle for your business and achieves some kind of significant inflection point of your business. That could be a number of things depending on what your situation is. The number itself, of course, will vary depending on your business, but for most people starting out that number is often one of three things. It’s how much traction do I need to get profitability, how much traction do I need to get financing, or what do I need to prove that I have product market fit. Those are usually specific numbers like I can look in the market and see which companies are getting financed and see how much traction they have in terms of growth or revenue or whatever the metric is in your industry and say, okay that’s what I need to hit. Then you can back out from that from your pricing about how many customers I kind of need and that’s the number you should be evaluating against these tests. You should definitely start identifying what that goal is. It goes right back to what kind of business you’re running too because if you’re not concerned with high growth or financing and you’re really concerned with paying your bills at a certain level of profitability, then that should be your goal. You should say I need to take home x amount a month and from that I can back out how many customers I need to do that then that should be your traction goal.
Mike [26:10]: Yeah. So those traction goals can either be the revenue that you’re specifically looking at or could be tied to a piece of functionality in your product. For example, a search engine, number of users is much more important, or not even users but like searches per month is important versus if you’re in a situation where you need to be able to pay the bills, you need to have that revenue coming in and you need to be able to tie those marketing efforts directly back to those revenue goals. You can tweak the numbers in terms of the price and the number of people coming in and just do some multiplication there to figure out is this really working for me, is this going to be a channel I can leverage or do I need to go someplace else? Depending on which of those situations you’re in and which of those metrics is important to you, you can then find what your traction goal is.
Gabriel [26:57]: That’s right. That exercise, that’s basically saying what is your business model and trying to clarify that initially, which is really an exercise everyone should do because, like you said, you can think about the pricing of your product. There’s a good post, I’m forgetting who wrote it, about the ‘hunting’ metaphor, but like hunting deer and elephants and different things, but it’s basically saying how much it’s going to take to get to a million dollar business which is what most people’s goal is initially based on what your price point is average revenue per customer. There’s wide ranges of businesses that get $0.10 a customer to $10,000 a customer and knowing where you are on that scale really influences what your goals are in terms of how many customers you need, which then changes everything about how you’re going to get traction.
Mike [27:44]: That article that you just mentioned was from Kristoff Jans and he wrote the blog article on ‘Five Ways to Build a One Hundred Million Dollar Business’. It’s kind of a graph of the size of your customer and how much money they’re paying you versus the number of customers you have. Obviously there’s this graph that goes along with it. I think the two extremes that he uses are one thousand enterprise customers each paying you $100,000 a year or, on the other end of the spectrum, you’ve got 10 million active people who you’re monetizing at $10 a year by selling ads for example. The metaphor is essentially you’re hunting elephants or hunting mice and how many of them do you want to go after and what’s your business model look like? I think it’s an interesting metaphor he used.
Gabriel [28:26] Yeah. He’s got a follow up too. He adds three more things there and he goes down to hunting flies because people wrote him back and they are like what about some of these other businesses? So he has an addendum article. It’s even a wider range. It’s really interesting because each of those categories are very different businesses, but has very direct implications for how many customers you need and how much traction you need and what your traction efforts are. So it’s really good to think about that ahead of time and think about really which type of business am I in? Which category am I on the scale?
Mike [29:00]: I think that leads back to another interesting point about if you start bringing that type of model in and start looking at, for example, a SaaS business versus a services business. Services businesses fit into this model where you’re probably charging them a heck of a lot more because you have to, because you’re interacting with them. You have to sell them on an engagement and it might be five weeks, it might be five years, but the reality is you’re charging them a heck of a lot more and those are kind of your elephants versus a SaaS model where, I guess, traditionally you want to charge as many customers as you can smaller amounts of money. But the problem is that it takes much longer to get that mass of customers. That kind of leads back to the analogy that Gayle Goodman from Constant Contact called the ‘Long, Slow SaaS Ramp of Death’. Getting that mass of customers that you need takes a long time. You can get there faster if you can charge fewer customers more money, which lends itself more toward the services model, but a lot of people are trying to get away from that if they’re trying to build product. There’s this balance that kind of needs to be struck and, as you said, it depends a lot on the model that you have behind your business. I think it’s interesting how that should be what is the piece that’s influencing what your traction goals are. I think that sometimes it’s a little confusing because the type of business that you want does not necessarily match up to the type of business that you’re going to end up with.
Gabriel [30:23]: Yeah. Right. What you’re getting at is people end up going through this and not doing this early and then they meet with kind of that harsh reality a little later on. That’s why I think it’s good to do this early and really think about hard numbers, what your goals are, because that will inform everything. Maybe you want to change what you’re doing initially.
Mike [30:44]: I think that’s a super important point to make just because going through this process you may very well find out, hey this isn’t the business that I thought it was, maybe I should go do something else. So what startups have impressed you with their ability to gain traction and why? What is it that has made them so successful?
Gabriel [31:00]: So we profile a bunch of ones in the book and each kind of has an interesting story that they did something really cool with traction. This concept, I was talking earlier with WP Engine and this engineer and his marketing I really liked because we literally had to name that channel because no one else really had named it. HubSpot and RJmetrics are two other companies that have really embraced that channel and does it pretty well. Moz would be another one. They’re all making complementary tools and sites and they’re using some of their engineering resources. The reason why it’s so cool is it’s non-intuitive that engineer resources are so sacred in a company that everyone thinks they should always use their product, but this is taking a little of those resources and using them for marketing. Developing this other tool that then drives the whole business. So HubSpot recently IPO’d, did that with their site called Marketing Greater where you could go type in your domain name and it would tell you all about how you’re doing in online marketing which basically every business who goes online needs. So they got millions of businesses through there and then from that they had a great lead channel to do inside sales and sell them on their main product. Moz has done the same thing and RJmetric which is a kind of cohort analysis company in data analytics, has done it with a bunch of different sites where a lot of their target audience is in house data development and teams who independently need to do database queries and things like that. So they made all these database kind of tools for these developers and then on there they educate them about RJmetrics. So I really love businesses go after these kind of underutilized channels. Another good example of another under utilized channel is publicity stunts which most people completely shy away from because it seems like they would be unscalable and repetitive. To some extent that’s true. There’s been a lot of ones that happen just at launch. A great example, an old example, but I like it also because I’m in Philly, for example is half.com, Josh Kopelman who currently runs First Round Capital. When they first launched half.com they had a city in Oregon renamed to half.com, Oregon, which was Half, Oregon, and they gave two jobs to the of the people there. The whole thing cost maybe $100,000. Got them national TV across the board, 40 million impressions before there were any social media. So back in 1999 and immediately vaulted them up. Six months later that company was sold for 300 million dollar plus. Then another company who does publicity stunts, Grasshopper, they really have invested in this over time and they have two employees completely dedicated to thinking up these publicity stunts and things they can do, run contests and things like that. Half of them fail, but they’ve gotten most of their traction through this effort because when they do take off it’s such a great press story. They get so much press it makes up for everything.
Mike [34:05]: Now at what point do you start taking into account the ROI on some of these channels because some of the things that you just used such as HubSpot, they have these different website marketing graders and things like that, but their price point is also substantially higher than I think your average run of the mill SaaS application. I think that their pricing starts at $200 a month and if you kind of extrapolate and say, “Ballpark it, I don’t know what these numbers actually are.” If an average customer sticks around for two years with them, that’s $4800. So for them it makes sense to fill that pipeline with as many people as they can because each of those customers is going to net them $4800. It becomes this awkward situation, especially for the people who are running really small businesses where the look at that and say, “Well that sounds great, but I can’t really afford to have an inside sales team calling these people even if that is going to be successful because I just simply can’t afford it.” How do you take those types of considerations into account?
Gabriel [35:01]: This is where the testing really comes into play. When you’re running these tests you’re trying to assess those three numbers, what the scaleability of it is, how many customers, how much it’s going to cost to acquire the customer, and is it the right customer? The second one, how much does it cost to acquire the customer, is the key one here. In this scenario, say the engineer and his marketing, they don’t need to have an inside sales team necessarily. It could be an off the shelf product that you sign up for in some kind of signup flow and that’s the test that you’re running. Will people convert from this and sign up and then how much would it cost to get them? How much contact would I need to have with them. You’re absolutely right. If you’re a small SaaS company you can’t afford any kind of personal contact like that. It costs too much money. So you need to be testing whether it will just work for your regular signup flow. I think that all comes out in the testing. That relates back to your traction goal and kind of knowing how much you can spend to acquire a customer.
Mike [35:57]: I think that’s a pretty good place to wrap it up. This book comes out, I believe, today you said, correct?
Gabriel [36:02]: That’s right. Today. October 6th.
Mike [36:04]: So if anyone’s interested in buying that, they can go over to tractionbook.com. We’ll link it up in the show notes. They can also get it on Amazon or Barnes and Noble, correct?
Gabriel [36:13]: That’s right. We have a couple other retailer links like IndieBound. They’re all at tractionbook.com.
Mike [36:18]: Great. If anyone wants to follow up with you, where would they do that?
Gabriel [36:21]: Twitter is best. My handle is @yegg. Y-E-G-G.
Mike [36:25]: Awesome. Well thanks for coming on the show Gabriel.
Gabriel [36:27]: My pleasure.
Mike [36:28]: If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Out of Control by Moot used under creative comments. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 256 | The 10 Elements of Highly Effective SaaS Landing Pages
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike put together a list of the most common things that are working and effective for SaaS landing pages.
Items mentioned in this episode:
Transcript
Rob [00:00]: In this episode of Startups for the Rest of Us, Mike and I discuss the 10 elements of highly effective SaaS landing pages. This is Startups for the Rest of us, episode 256.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike [00:28]: And I’m Mike.
Rob [00:29]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So [what are this week?] sir?
Mike [00:33]: Well I caught a nasty virus over the weekend so I was hugging the toilet the other day. I could not keep food down. So it’s what? Wednesday now, and I’m just kind of getting back into the swing of things and trying to catch up from having not gotten anything done the past several days, but it was pretty brutal.
Rob [00:49]: Do you get sick a lot?
Mike [00:50]: No. I almost never get sick. I’ll get sick like once every couple of years and that’s about it. But when it comes, it’s just brutal. I’ll be in bed for a couple of days just because I just can’t get out of bed. I remember making fun of you a little bit because you said that you were sick once, and you were so sick that you couldn’t even listen to podcasts, I was that sick. I remember [?] it was like, “Oh, I shouldn’t have made fun of him.”
Rob [01:14]: I totally know what Rob is talking about right now. That is funny. So, we’ve gotten a lot of comments on last week’s episode, episode 255, where you talked about moving on from AuditShark and that whole decision. You’ve received Tweets, you’ve received DM’s, we’ve received several e-mails, there’s more than a dozen comments on the podcast blog with folks just talking about how they felt this was one of our best episodes and basically wishing you luck and appreciating that you put yourself out there with the vulnerability and were willing to discuss this. I think it really hits home with people to see, it’s not only vulnerability, that’s a big part of it, but it’s also just to see you or anyone come out and talk about mistakes that they’ve made and to basically help show other folks how not to make those mistakes. I think that was really the point of last week, was to kind of bring it all to the front so, A: You could kind of have a post mortem. But then, the entire listener base for this podcast can kind of peer into it and think to themselves, “Wow, am I doing that right now?” or “Am I going to do that with my next product?” And really take it as al lesson for the community rather than a single person hiding away in a basement making these mistakes and no one learning from it. How have you felt about the response?
Mike [02:29]: It’s been overwhelmingly positive. I haven’t really seen anything negative about it, just a lot of thanks and appreciation. I don’t know. I guess it’s humbling. It’s more than I could have expected or hoped for. I guess. I don’t know. It was one of those episodes where, it was coming and I knew it was coming for a while, and I was kind of dreading it at the same time.
Rob [02:48]: Very cool. So let’s move on to what we are talking about this week. We received an e-mail from Stefan at vividwebcopy.com. He says, “Hi Rob and Mike. How about an episode SaaS landing page design?” And Stefan is actually, it looks like he is a copywriter, vividwebcopy.com, if you want to go check his stuff out. But Mike and I have a lot of thoughts on this topic, and so we wanted to weigh in. And I specifically put together this list. I was trying to boil it down into the most effective elements that I see that go into these landing pages that work and I want to talk about the typical SaaS landing page rather than going outside the box. Obviously, if you know the rules and you’ve been doing this and you’re an expert, UX guy or UI woman, you can break the rules. You don’t need to listen to something like this. But if you’re wondering about the most common and most effective things in general that are working for SaaS landing pages, that’s what we’re going to be talking about. And this typically a SaaS home page, although it can be often you copy your homepage to make landing pages for, say, Facebook ads and other stuff, because your homepage should really be that landing page that gets someone acquainted with your product quickly. So we’re not going to talk about long form landing pages, like getdrip.com right now, is a long form sales letter in essence. We’re going to talk about that because we are going to talk about the more traditional SaaS landing pages and you could see examples of these at places like bidsketch.com, planscope.io, getambassador.com, hittail.com, all of those are the more traditional scene that we’re going to be talking about. So to dive in, the first element of highly affective SaaS landing pages are to design it for first time visitors, to get in the mindset that you really want a first time visitor to come, get acquainted, and go down a very specific path that you’re outlining for them. If you have customers who are coming to your homepage to log in, they will find the log in box. Don’t make that prominent, don’t put that right smack in the best part of the screen right above the fold, this is for first time visitors, trying to educate them, get their interest [peaked?], have them figure out if it’s for them, and then get them to take the next step in the action. So often times, I will see a log in or a sign in button right in the same top navigation that you’re trying to sell to people and I disagree with that approach. I think it should be a tiny link above or maybe far off to the right. Like, there should be a separation because your customers are going to find a way to log in, don’t worry about that, but your goal is really to get those first time visitors to follow this path that you have in mind.
Mike [05:14]: Yeah. And the essence behind that is just to not give them false paths that they’re going to go down and waste time because it’s very easy to, and I’ve done this myself, I’d go to a web page and you just land on it and then there’s a log in button and you’re like, “Oh well, I kind of want to see the pricing and see what that stuff is like” and maybe it’s not obvious where to see some of that stuff, so you click log in and then it’s just giving you a username and a password fields to have you log in and there’s nothing else. There’s nowhere else for you to go on that page so then you end up going back and you get a little bit confused about where to go. So the whole idea of this is to make sure that when somebody is coming to your page, and they don’t know anything about your site or your application that you’re essentially walking them through everything. So that’s why Rob is talking about designing it for the first time visitor. You have to make a blanket assumption that the person coming to your site knows absolutely nothing. So because you’re designing these pages for the first time visitor, you have to figure out what the goal of that page is, what is it that you want them to do, why should they care about your product, and what are the next steps that you want them to take? Do you want to ask them for a trial, do you want to get them to get into pipeline there, do you want them to come back to your website in the future? Rob, you had a great talk a few years ago at the business software which was – I forget the exact title but it was something along the lines of, “The purpose of your website is not to get them to buy your app, it’s to get them to come back to your website.”
Rob [06:33]: Yeah. It was called “The number one goal of your website” and it just talked about how returning visitors are between six and twenty times more likely to purchase from you. I mean, very few people purchase on the first try. There are exceptions to that. If you have a price point, I’d say starting between maybe $10 a month, we’re talking SaaS here right. But anywhere under, let’s say $15-$20 a month and you have a high curiosity factor where you’re kind of giving someone something that they kind of curious about trying. So an example of this could be like HitTail. HitTail has this promise of, “We’re going to give you keywords that you’ve never seen before.” There’s this high curiosity of like, “Wow. What are my keywords going to be? And I can get them right away?” So you’re very likely to be able to sign up to directly for a trial and not actually need to go through an educational process first. It’s a low commitment thing. Most apps are not like that, I’ll say. I mean if you have a proposal app or even a marketing app or affiliate software, that kind of stuff is less about curiosity and it’s more about, “Wow, does this fit me? Why is this better than other things that I’ve seen?” and getting [signed?] before a trial right away is just a lot lower, there are lower odds to doing that and that’s where you need to start thinking about, “Okay, I shouldn’t push this trial right away but how can I start educating and how can I bring them back to my site in the future?” And bringing them back, of course, these days, re-targeting is a big one, and then getting folks on your e-mail list. These are the two biggest drivers of being able to start to build a relationship and bring people back. So instead of having a few people signed up, you get that 6 to 20 times higher likelihood of folks signing up. The second element of highly effective SaaS landing pages is to have a gripping headline. And I have a pretty simple formula for this that I’ve talked about in the past, but it’s to just have three things in place. The first is to make a promise in the headline, the second thing is to have an action word, like a verb, and the third one is to either have a directly stated “You” or “imply you” meaning, that you’re talking to the person who is reading the headline. So as an example, I’ll come back to HitTail again, because it fits this well. The headline at hittail.com is “Guaranteed to increase your organic traffic” and the promise is that it’s guaranteed to increase traffic, the action, the verb, is “Increase” and then there’s a “You”, it’s “your, you, or you’re”. You rarely should be talking about your app. Here’s another headline for HitTail that wouldn’t work nearly as well, “The best long tail SEO keyword tool.” Because there’s no promise, there’s no action and there’s no you. So I’m not saying that this is a hard and fast rule that all headlines need to follow, but I’ve found that it’s a really good starting point for me. When I sit down to write a brand new headline, I say, “What can I write first that follows these three rules?” and then I start massaging and thinking of other headline ideas. So I think it’s a good solid framework to begin with.
Mike [09:23]: Yeah. When you’re coming up with the headlines, it’s definitely all about the person who’s visiting the site, and again, it goes back to who is coming there and what are they coming for. But when they’re looking at the page, they’re going to be thinking, “What’s in it for me?” And this simple formula really gives them a good idea of what’s in it for them. You’ve got that promise, the action and you’re talking specifically about them. You don’t want to be talking about your app or the things that it does or how it works or anything like that. You want to be telling them how it’s going to benefit them.
Rob [09:51]: If you want more information on headline writing, you can head over to copyhackers.com and they have 7 different e-books and book two is $19 and it’s called “Headlines, subheads, and value Propositions” and that’s definitely a decent place to start. There’s a lot of info on headlines but that’s nice because it’s specifically for software and startups. Third element of effective SaaS landing pages are to have at least one visual element here at the top of the page. So as Mike and I walk through this list, I want you to imagine it as going from top to bottom. It really is a prescriptive order of starting with that headline, having a visual element either next to it or below it. And then from there, we go to element 4, element 5. Again, these are not hard and fast rules, once you know what you are doing you can mess with these things. But when you are starting out as a framework, this is a good solid place to start from. So this third element which is visual elements, I’m thinking of something like a video, short video, less than 90 seconds for sure or an image. And if you go to the web page of hittail.com, you’ll see an image that describes what HitTail does just with a couple of circles and some arrows. So it’s almost like a video, it doesn’t move but it has enough text and some arrows that it shows you what it does in that image and I think that’s important. I think just having an image of a random person sitting there clip art staring at a screen, I don’t think it’s helpful because it doesn’t actually talk about your value proposition or talk about your benefits or demonstrates something. I think this visual element needs to serve a purpose. So either an image that actually serves a purpose, a short video that gives some high level benefits, or the third one that really is ideal but is a lot harder to pull off, is an e-mail capture form related to the functionality of your application. So I don’t mean something that says, “Hey, here’s some education about this topic of how to find more affiliates or how to be an e-mail marketer of SEO, but actually starts to demo the functionality of your app. So an example of this is if you go to the bidsketch.com homepage, and you’ll see that Ruben has a form there where you enter your e-mail and it doesn’t sign you up for a course, it doesn’t send you education, it actually creates a proposal, it e-mails you a proposal basically demoing the functionality of the app. And so, although, he will send follow-up e-mails after that, that first one you get is essentially your first [foray?] into seeing how the app actually works. And I think if you’re able to pull that off in a way that’s pretty elegant and actually shows people how your app’s working, I think that’s a big win as well.
Mike [12:18]: Yeah. If you look at the Bidsketch website right there on that homepage it says, “Get a sneak peak at a sample proposal” so that kind of meets the element two that you said, a gripping headline, where it follows that simple formula for promised action and then talking about you, and then has that email capture form which says, “Send it to me” which gives you that sample proposal. So you get a couple of different things there and those two elements are combined. And Ruben has been doing this for a long time, so he has been able to effectively put those things together. And it may take you a couple of times to do this sort of thing but again, the goal of this episode is to kind of lay these things out and talk about the different elements and how they can be added to the page and in which order they should be added in order to give you a starting point. Once you’ve done this and you start testing it and checking with your customers to see how well it’s converting, then you can start playing around with these things, but this is just the framework that we’re following through.
Rob [13:09]: And the fourth element is to provide a couple of benefits, not too many, typically use the rule of three here where I would veer on the side of having 3, 6 or 9. Probably, the fewer the better, it kind of depends. If you go to planscope.io, you’ll see that right down below his visual element which is a video, Brennan has three benefits, [?] more estimates, one sentence describing what that means, “deliver better projects and grow your business”. It’s a really nice example of, boom, having three left to right, three benefits of what you’re going to get using planscope. If you go to hittail.com, you’ll actually see it’s three sets of three and each set is aimed at a specific market segment that is using HitTail essentially gets value, it’s SEOs, it’s internet marketers, and it’s e-commerce folks, and those are kind of the key three core areas that use HitTail, so both of them work. I think the thing that I would recommend is, when you’re providing benefits like this, stay grounded. The biggest mistake I see with benefits is that people go so high level that it doesn’t even make sense anymore, like it’s so vague that any app could do it. So I really don’t like benefits like, “Saves you time, makes you more money” because doesn’t every app do one of those two things? I mean, really that’s the point today, is that every business application needs to do that. So I think if you find yourself saying that, like come down one or two steps to be a little more specific, and again, like Brennan says on Planscope, “Win more estimates.” If you went up a step you could say, “Make more money” but that isn’t helpful. You got to drop it down one level or two. Deliver better projects to grow your business. These are things that there is some tangibility to them. And if you’re having trouble thinking of these benefits, what I would tend to do is to- if you make a list of benefits and a lot of them seem like features, like actual features you have built into the app, then read that feature and say, “All right, we built XYZ feature so that” “So that” is the key phrase there and you complete that sentence. So we have built this keyword suggestion tool so that you will get more keywords that you can then get more traffic from blah blah blah. And that’s your benefit after that “So that” period of the sentence.
Mike [15:18]: When you’re describing these benefits, whether you’re going with 3, 6 or 9 it doesn’t really matter. The headlines are going to be I think a little bit on the generic side because they tend to be only several, 3 to 5 words for the title of that benefit. I mean if you have them separated out into 3, 6 or 9 sections, the words there are going to be relatively tight. But then underneath it, when you start talking about what the details of that benefit, you can be very specific about it. So for example on planscope.io, Brennan says, “Win more estimates,” and then underneath it, he says, “Our collaborative estimating features help Planscope customers close 2 to 3 times more clients. And that piece right there, closing 2 to 3 times more clients, is helpful in a couple of different ways. One, it tells you exactly what the benefit is and two, it is very specific. And the fact that it’s able to close 2 to 3 times more client projects, means more money for you and that is, in a way implied but it is also led from the “win more” estimates headline. So keep those sorts of things in mind when you’re putting together those benefits. Another thing that you can do is you can take those benefits and separate them out onto different pages and talk more specifically about those. A lot of times when people are building a website for a new SaaS product, it can be difficult to figure out what information needs to go on the different pages. So make it simple, just start out by outlining the different benefits and don’t talk too much about them. And then later on, as you start to grow the site and you expand the footprint of the website, then you can talk about those benefits individually on their own pages and then you can link to them from your homepage some place. But I don’t think that you need to do that from day one and you don’t want to overwhelm somebody on your homepage with every single piece of information you possibly have, because that becomes a long form sales page. And I don’t think that’s what you want to start out with. You want to start out with educating them about your product, and then if they start if they start drilling into your website and are interested in those other features, you can talk more about them and you’ll be able to get more information about them according to your bounce rates and how long people are staying on the different pages by looking at the analytics behind those pages as people are visiting them.
Rob [17:24]: I’d also like to point out, I just noticed on Planscope’s homepage, their headline is “Gain total control of your agency” and that fits right into the three elements I said before of making a promise, having an action and having “you or your” in the headline. Element five of highly effective SaaS landing pages is social proof. This one is very common and very necessary. I do not think this is optional. Social proof can come in many forms and actually believe that having all three of them is ideal. The first and most common one people think of are testimonials from customers. I always recommend you have head shots with those as well if possible. So you have a head shot of a person and the name linked to their website. You don’t want anonymous testimonials or just a first name or something. And then edit their testimonial down to just the core part, so if it can be 10 words or 15 words, you’re doing really well. Pretty much the best SaaS landing pages I see have testimonials. The next piece to have, press logos, whether you’ve been mentioned, whether online or offline press. If people are going to recognize that logo, have that in there. And the third one is to put a vanity metric in there. So if your app has analyzed a billion keywords, if you’ve sent out $100 million of proposals or your clients have through your app, if you’re a web host and there were 9 billion page views through your network last month. I mean these are very much vanity metrics. They are not business driven and they don’t help your bottom line, but they are basically bragging rights to show you that other people are using it and that you held up under the stress and that you have experience in this field, and all of this ties into basically socially proving that your app is something that someone should consider.
Mike [19:04]: Yeah. Part of the social proof is just all these things that you talked about, the testimonials and the press logos, those are essentially trust factors and people want to be able to trust your app but you need to give them a reason to, you need to give them proof of some kind. So the fact that you were mentioned on msn.com or CNN, or wherever, those are trust factors, the same with testimonials, especially if you start including head shots of the people who said the things about you. Those are also considered trust factors. When you start talking about those things that Rob just mentioned in terms of the vanity metrics and the number of keywords processed, the amount of money that is embedded in the proposals that are sent out or the page views last month, those are also trust factors but they are internally related. So there’s two types, there’s the external ones that you don’t necessarily have control over and then there’s the internal ones which you do. You could obviously fudge those numbers. But when somebody’s looking at that website, they are not going to sit there and think, “Oh, this person is pulling my chain.” And as long as the other things match up, they are just going to believe those numbers. They don’t have to be accurate, they can be incriminated on a daily, or monthly basis, or what have you, but there has to be some semblance of trust there for them to take those numbers and internally process them and believe them. And the same thing goes for those external loads, I mean if it’s something that they’re going to recognize, definitely use it and it’s essentially your piggy backing on the trust of that other website. So as I said, the logos of other major news outlets or anything like that. You’re piggy backing on their credibility to essentially enhance your own.
Rob [20:35]: And just to clarify, you said, the vanity metric doesn’t necessarily need to be accurate, you can update it once a month or whatever. I’d agree with that, I think as long as your low rather than high, you’re [airing?] on the side of caution, right. It doesn’t need to be an exact thing pulling from your database as a live feed.
Mike [20:50]: Yeah, exactly. That’s more what I meant than anything else. It doesn’t need to be up to the second. That’s really what it comes down to.
Rob [20:56]: All right. So our sixth element of effective landing pages. This one’s an optional one, its features. It’s having features on your home page. So not benefits, and this is further down the page, remember we’re going in order from top to bottom. I have seen this done really well with some very specific features that set you apart. And in fact, if you couch it like that, and you specifically say “No other app has this feature or these are the features that our customers like most” or something like that and just give a few of them. You’re not giving a whole run down of everything but you’re trying to call it out and show why you’re different. You have to be very specific at some point during this journey and if you feel like you can do it by putting some features on the homepage and then folks can click through at the bottom of the homepage and get to like a tour or a features page with more specific mechanics of your app, I think it’s not a bad idea. I think if you’re not sure, probably don’t do this step but I have seen it done really well. The reason that I like when people start getting into features, definitely, on the website somewhere, you need a features page. Because if you’re just talking about benefits all the time, no one knows what your app actually does. If you go to a website for like an IBM software product or some Salesforce product that each own [bazillions?] of products, it seems like all you tend to find is benefits with a lot of marketing speak and it’s really hard to just get a list of what does this app do. And it’s hard for folks to figure out what you do if you never get down to the features. So you definitely need a features page somewhere and I think a few that call you out on your homepage is not a bad thing. Our seventh element is to look at your top nav and have four items or fewer in that top navigation and that includes your home link. So you really only have room for a couple more. So I would typically have something like home on the left, and then either a tour or how it works, which is kind of the same thing. It’s explaining the basic flow of your app. Sometimes it depends on if you want to include a bunch of features on that page, probably another discussion but sometimes a tour is just- if your flow is fairly complicated and you’re trying to teach people what your app does, then you’d have a separate features page and that could also be in the top nav. And then you can basically have a pricing page. I’ve also seen it done well to have another page that basically says [why, app name?]. So if you’re base camp, it says, “why base camp” or why should you choose base camp. That’s if you have a ton of press mentions, social proof or just so much more to say. In fact, with HitTail, we have a “Why” page in our top nav and the reason is, there was so many press mentions because the previous owner was actually a PR firm. There were mentions on TechCrunch and in multiple newspapers and offline magazines, just all kinds of stuff. So there were so many quotes that I found that I didn’t want to stuff them on the homepage, didn’t want to stuff them in the tour. Although, I sprinkled them all over the place. We really needed a dedicated page. It’s just another way to build credibility and that someone can click to and think through and then offer social proof.
Mike [23:47]: These elements in the top navigation are probably going to get hit a lot more than anything else. We’re going to talk a little bit more about the elements at the bottom of the page. but at the top navigation, those are the things that people see right at the top of the page and they are far more likely to get the users to click through to those than anything that you’ll find in the footer. And I’ve used this strategy before where I’ve embedded links in the footer and I’ve used this strategy before where I’ve embedded links in the footer purely for SEO purposes to get Google to essentially spider other pages on the site. But the reality is, if you start looking at the analytics for that, the users who are coming to your website, virtually, never follow through and click through a lot of those links. So you want to make sure that the pages on your site that you want to get the most traffic to for people who are hitting your site and you want them to learn more about your product or what it is that you are going to do for them, make sure that those links are in that top navigation.
Rob [24:40]: Our eighth element is to have an exit path at the bottom of every page. In essence, this is a button that takes someone to the next step of your flow. You want to think of this as a specific journey that you are leading someone through. So when they hit your homepage, you don’t want a bunch of extraneous links, you want a few options at the top. If you even have a top nav, which is probably another discussion. I’ve seen folks run experiments that I’ve worked where you basically remove the top nav and someone really only has one flow to go. You can scroll down and read and at the bottom, there’s kind of a tour button that leads you to the tour and you’re basically leading them through a flow. But in this case, having an exit path at the bottom of every page is something I think you have to have and I think a lot of people don’t do this. It’s to think, “Boy, after they read this homepage, they get to the bottom, so maybe they’ve read the social proof and the benefits and maybe a feature or two, what is next? What do they really want to know?” And then take them maybe through a tour and then perhaps take them to features or you could start letting them know, “Hey, you can sign up for a trial,” there’s some options to think through. You really want to have one main and then maybe a secondary, call to action, down at the bottom there. But not having this exit path at the bottom, then makes your reader get to the bottom, and look around, probably click on something in your footer or scroll all the way back to the top of the page and you’ve lost them, you’ve lost control of their journey because now they’re just wandering around clicking random stuff and that’s not an ideal scenario if you want to lead them through a path of education.
Mike [26:03]: If you take a look at, I’ll use HitTail’s webpage for example, if you go in, right on the main page at the top navigation, you’ve got home tour plans and then why HitTail and you already explained why you have the “why HitTail” there. But embedded in the text in the middle of the page, it says “Increase your traffic” with the big orange button or take a tour. Well that’s the second link in your navigation. So if somebody does click that, they go to that tour page and then at the bottom of that, there is essentially this call to action which says “Your free trial awaits, grow your traffic” And then you click on that, that goes to the third thing in the top navigation which is essentially the plans and trying to get somebody to sign up for a trial. So there are definitely times where the call to action at the bottom of your pages is essentially going to mirror what they would see at the top navigation, but that’s not always the case. They may well be an extended set of tour pages, for example, or additional educational content that you’re going to put in front of them to help essentially walk them through the process of getting to point where you’ve educated them enough such that they are going to sign up for your product or at least sign up for and e-mail course or something along those lines to be able to bring them back. And it kind of depends on where it is in the sales funnel that those people are likely to be. The one thing that I have seen a lot of, and this is especially prevalent in a lot of word press themes, is that they have this “scroll to top of page” widget that will pop up. That’s not something that you want to put in there. If you can disable that, go ahead and disable it because the fact of the matter is, if you have a long enough page that it needs something like that, they’ve already scrolled through the page, they don’t need another thing at the bottom popping up to say, “Hey, would you like to scroll all the way up to the top to see all the stuff that you just scrolled past?” No, they clearly know how to use a scroll bar. So if you can get rid of those things, get rid of them.
Rob [27:44]: Element number nine is something I already covered when I was talking eight, but it’s to basically limit the number of links and buttons that you have on the page. It’s essentially limit the number of decisions that folk need to make as they’re reading though it. Be opinionated about where you vision should go. Think through this flow, it takes time. Think through the journey. But it will absolutely increase the number of folks get the proper kind of education that you’re trying to give them. And our tenth and final element is put everything else within reason into your footer. So typically we will see footers on homepages say something like about contact, terms of service, blog, affiliates etc., and I think that’s perfectly fine. I think having 6, 7, 8 links down there is fine. And something we’ve done with Drip, because we have a PI docks and we have like a press kit, I didn’t want a link out to all of those, we just have a docs link at the bottom and it links to kind of a nested page. So you can obviously start nesting things at some point. but I am not a believer in having 20 links down here, but I do think that having the basic pages that you’re going to have in a marketing side and basically linking to all of them from the footer when you’re starting, is the way to go. I would not put an e-mail sign-up form down here. I see people doing that and no one is ever going to submit that. If you really want folks to sign up for your course or whatever, I would not put it in the footer and frankly, I probably wouldn’t put it in the header either because that’s really your educational call to action of trying to get someone to learn more and click through to a trial. I would tend to use a little JavaScript widget like something you get from Drip or [Sumumi?] or OptinMOnster, instead of trying to plug this thing down in the footer and that will give you control to have it pop up at certain times or not and just a lot better control of when to make it visible and when not to.
Mike [29:24]: Something else that’s helpful to put down at the footer is some sort of a site map so that it’s easier for the search engines to spider your website and get to all of the different pages that are going to be embedded in your site. I think if you rely too much on dynamic html that essentially is put there through JavaScript or anything like that, to display based on who’s visiting your pages, that can be a little bit difficult to have the search engine spider your website. You could also submit a site map to Google but, again, having a site map there that is human readable and, I don’t mean by human readable xml, I mean a link that just goes to a site map where it lists all the different pages and all the different sections on your site. As your website expands and starts filling more pages, that becomes more important because sometimes people can get lost on your website. You may know exactly where everything is but again, your website isn’t for you, it’s for the people who don’t know anything about you and want to learn.
Rob [30:18]: I haven’t been building site maps recently as we build new sites. Definitely, we do this, the xml site map that search engines use and they’re pretty good at crawling anyways, but it’s always nice to help them out. The human readable one, I need to look. We still have one for HitTail because one existed when I acquired it. You know, when we update it and stuff, it’s been kind of a pain as we add new pages to have to add them there too. I’d need to look to see how many people actually use it because I genuinely don’t know how many visitors that page gets in a given month. I’d be curious to see if those are still used. I know it’s something that we did 10 or 15 years ago when you designed a site but it’s not something that I typically put in sites these days.
Mike [30:55]: Yeah. I find that there’s a lot of sites that I go to that if they are large enough, there is so much content there that you don’t necessarily know where you last saw something, for example, and the site maps can really help out with that, but it depends a lot on how mature the product is. I don’t think that, up front, you need a site map but I think that in longer term, as your product gets bigger and bigger, you probably do.
Rob [31:16]: So to recap, our ten elements of highly effective SaaS landing pages are; number one, to design for first time visitors; number two, to write a gripping headline; number three; to have a visual element; number four, to provide three benefits or to think it in the rule of three; number five, to provide social proof; number six is an optional one to provide features on the homepage; number seven, to have four or fewer items in the top navigation; number eight, have an exit path at the bottom of every page; number nine, limit the number of links and buttons; and number ten, put everything else within reason in your footer.
Mike [31:50]: Well that wraps us up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re out of control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 255 | Moving on From AuditShark
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about Mike’s decision to move on from AuditShark. They discuss events and reasons leading up to Mike’s decision as well as lessons learned along the way.
Items mentioned in this episode:
Transcript
Mike [00:00]: In this episode of Startups For the Rest of Us, Rob and I are going to be talking about me moving on from AuditShark. This is Startups For the Rest of Us, episode 255.
Welcome to Startups For the Rest of Us, the podcast helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [00:23]: And I’m Rob.
Mike [00:24]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
Rob [00:29]: Well, I’ve been diving pretty heavy into paid acquisition for the past few days. Just spending the money to look at different approaches to it, trying different images, headlines, optimizations, all kinds of stuff. And since I’m dipping my toe back in the water after having not done it for quite some time, there’s almost like infinite possibilities. So I feel like I have to rule them out one by one again because so many of the ad networks change over time. And so if you look at AdWords or Facebook, even from last year to this year, there are so many new options. And without knowing which one’s going to work, I just have to plug some money in, run some ads, figure out how it’s going to work and then switch the approach to see which works better. So that’s probably the next week or two of my workweek.
Mike [01:12]: Do you have a budget in mind for how much you’re spending?
Rob [01:14]: A lot.
Mike [01:18]: I always think the exact same thing when I look at paid advertising. It’s just like, I hate doing this.
Rob [01:23]: The optimization, especially, is painful because you don’t have the ROI yet. So last time I did this it took me about five grand to figure it out. And from then on, I had a positive ROI, I was with HitTail. This time, I don’t know how much it will take, but I spent between $1500 and $2000 yesterday testing things, and I’ll probably spend a similar amount today. The thing is as if you have a smaller budget, you can do this over a longer period of time. You don’t have to spend that much every day. But you learn so, so much faster if you have budget that you can work through because you learn very quickly what’s working and what’s not. And you’re able to leave it running for longer and get larger numbers, more impressions, more clicks, and it just gives you a more solid feeling for the data you have. It will definitely be a chunk of money but I absolutely look at it as an investment. Last time I was able to make it work. It [channeled that scales?] so well. It’s not cheap, but once it works, it’s pretty crazy how many trials you can drive using this approach.
Mike [02:26]: It’s basically printing money at that point, once you’ve got it working.
Rob [02:29]: Yeah, it really is. Yeah, it’s pretty insane.
Mike [02:31]: Cool.
Rob [02:33]: How about you? What’s going on?
Mike [02:34]: Well, a quick announcement to anyone who’s interested in going to, essentially [?] to a mastermind group and a ski vacation rolled into a business trip, you can head over to bigsnowtinyconf.com or to bigsnowtinyconfwest.com. The first one is going to be up in Vermont. It’s going to be in the winter sometime. I forget whether it’s January or February. But basically, they’re going to be selling tickets in the next couple of days and they have a mailing list put together. And then the other one is in Colorado, which is put together by a friend of MicroConf, Dave Rodenbaugh. The first one is put together by Brian Castle. He also has a hand in the bigsnowtinyconfwest with Dave.
Rob [03:09]: All right. So what are we talking about today?
Mike [03:12]: Well, I think today you’re going to be walking us through me moving on from AuditShark. So I’ll kind of let you drive the show today and we’ll see where it ends up.
Rob [03:21]: This is a big decision, man. I realize the magnitude and the gravity with which you’ve treated this decision. So there’s a lot to discuss, all the way from reasons to end results, to some of the marketing challenges you faced. I think I want to kick it off with giving some type of timeline. And it’s a pretty loose timeline that we tried to put together right before the show, to give folks an idea of what AuditShark is and where you’ve taken the turns over the past several years. So AuditShark is basically software, it’s a service and it is auditing software for servers and networks and client machines.
Mike [03:59]: Quick correction. It’s not actually software as a service. It was downloadable at the end of it. It started out as SaaS, but not –
Rob [04:05]: Okay. This is good to know. Yeah, you’re right. So it started out as Saas and then it was downloadable. You’re right. You started coding in 2010, you had a full-time consulting gig, and from what I recall, you had the idea and were starting to build it but it was a huge effort, like it was going to take a long time. And we, at some point, talked about how long you thought it was going to take and it was like a year or more of coding. I think you got kind of an alpha or enough to show your initial audience, which was banks, small banks. That was around 2011 at some point. And there was some mixed stuff that happened [right there?]. There was a mixed understanding. You had talked to a few banks and then when you actually revisited it there was like a misunderstanding in the discussion and, if I recall, some of the banks didn’t get back to you and then other ones said, “We didn’t really need this tool,” or there was a word that was defined differently, or something like that. That didn’t work. So then you started, in 2012, looking for other markets. You looked at SaaS. Eventually moved onto more looking at enterprise stuff. So it was 2012. And then in 2013 is when you were having the health issues and you had a big motivation block where you had months, if not quarters at a time, when you said you just weren’t really making progress. And in 2014 you finally quit consulting. You went full-time on AuditShark and you set yourself a deadline. You said by some point in 2015 you wanted to have revenue and you wanted this thing to be working, otherwise you were going to pull the plug. And obviously, that time has come.
Mike [05:33]: Yeah, that’s a pretty accurate depiction of what the timeline looked like. Early on I was actually, essentially taking the product and cloning existing functionality from other products that were out in the market. I’ll be honest, I feel like in some ways that held me back very early on because I was very scared or very hesitant to, essentially, show my work to other people or to go out and piggyback on those products. Even though they were being end-of-life, it didn’t matter to me. The reality is that I can be sued 10 years down the road and it doesn’t really matter whether those products were end-of-life or not. But there was that underlying fear in my head that I didn’t necessarily want to run into any sort of legal entanglements. I think that early on that affected me more. I think I kind of ignored it as time went on but it was definitely a factor early.
Rob [06:18]: Right. And my memory of the early days, again, this was like five years ago, was that you wanted to build it but that you didn’t have a lot of time. And I questioned how serious you were about it at that time. I didn’t feel like you were putting in 20, 25 hours a week at night, coding until two in the morning. It kind of seemed like you coded on it when you had time and that it was going to take a really long time at that pace.
Mike [06:43]: Yeah. That’s right. And I also hired some contractors to help me out with some of the coding. Some of them worked out and some of them didn’t. I think that the fact that there was a programming language built into it, that really threw some of the developers for a loop. They didn’t know what to make of it. They didn’t know how to use it. It was confusing to them because they had to not only know C# programming, but they also had to know how to deal with databases and they also had to know how to deal with a lot of the front end stuff and then the back end code. And in addition to all of that, they had to understand this programming language that was kind of like LISP. I think that that skill set was just really difficult to find and the people that I was finding couldn’t handle it. But I couldn’t necessarily afford to hire much more skilled people because of budgetary constraints.
Rob [07:31]: In retrospect, do you feel like you managed them well and delegated well or do you think you made mistakes there, too?
Mike [07:36]: Oh, I definitely made mistakes there. I’m probably not different than other people where you think that you’re good at most things. And I will kind of be blunt about it. I’m probably not the greatest manager in the world. I’d like to think that I am, and I’d like to think that I’m very well organized. But when it comes to assigning tasks, there are definitely places where I’ll write something down or tell somebody to do something and it’s difficult to get the idea across to somebody, especially if it’s a difficult concept. So that’s where things like the screencast and things like that come in. And they’re helpful, but I didn’t necessarily always do them either. And even sometimes when I did them, there were times when somebody would come back with something that was just blatantly incorrect and I was like, “I don’t understand how you could of misinterpreted this because I was very clear here.” So there were certainly cases where the fault was definitely on me and then there were cases where, for whatever reason, they just didn’t understand or didn’t figure out what it is that I wanted them to do.
Rob [08:30]: Let’s dive in here because we have a pretty extensive outline of kind of every angle of this decision to move on. And I think listeners will be interested to hear you’re reasoning, the roadblocks you hit along the way, who you’ve used as sounding boards, just all kinds of angles of this. Let’s start with the reasons that you’ve decided to move on from AuditShark. Obviously, it’s a huge decision. You have five years, on and off, invested in this as well as a chunk of money. This is not a decision that you’ve taken lightly. So talk us through what made you finally decide to move on?
Mike [09:03]: Well, last year, I kind of set a deadline for myself and I said, “Okay, in order for AuditShark to really do something substantial, I really need to dedicate more time to it.” Essentially, at that point, what I decided to do was, “Okay, if this is going to happen, I need to be able to just dedicate the time to it.” So I ended up quitting consulting and that was last June. So from June until now, I’ve basically been full-time on my own business and mostly working on AuditShark. Now one of the big problems that I was having while I was doing consulting, and essentially funding the development of the product, was that I couldn’t effectively do the sales and marketing. So like if I needed to be on a phone call, it was very difficult for me to arrange that because of my travel schedule. And I think that on our 200th episode, my wife had mentioned how there were some years where I was on the road 45 weeks a year. So that was definitely a problem for me in being able to carve out that time. Because if I’m on site with a customer, I can’t exactly step out to accept a phone call or step out every couple of hours to start making an hour’s worth of phone calls. It’s just not easy to do that. So quitting consulting allowed me to make those phone calls myself. I could have hired somebody, but at the same time, had I hired somebody, I wouldn’t necessarily have been the one learning how to do all that stuff or learning the subtle nuances of what people were saying. And that would have been difficult to get from a sales rep back to me. And in addition, I didn’t necessarily have the money to hire a full-time sales rep. And I’m really not comfortable hiring somebody on like a commission-based, especially for product that isn’t established and doesn’t have a solid revenue stream that’s coming in. I just don’t feel good about that.
Rob [10:43]: Right. I would agree. You never got to product market [?], so you as the founder/CEO really needs to be the first salesperson. So it was obvious that the sales approach wasn’t going to work. But at that point when you realized that, did you ever think, “Boy, this product is just not something that I can do as a single founder and I should pull the plug now?”
Mike [11:01]: The thought crossed my mind a bunch of times. It’s not to say that I didn’t think about it or it didn’t weigh on me but when you’re in the middle of it, it’s like what do you do? What are your options at that point? If you’re looking at that saying, well, this isn’t flying right now, it’s not going anywhere, what can I do about it? So I would say that it’s one of those situations where it’s the analysis paralysis, where you’ve got so many options you don’t necessarily know what to do so you don’t do anything. I’ll be honest, I just didn’t know what to do. So in many of those cases, I just didn’t do anything. I didn’t make a decision one way or the other, I just kind of let things ride the way the way that they were going and kept doing motion but not necessarily any forward progress.
Rob [11:39]: And I can imagine that with, essentially, the [?] costs that you had of a few years of work, because when you made this switch, and I think when you realized that it was going to be phone calls during the day and one-on-one sales, this might have been what 2012, 2013? So you were already two or three years into it. You were already tens of thousands of dollars into it. I imagine the sunk costs had to have entered your mind at that point, of like, I could just shut this thing down because this is going to be hard to sell or this is just a hurdle, a roadblock, and I can figure out how to get over it. Is that kind of your thought process?
Mike [12:12]: Yeah, but I mean, something else that factors into it is how do you know whether or not it’s going to be something you can get through unless you try it. If you look at the Dip from Seth Godin’s books, how do you know you’re there? Unless you try to push through it, I mean, if you give up right then, clearly you’ve failed it or whatever it is that you’re doing. But if you at least give it a shot and try and push through it, then you have a chance at making it through. And you won’t know until you try that. So it made it difficult to kind of make a decision one way or the other.
Rob [12:41]: Yeah. It’s hard because there’s the school of thought of you should get something out there in seven days and then let it fail really quickly. And there’s Lean Startup with just iterating and iterating and pivoting and pivoting. And then there’s the opposite school of thought that you need to sit there and hammer on things for six months or a year before you’re going to see if it works. And I think part of that is personality driven. Folks listening to this, I think if you tend to flit around and move from place to place, from project to project, you should probably stick with things longer than you feel comfortable with. And I think if you’re listening and you tend to be more bullheaded about it and you stick with things too long, then you should think about cutting your losses sooner. And having known you, Mike, for what- we’ve known each other for ten years, but known you pretty well for five or six, I would say you [?] on the side of pushing with things, of being more stubborn with it. And that is like a great strength in certain cases, but I feel like in AuditShark’s case it may not have been. It may have kept you doing it past the point where it made sense.
Mike [13:42]: I would definitely agree with that. And it’s hard to know, necessarily, in advance whether or not the stubbornness can be a pro or a con until it’s too late.
Rob [13:52]: That’s right. And if you’re company becomes a $100 million company and you were stubborn, then you’re a visionary and a genius. And if your company tanks, then you were an idiot. You know what I’m saying? It’s like it’s all in the outcome.
Mike [14:03]: Well, I appreciate that.
Rob [14:05]: Yeah. [?]
Mike [14:06]: That’s okay. No, I understand. I knew what you were saying. I knew what you were saying.
Rob [14:12]: So somewhere around late 2013, 2014, you kind of made the switch and moved into this enterprise market and you started talking to more enterprises and the sales cycle got long and challenging. So that was another factor, I think, in your decision to shut it down. Is that right?
Mike [14:26]:Yeah. The enterprise sales is just really hard. And I think that there are definitely cases where it could work and there are some people who are built for that kind of thing. I don’t know that I really am. I prefer things to move a little bit quicker. I’ve still got a customer in my sales pipeline who’s been there, going on 20 months now. And it’s an enterprise deal they’ve got between 35,000 and 70,000 end points. But the reality is that, even if that deal came in tomorrow, I don’t ultimately believe that it would change the long-term outlook or the sales cycles. So it would bring in probably $300,000 in revenue but I don’t necessarily have a good scalable way to get in front of a lot of other people like that. So that makes it difficult. And in addition, I had somebody who was basically asking me for information about AuditShark and we went back and forth a little bit and they’re like, “Check back with me in three months.” And then, “Check back with me in six months.” So I started doing some research, come to find out that this person was actually project manager for a product inside their company that basically does what AuditShark does. Of course that’s heavily depressing. It’s very demoralizing at that point. You feel like you’ve been strung along.
Rob [15:37]: Yeah, that’s tough. We had several offline conversations over the past kind of year, I think, as you’ve pushed into this enterprise market. And there have been stops and starts. There has been progress. There was a light at the end of the tunnel at a certain point where you thought that you were going to be able to make this work. To be honest, as an outsider looking in, the past 12 months has been your most focused and, I’d say, productive period of time, working on AuditShark, in my opinion. Because you actually sat down and you made the sales calls and you were doing demos and you were doing webinars and doing marketing and that stuff. It’s like the first three or four years you were working on the product and trying to figure out what to built and trying to- it was more product focused. A lot less marketing focused. But you really were dug in and executing this past nine to 12 months. But this enterprise sale cycle, and just enterprise sales in general, has really been an uphill battle, I think.
Mike [16:31]: Yeah, and just for some of the listeners who haven’t listened to some of the earlier podcast episodes or heard what AuditShark really was for or what it was built on, I was essentially taking an enterprise level product that had sold recently well in the market and creating a smaller version of it that would have a lower price point and would address the same types of needs but for smaller businesses. I wasn’t necessarily looking to go to the enterprise market. I was going to say, hey let me take this enterprise solution and re-work it a bit for small and medium sized businesses. And when the banks didn’t work out, and then as a SaaS offering for small businesses it didn’t work out, then I said, okay, well that worked before in the enterprise market. That’s probably where I should go with it. And ultimately, it seems like the enterprise market is just really not a good fit for me personally. And the last reason I have for walking away from this is that I feel that some of the people that I’ve been targeting and talking to, who are in positions where they are tasked with solving this problem, don’t necessarily care about the problem themselves. And that’s really hard to take. As a developer, as an entrepreneur, you’re trying to solve problems for people and make their lives better. But if they don’t care about the problem, then why should you? It makes it really hard to care about their outcomes when they don’t care about it either.
Rob [17:52]: And we’ll talk a little later about some lessons learned from that, right? Because I think trying to get more validation up front could have had you learn that before spending the time to build the product. Maybe it could have. I think it’s arguable. But it’s definitely possible. So what’s the end result really? What are your sunk costs?
Mike [18:13]: Neglecting the time that I’ve spent on it, and if you kind of add in profit versus the money that I spent, I’m probably down about $50,000 in sunk costs. There’s about a third of that that I paid to a contractor who kept promising to deliver and updated version of the product for, it was probably close to four months. And that was complete mismanagement on my part. And I talked to my mastermind group kind of at length about that because it had been going on and on. And finally, it just got to a point where I was like, look, I need something from you. I need to see something and what I got was not what I expected. And I was just like, all right, I’m done with this. This whole contract is done.
Rob [18:49]: Right. That’s a bummer.
Mike [18:51]: Yeah. Probably a third of that $50,000 was spent on that.
Rob [18:55]: Right. You mentioned your mastermind group. I know you’ve had a bunch of sounding boards, folks you’ve talked to about this. Especially over the past year or two as you’ve been trying to make a decision about it. Who are folks who you’ve relied on for that?
Mike [00:19:09]: Yeah, so Dave Rodenbaugh and [?] are in my mastermind group. So I talked to them pretty frequently about it every couple of weeks. And then at Microconf Europe, I had a number of conversations with different people. Like Steven [?] and Patrick McKenzie. Even as far back as Microconf in Vegas, I talked to Steli Efti for quite a while about it because, obviously, as CEO of Close.io, he has a lot of insight into sales cycles. So I felt like talking to him would, at least, help me understand whether or not I was going in the right direction or the things that I was doing or not doing that I should be. And the end result of that was that if you’ve lost motivation and the needle isn’t moving then it’s going to be an uphill slog. And somebody specifically said, “You’re a reasonably smart guy and there’s a near-infinite problems you could be solving. You should probably be working on something that you enjoy rather than something you don’t.” And it stung, but at the same time I needed to hear it.
Rob [20:04]: Yeah. It all depends on what state of mind you’re in. If you’re in the first couple months and you’re all fired up about something being a good business and someone tells you that, you’re going to tend to ignore it. All of us would tend to ignore that if you’re fired up about it. If you’re at the end of your rope and you’re frustrated and you’ve been working on it for multiple years and it’s not working, when you hear that it’s going to sting, but I think it’s good feedback to hear because it makes you reconsider continuing to invest in this product that just doesn’t have legs.
Mike [20:29]: Right. And obviously there’s all the mental challenges that go with it, but it’s something that I’ve talked about on this podcast before and there’s a certain amount of obligation to succeed, I’ll say. And not to say that everything I touch is going to turn to gold, because I certainly don’t expect that, but I really felt like I had the insight into this particular problem and how to solve it to be able to push my way through and solve the marketing challenges. And I felt like a lot of the marketing challenges that I ran into, especially in enterprise space. The enterprise space is really very much relationship driven. I do not like the mode of operation. I do not like that mode of sales.
Rob [21:10]: So with all the feedback in mind from folks you’ve spoken to and given your reasons above, I know that you had in essence, set a deadline for yourself at a certain point last year. Can you talk us through really the final straw or the final deadline and how that worked out? You gave yourself the freedom to really decide to move on. How did that all work?
Mike [21:29]: Yeah. I had this initial deadline that I had set up, which was a year from going full-time on it. And I got near the end of that deadline and I was kind of worried about it because obviously, things were still not going very well and I was trying different things. And one of the things that I had tried was the AuditShark lock down service. That allowed me to kind of push things out a little bit because as soon as I started doing that, I got some immediate sales from it and I was able and go out and do some security reviews for a couple of people. And I sold two of them very, very quickly, and then there was a third one that was supposed to come it and ultimately, they ended up backing out. But I sold several thousands of dollars of those services very, very quickly. So I looked at that and said, well, maybe this is the part that has legs. Maybe this is where the product is destined to go. So I gave myself a little bit of extra time. My mastermind group members were on board with that. They said, “Look, this got some revenue very, very quickly. You should probably spend a little bit more time on it, even it takes an extra month or too,” because a lot of the other things you haven’t tried so far have worked. And it’s like you’re at the end of that timeline and suddenly, boom, something changes. And it didn’t feel right to just pull the plug at that point. So I extended the deadline by a little bit. But ultimately, it didn’t seem like that really made much of a difference. And also, the initial traction that I got from that was from warm leads, not necessarily cold leads. And I don’t know how long it would take some of those people to invest in the lock down service. But at the end of the day, I don’t think that the lock down service is something that I would want to do long-term anyway.
Rob [23:00]: Right. Yeah. So the combination of it, it’s like if you go with enterprise you didn’t really have a passion for doing enterprise sales. And if you did the lock down, you could probably sell it to more smaller, medium sized businesses but didn’t turn into something that you wanted to do. And, like you said, you didn’t know how to repeat that and you didn’t want to spend another six months trying to find cold leads and convert them with lock down. Your time had come, your deadline had passed.
Mike [23:24]: Right. I mean, you can only pivot some many times before. You can technically pivot forever but at some point you got to call it quits.
Rob [23:32]: Yeah, there’s always more suggestions. We could sit here and say, “Okay, so lock down had a little bit of traction, Mike. How are we going to plan to get more people to the website? And then you can do webinars and you can do this and do that” but it’s like you’re done. When you’re done, you’re done. So what are your plans with AuditShark, what are you going to do with it?
Mike [23:46]: Well, I think, for the time being, I’m just going to leave the website up and leave things on “Autopilot.” I’ll probably add a pricing page in there with just some sort of [low ball?] price and some sort of upper limit on the number of machines that you can use it on. But the reality is I’m not going to do very much with it at all. I did talk to a broker who said that he thought that I could definitely find a buyer for it because there’s definitely people who would be interested in this type of product. But the other suggestion that I heard was that the site definitely gets reasonable traffic on some of the pages that are super competitive. So for example if you search Google for SOX Compliance, I actually rank higher than Wikipedia for SOX Compliance. And if you look in the Google keywords tool, it shows that it’s a highly competitive term. So I’m getting like more than half of all internet searches for SOX Compliance. And that page is generating between 15 and 20 leads a week right now, for me. So I think that there’s definitely value in terms of advertising. But again, it kind of goes back to this situation of like in a way I’m kind of done and I don’t want to put a lot of time of effort into it, so I’m going to leave the site up for the time being but I’m not going to do a whole heck of a lot with it at this point.
Rob [24:54]: Yeah. It’s tough, man, because, I think my opinion on this is that leaving it up, if you make one sale magically or two sales for a few hundred bucks, it’s probably not going to be worth your time to support them. And I think that if someone downloads it and uses it and runs into any bugs, then you’re now on the hook for fixing that. If they run into support issues getting set up, you’re going to have to help them. And since you’re not planning on building this business, I’d be kind of hesitant to keep it for sale, to be honest. Even if you leave the site up for now until you’re really done with it, you may just want to remove the buy it now button and either have just a “contact us” button or like no way to purchase on the site. Just to avoid having to get your code, which has not been heavily production tested on hundreds of installs. So it probably still has some bugs to avoid a customer buying that and putting it on their stuff and then having to support it. Because, you know, what’s worse than selling zero copies of a piece of software, selling two copies of a piece of software. Because then you’re on the hook to support it and it’s a lot harder to just shut it down and walk away at that point.
Mike [25:54]: Yeah. For me, I think, there’s this mental barrier to going into [IS?] and clicking stop on the website. I feel like that’s really what it is. There’s two sides of this. There’s the logical side which says, “Look, this is done. This isn’t going anywhere and all the paths that you have to success are paths that you don’t necessarily want to do.” So there’s really no point. But then there’s the emotional side of it which is like, “I’ve put all this time and effort into it and to go in and hit that stop button” so that website no longer shows up, it’s kind of painful.
Rob [00:26:26]: It’s too soon.
Mike [26:28]: Yeah, kind of too soon. Mentally, I feel like it’s there but at the same time, it’s hard to just do that.
Rob [26:35]: I think that will ease up over time. I think now that you’ve made this decision, it still hurts and then, in a few months, I bet it will be a lot easier to do that.
Mike [26:43]: Yeah. And that’s what I think as well. I’m just going to kind of let the website ride for the time being and for the most part ignore it.
Rob [26:50]: So let’s talk about lessons learned. I think you’ve learned a lot during this process. I think other folks listening to the podcast have too. There’s been a lot of heartfelt discussions and the comments over the past several of years as we’ve had episodes that have focused on your building and launching and decision points around AuditShark. Talk us through some of the things that you feel like you’ve taken away from this experience.
Mike [27:09]: Well, I think that I’ve definitely realized that there are certain cases where the answers are not so cut and dry. So, for example, when we talked before about the timeline a little bit, and in 2013 there were some heath issues that I ran into. But I almost feel like those obscured my motivation issues or maybe compounded them because I don’t think that, kind of looking back in retrospect, at the time I was like, oh yeah, my health issues. I’ve got these under control now and now I can get to work and I can actually get things done. And I feel like because of maybe underlying motivation issues were obscured by the health issues. I think that it was not necessarily as clear to me that there’s two different things going on here, not just one. And it’s not obvious until much later. I was talking to Patrick McKenzie and he said the exact same thing happened to him on Appointment Reminder, where the product wasn’t necessarily getting very much traction and he ran into health issues. And then even after some of those cleared up, it still took him a good year and a half or two years of a very difficult grind to get the product to where he wanted it to be. And he’s the one who actually told me that the heath issues very much obscure the motivation issues. I think at Microconf Europe he called this the [Peldi?] test.
Rob [28:22]: Right. Like do you really want to work on this thing?
Mike [28:24]: Right.
Rob [28:25]: Are you going to be happy working with this group of customers and working on this product for the next 10 years? That’s really his question. I think there’s also a big question around validation. You’ve made some calls and you had a couple of banks that you had spoken to, but talk us through something that you would do differently these days regarding the early validation of AuditShark’s need.
Mike [28:25]: I would talk to a lot more of them. I talked to five and I felt like because I walked in the door and sat right in front of the person who was running the IT and talked to them directly, that I had a good handle on it. And then in addition, all my background and experience at the startup a long time ago, building exactly this type of product. Because I knew all the subtle nuances and I did all the consulting around it, but at the end of the day, I did not understand the needs of the small banks. Because what I was trying to do was I was trying to take a large enterprise product and put it down into a very small niche market with banks. And I didn’t do enough validation around that piece of it. I still feel like the product itself and this particular problem needs to be solved in the enterprise space, but clearly, as I said, that’s not a place that I’m going to go or able to go. But I definitely could have done a much better job validating those banks before I went off and built code for 12 to 18 months. And I think that had I done a better job of that, I might have realized much sooner that the banks were not going to be a good fit for the product. And ultimately, I wouldn’t have had to pivot because I would have never built to begin with.
Rob [29:53]: Right. Yeah, and then something I’ll add, that we talked about offline is that, you took too long between the idea and talking to the banks and getting to beta, right? It was like 18 months or more and that’s a long time. There were reasons for it. You have contractors that fell through. You had traveling. And you had all of that stuff, but it just becomes too long and it makes the journey too long so that it’s not fun anymore. It’s hard to keep motivation up over the course of 18 months or two years working on a product with no real validation.
Mike [30:22]: Yeah. And it’s interesting. I’ve talked to some people where they’ve heard about some of the inter details and inter-workings of how everything has happened and they’re shocked that I was able to maintain, I guess, stay on course for as long as I have.
Rob [30:37]: Yeah. And that comes back to that strength of being stubborn. I think you have that strength of being able to continue plugging away at something for a very long time and I think that’s why you stuck with it, and it’s both a strength and a weakness depending on the context.
Mike [30:51]: Yeah, the other thing that I think really was a big deal was when the banks, I was initially targeting, did a 180 on me. That should have been a gigantic red flag for me to reevaluate the entire thing instead of just simply pivoting. Because I had this product that I had built, I took it to them and they said, “Oh yeah, we must have misunderstood” or there was miscommunication. This is how we’re solving that. We don’t really need this. It’s an interesting thing but we don’t need it. And I think at that point, I probably should have done a complete reevaluation rather than simply trying to pivot. And I think that was big mistake that I don’t think I realized until recently. I can’t really remember ever hearing that lesson from anyone else before, but I think if you get to the point where you need to pivot, you need to evaluate everything at that point instead of just is this going to work or what’s going to be the most likely place for this, because it’s entirely possible that all the research and everything else that you’ve done before that point is essentially irrelevant at that point.
Rob [31:48]: Right. And you were in problem solving mode of like, “I’ve run into a problem, the banks didn’t pan out. How do I fix this problem in the context of this product? So how do I find different customers? How do I find customers for this app?”Whereas, maybe you shouldn’t have been evaluating how do I fix the problem but should I fix the problem and should I even continue with this product at all?
Mike [32:09]: Yeah. That’s a very subtle distinction, but extremely important, too.
Rob [32:13]: Yeah.
Mike [32:14]: I think there was also a certain amount of obligation that I felt because I had talked about AuditShark on the podcast. I almost felt obligated to continue. And I feel like looking back on it, that was also a mistake that I made. Sometimes the right decision is to call it quits and move on.
Rob [32:28]: Right. And I think that obligation probably extended beyond that and maybe even tied into the amount of money you invested and certainly the amount of time you’d invested. It just comes back to the sunk cost.
Mike [32:40]: One other thing I want to bring up is that I think when you’re looking for a channel for your product, and I think that on this podcast we tend to err on the side of telling people go for SEO or paid advertising, all these online mechanisms, and I think that once it gets to offline stuff you have to do a little bit more research on it. Because what I didn’t realize in going after the enterprise market was that the enterprise market is much more relationship driven than it is anything else. And I didn’t realize that up front and I should have. Because I’ve done enterprise sales before but probably not to the extent that an enterprise sales rep would have. I’ve been in the capacity as like a sales engineer and working through problems with people and doing proof of concepts and things like that, but when it gets into the part where you’re actually selling the software and getting to the point of purchase orders and things like that, it’s very, very relationship driven. And sometimes people will just ask you for proof of concept or a demo for the sole reason that they want to pit you against another vendor. And I’ve run into that. It’s a hard position to be in but those relationships that those larger businesses have, they’re there for a reason. So when I big business runs into a problem, they’re going to call up their large value [added?] reseller and say, hey, we have this problem, what do you have for us? What tools do you know of that can solve this particular problem? And they’re going to rattle off two of three and usually the top one that they come out with is going to be the one that gives them the best margin that they’re reselling. And I don’t have those relationships and I don’t really want to sell a product that is more sold on relationships than it is sold on technical merit.
Rob [34:15]: I think there’s a roadblock or a pretty big uphill battle if you’re a single founder bootstrapping a company and you’re trying to enter this market. I don’t know of any single founders who are bootstrapping, selling into the enterprise. I’m sure there’s one or two. There’s probably a counter example. But for the most part, the folks we know are not doing that because of the amount of time investment that it takes, the amount of cost, the lead time, and the sales cycles. There’s just all these reasons. So, I think when you initially launched or were going to start building back in 2010, you weren’t planning on going after enterprise. But there was a point in 2013, 2014, when you said this is what I have to do, and I think that if you had known what you know now about the enterprise sale cycle, that would have probably caused you to, hopefully, rethink the decision.
Mike [35:02]: Well, that’s another pivot point where I should have reevaluated much more than just where is this going to work. When I pivoted from banks to small businesses I should have reevaluated a heck of a lot more than I did. And then when going from there to the enterprise, I should have evaluated whether the enterprise is a good place for me to be in. I didn’t do it in either of those cases. And I think both of those were mistakes.
Rob [35:02]: So what’s next for you? You’re moving on, but what are you moving on to?
Mike [35:28]: I’ve kind of talked about this offline, but there’s a ton of stuff that needs to be done on the Micropreneur Academy and Founder Cafe, so I think I’m going to take some time to revamp some of the guts of that stuff over the next couple of months. And then right now I’m also testing out a couple of different ideas to see if they have any legs. Two ideas I’m testing right now. One of them is more of a one-on-one email follow-up. Because one of the issues I ran into when I was trying to do the enterprise sales was there were people who I would email them or I would call them and they just would not get back to me. And it would take a number of emails or contact attempts to try and get them either on the phone or get some sort of response. There was one, I think I talked about it were it was eight emails over the course of 16 weeks, or 16 emails over 16 weeks or something like that. It was a very long period of time. It was a very high number of emails to me and phone calls. And finally I got a response on the 16th one. I forget the details of that but it was a lot. And it was all with no response of any kind and then suddenly, kind of out of the blue, they’re like, “Oh, yeah. By the way. We’d love to set up a meeting for Tuesday.” It was weird the way that that works. And I’ve talked to a couple of people about this. There’s definitely some opportunities there where they want some sort of automated sequence for people who, not fall off the bandwagon, but fall off the radar or kind of move away from the negotiating table, to just help bring them back. So I’ve got an idea that I’m testing for that and I’ve talked to a few people about it, but I’m not so sure I want to go in that direction. And then the other one, this one’s a little bit fuzzier. It’s sort of an idea around spreadsheet automation. So there’s lots of people out there who build reports from spreadsheets or take data from different sources, kind of aggregated together, or imported into databases. And I think that some sort of spreadsheet manipulation product or something that builds reports from multiple spreadsheets and splices things together, or even just something very, very dead simple that takes spreadsheets and imports them into a database might be something that people would be interested in. Again, I’m still working out details on those things. I haven’t started writing code or anything like that, beyond some very, very brief prototypes that’s about it. But I’m kind of sifting through about 5,000 keywords right now to see if there’s an SEO play for that and then talking to people about that. I’ve already had a few conversations. One of them didn’t. So, we’ll see how it goes. But I’m not going to do anything until I get to probably 20 or 30 people.
Rob [37:49]: Well it’s been a long journey, sir. I know this is a big decision for you. So it’s cool that you’re willing to come on the show and kind of detail all the decision points and what’s gone on over the past several years so folks can get a better idea of what was going on at what point. And frankly, so we can all learn from the mistakes that we’d made, like we say in out intro.
Mike [38:10]: Yeah, I’ll be honest. This is a fairly painful set of mistakes. It’s not even just one mistake, it’s a bunch of them, not necessarily sequential. There’s definitely some things that went well and there’s some things that didn’t. I learned a lot along the way. Ultimately, it didn’t necessarily turn out the way I wanted it to. But not everything does. But at the end of the day I want to be doing something that I enjoy and have fun doing and am helping people who legitimately want to be helped. And there were a lot of things that just didn’t necessarily fall into place along the way. So, as I said, it’s kind of painful. I know logically that it’s the right move, emotionally it’s still a little painful, but hopefully that will go away over time.
Rob [38:51]: I imagine there’s also a bit of a weight lifted off your shoulders.
Mike [38:55]: Yes and no. There is and there isn’t, I guess. I’ve got all the technical cruft left around that it’s going to be there for a while. It’s almost like you break up with somebody and their stuff is still in your house.
Rob [39:07]: Yeah. You just can’t get away from it.
Mike [39:10]: I don’t know how else to put it other than that.
Rob [39:12]: Yeah. Well, I think that probably wraps us up for today. So if you have a question for us, whether about this episode or another one, call our voicemail number at 888-801-9690. You can e-mail us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Out of Control,” by MoOt, used under Creative Commons. You can subscribe to us in iTunes by searching for startups, and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 254 | Planning Your Move from Day Job to Product
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about planning your move from day job to product. They give you seven milestones to follow to help you get closer to working from your business full time.
Items mentioned in this episode:
Transcript
Rob [00:00]: In this episode of Startups For The Rest Of Us, Mike and I will discuss planning your move from day job to product. This is Startups For The Rest Of Us, episode 254.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:28]: And I’m Mike.
Rob [00:29]: We’re here to share our experiences to help you avoid the same mistakes we’ve made. [What are this week?], Mike?
Mike [00:34]: I’ve only been back from MicroConf for a couple of days now, so I haven’t gotten a whole lot of work again. But aside from that, I bought a new car and it’s been the most painful experience I’ve had all year.
Rob [00:44]: All right.
Mike [00:45]: That’s like two or three years. For whatever reason, like they don’t make it easy to get a price quotes, and I kind of get the reason, but it’s just painful to get price quotes from anybody without having to actually walk in the door. It just sucks.
Rob [00:57]: Even on this day on age of the internet, car buying still not solved.
Mike [01:01]: Like I said, I understand why they do it because they don’t want you to go around to like 10 different dealers and get a price quote from them and then shop it around to them. But still, it’s just like you think it would be easier.
Rob [01:12]: You’ve done a lot of enterprise software sales, now you know what it feels like to be on the other end of that. Am I right?
Mike [01:19]: I appreciate that.
Rob [01:20]: Totally. Me as well, I’ve been back to work essentially two days. I did some work over the weekend to try to catch up on e-mail. I had a big backlog, but I spent the last two days kind of cranking though and getting caught up and really figuring out the focus of the next couple of months because it’s kind of time to continue building what we started during the summer with Drip. We’ve been doing webinars. We ran a contest. We have the content [?] going. We have a ton of integrations going. There is just a lot going on. While I was away in Europe, I was able to keep pretty close tabs on that.
What is nice is with [Slack?] and e-mail and get GitHub with Codetree on top of that. It was just easy for me to keep an eye on and figure out what was going on, to kind of keep up [the tabs?] with it. The nice part about being in Europe for that month was that I was able to do a lot of thinking and I had enough space because I was separate from the office, that I wasn’t kind of caught up in the day to day as much.
I made a bunch of notes about some entirely new projects that I want take on, some new angles about marketing and on the sales side. We actually need some inside sales help and I’m going to be looking for someone part-time to help with that. There is a lot of interesting stuff that’s on the dock and I’ll probably talk about it once more if it’s implemented. But, kind of planning right now about the next 60 to 90 days of what I see the marketing and sales winding up and then also working with [Derrick?] on figuring out what the next 60 to 90 days of the product is going to look like.
Mike [02:51]: Do you have an idea of how you’re going to go about planning that stuff? Is it going to be based largely on, I guess, interpretation of what customers are asking for or do you have specific things in mind that you know need to be done and it’s just more matter of prioritizing at this point?
Rob [03:06]: It’s the ladder, yeah. We have a couple of hundred feature request, additions, tweaks, some of which have come from internally of how we want to make the tool better for our own use. I use Drip- we use it for MicroConf. I use it for my book. I use it for the podcast. I use it for Drip and HitTail. I use it for ZenFounder and Startups For The Rest of Us podcast. I have a [?] of use cases on my own and we use it internally. Everybody in there is kind of putting feature request in.
Then we have customers constantly asking for stuff so the list is long. The challenge is prioritizing and figuring out what is the next thing that is going to either retain the most customers or get us the most new customers, and that’s really the evaluation process we are going through.
Mike [03:54]: Cool. What are we talking about this week?
Rob [03:57]: This week, we got an e-mail from [Casey Collins?] and he asked a question that spurred me to basically outline an entire episode, and his e-mail reads, “I’d been interested in hearing an episode on how and when to make the leap from the day job to working for your business full-time. I’m working a standard full-time job and just starting to build my SaaS app. What goals or milestones should I set to gauge whether or not I’m ready to make that leap.”
We’ve prepared seven milestones that I think you should target along this path. It may not be the same in every case, but this is a nice general framework to kind of get you going. Under each milestone, we have some action items you should take to kind of make sure that milestone is accomplished or to help you get to that milestone.
To kick us off, the first milestone is preparation, it’s really pre-milestone. There is a couple of things here that I think are key if you are going to embark on this journey and try to get from salary gig to making a living from product or even a productized consulting service. The first thing I think you want to keep in mind is that having a runway of some kind, some type of cash runway is amazing.
If you can get three months of living expenses, awesome. If you can get six months, even better. Because, even once you make the leap and you have an app that’s covering a good chunk of your income, it is so nice to have that comfort and the lack of stress by knowing that there is a chunk of cash in the back that you can turn to if you need to in like a dire situation or in case anything goes wrong as you make this jump to living off your product.
Mike [05:33]: I think something that kind of goes along tightly with that is making sure that you don’t have a lot of debt when you are trying to start a business. Debt itself can be crushing especially if you are floating a lot of money on credit cards or different debts that you’ve accumulated, whether it’s student loans, or mortgage, or car payment, or even just things where you have refinance something. Or you have financing on something for like your house, whether it’s like roof or siding or anything like.
Any of those debts, they basically weigh you down and they can make it much more difficult and much more stressful to start a business because you have all this interest in extra debt that you’re paying on a monthly basis. Yes, in some cases, it’s very valid, but it also hurts a lot because you have to pay attention to that and there is mental [?] associated with all that stuff. It’s not just about reducing the cost of your day to day living expenses, it’s about reducing the outgoing cash flow on monthly basis as well. Not just [?] cash itself, but the interest associated with it too.
Rob [06:31]: If I were in a position where I had $10 or $20,000 of credit card debt and I was considering going and start a product business, I would not start a product business. Instead, I would take my evening and weekend hours and I would do freelance work and I would pay that debt full before I did it. That’s just my style. I think that’s probably the best advice in most situations.
But, as you said, it’s just like anchors it, like sucks the cash out of you and it’s really going to be that much harder to start to make a full-time living off a product. It’s not hard enough without having that as well. I think the second piece of this preparation milestone is to get buy-in from the key people in your life. That’s most likely a significant other, whether it’s a girlfriend, spouse, husband, kids who are old enough, maybe it’s them, maybe if you still live with your parents, it’s them. But it’s someone around you who is going to be impacted by this. I think that’s the biggest deal, right, is are they going to be impacted by taking this leap?
If you share finances with someone else that someone who kind of needs to do the buy-in, and I think a husband or wife is a perfect example of this. Without getting their buy-in, A: you’re not really treating them with respect, like you’re going to be making financial decisions that could negatively impact the partnership and could negatively impact both of you and that person deserves a say before you do that.
Then the other thing is it can cause a real rift. I mean, businesses can cause divorce and it cause people to split up and that’s not something you want to do. I think having that conversation really before you start building this app and going on this [?] pretty tough journey is a good step to take.
Mike [08:11]: I think sometimes it’s difficult to explain exactly why it is that you want to do this. Because, building your own business is a heck of a lot harder and more involved than just going out and getting a full-time job, and you get the income from that full-time or the consulting revenue fairly quickly. Trying to relay that information about, “Oh, this is why I want to do this” and if you’re looking down the road a long term fulfillment or the monetary rewards down the road, it’s not always clear cut to most people.
I find that my brain tends to be wired a lot differently in terms of how I look at things like that than other people I know who are not entrepreneurs or not doing their own thing. They have a 9 to 5 job, they go to it, and they come home and they don’t really see how, “Oh, why is it that you’re working on this thing that you’re not seeing any benefits from it right now” and it could be very difficult to explain that kind of stuff.
You really do need to be on the same page, not just in why you want to do it, but what are the long term benefits of it. Let’s assume that you are successful and that also goes along with making sure that you’re relaying information about how things are going to your significant other, because they need to know how things are going, because they are invested in the relationship, maybe not necessarily in the business they want you to be successful, but as a by-product like it does affect your relationship and it really can hurt it over time.
Rob [09:30]: Yeah, I agree. I also think that I would consider giving someone who had a lot of questions about this and really wanted to begin with, give them the book “The End of Jobs.” Taylor Pearson came on the podcast awhile back but it helps explain why entrepreneurship is actually a logical choice and can be as good as or better than employment, especially moving forward, and it makes it kind of logical argument around that.
Last step for preparation is to put together a spreadsheet with estimates of how long it’s going to take to build what you need. At this point, it’s going to be more of a guess because I’m assuming you’re just starting conversations with customers or future customers at this point so you may not know exactly what you want. But a problem I see with some folks who are building products, actually, many of them, is that they don’t have any concept of how long it’s going to take them to build what they are building, and they just sit down to build the next page in the website, really, without a spec telling them what the overall scope of things is and no concept of when they will be done.
When I say spec, I don’t mean that you write some type of full functional spec like you would if you’re a consulting firm, I mean, a few lines on an Excel spreadsheet or a Google Doc that basically says, “Here are the high level” whether you want to do it from database up or top down from the UI element.
I’d typically go from UI stuff and you say, “How much each page is going to take you” and then you add some leeway time and you add some database architecture time, and some deployment time, and you can get a reasonable estimate, even if you’re not that great at estimating. If you’re within 30%-40%, that will help you know, is this a true year development project you’re tackling or is this a 3-month development project you’re tackling. Knowing that from the start is huge, and I think doing that, I feel like you’re flying blind and you have no concept of what it is you’re building and how long it’s going to take.
My other kind of final act for this is there is this cool function in Excel and in Google spreadsheets, called Workday. If you put all the numbers in, forget how many hours it is, you could put workday in and you can figure out what date that you’re going to complete this project, and it will give you the date as of today if you work certain amount of hours per week.
Then, if you don’t work in a week, that date pushes out and so this is a very tangible and real way to watch your date slip, really, without any work acquired on your [?]. Every time you log into this thing, you’re going to see, “Oh man, I’m not going to launch until February of next year” and you really need to get on this thing.
I think this is a key component to preparation as to have a concept of the scope of what you’re building, even if that changes, you’ll be within a month or two of it and when you’re working part-time like this nights and weekends, having this is I think a big kind of sanity checker to be able to have an idea of how long you’re going to be working on this on the side.
Mike [12:14]: Yeah. I think that’s a great suggestion. I didn’t know about the workday function, I use FogBugz and Teamwork and couple of other tools. But the interesting thing about that is that it’s almost like if you’re using a GPS and tells you that you’re going to arrive at 5:10 PM or something like that and you hit traffic, and suddenly it’s taking you longer and it continually pushes out.
At the end of the day, of course, when you’re 30 seconds away, of course, it’s going to be extremely accurate. But the further you are out, it is less accurate and that helps to give you an idea of how far you’ve realistically are from it. Because the further you are away from something, the more difficult it is to estimate it and I find that when you have a lot of test that you’re not necessarily as familiar with doing because you don’t do them on a regular basis, you can be wildly inaccurate by as much as 10x of how close you are with just your initial estimate.
Then even the things that you are familiar with, those things are very often inaccurate as well. I’ve seen developers who are like, “Oh, this will only take a couple of hours” and inevitably, it takes two or three days. I think I saw something recently where it basically said, “Take any estimate you have in order of magnitude in order to make it accurate.” I wouldn’t say that that’s necessarily far-fetched in many cases.
Rob [13:26]: That was our first milestone preparation. Milestone number two is to have one person commit to paying you for your product, and this is standard customer development, right. It’s getting that commitment and trying to validate the idea [?]. Notice no one has written any code yet, don’t go often build your product. In fact, Casey had said, “I’ve just started building my SaaS app.”
Casey, I would advise you to stop building your SaaS app and go do this instead. I say one person committing to pay you, that’s the first milestone and really, the next one, we will kind of combine it with this, is to get 10 people to commit to paying you. Name a price, get 10 people to commit and this is going to happen in person conversations, either in person, via Skype, or via e-mail, but it’s going to be one on one conversations. You can do this with split testing and sending bulk e-mail and using surveys. Right now is the time to dig in and really get 10 people, and don’t write a line of code until you have those 10 people.
That’s what we did with Drip. I’ve refused to get started on it until we had some commitments and I knew that we had enough interest that it was worth digging in and starting to write code.
Mike [14:32]: I think that step is really hard for a lot of people, because they don’t have anything that they can really show to people, yet, you’re kind of asking for people to make commitments to pay you for something that just simply doesn’t exist. The term that comes to mind is [vapor?] [?] “Oh, you’re selling something that just doesn’t exist.”
In some cases, the advice is, “Oh, you should definitely take somebody’s money and there is a counter advice which says that you shouldn’t, at a very least, get the commitment. But those two things are just kind of a natural progression. If you get somebody to commit paying you money, that’s only one more step to get them to actually give you the money. If you don’t deliver, if you don’t follow through, then give the money back. It’s not that big of a deal.
I was talking to a couple of entrepreneurs who deal in the real estate space and they were having a hard time doing this and I kind of put it in perspective for them because I was like, “Well, how much are they paying for some of their leads and how much are they making from some of the different things that they are doing” and of course, it’s thousands and thousands of dollars because it’s a percentage of the real estate transaction.
I was like, “You’re asking them for a commitment of $100 to $200 which is not a big deal and later on, few weeks later, we talked and they are like, “Oh yeah, I went out and I did that and I got three people to give me a $100.” And they are like, “Oh yeah, it was no big deal at all. The other person just didn’t even blink.” They are like, “Oh, $100?” “Sure, no problem, whatever.” Because in the [grand scheme?] things to that business, that $100 does not make a difference, but to an individual, it might.
It does depend a little bit on the type of business that you’re talking to. But getting that commitment means a lot and it helps you really determine, whether or not, it’s something that people are willing to pay for. Whether you ask for the credit card or you just ask them for that commitment, each of those things are a step that takes you a little bit further and it really just depends on how far you want to go.
Rob [16:14]: I agree with you that this is hard for most people and most people don’t do it actually, and this was very hard for me when we were getting Drip started because we wanted to build the thing. We just knew that everybody was going to throw money at us when it was done, and these conversations are hard. They are uncomfortable because you have an idea of what you want and you feel like when people tell you that they don’t quite understand what you are really saying, they don’t really get what you want to build.
But this is when the iron meets iron and the sparks fly and you have to figure out your vision for your product is correct, or if you need to make adjustments, or if you’re just not describing it well enough. This is where- I didn’t have anything to show. We had no screenshots. If I were to do it again, I would probably try to produce a screenshot or two or a flow diagram or something to demonstrate it, but all I had was a list of bullet points and it was just a value proposition.
You don’t need to walk through and say, “These are all the screens that are going to be in there and then you’re going to click this button and then that.” That’s not the point. The point is would you pay for something that does this, that gives you this end result, that’s what you’re selling here. You’re really selling a solution to a problem rather than an actual piece of software at this point, and you’re just finding out, “Is this enough for a problem that you would pay X dollars to have it solved.”
If you can get commitments for that, then you have to solve the problem, and maybe the software you have in mind right now, solves that problem and maybe it doesn’t, but at least to just start. If you launch that version 0.5 and it doesn’t quite solve it, then you iterate on it until it does solve that problem. But if you valid that this problem has a need, and people are willing to pay $100 a month for this thing, that’s a really good start, that’s 10x better start than most founders I know have these days, when they start writing code.
The second piece of the second milestone, which is basically to get 1 or 10 people to commit to paying you is to start building your launch list. It’s what to do right after you do get those commitments or as you’re going about getting those commitments. The traditional advice that I would give is to get a landing page up and start collecting e-mails from day minus one before you start writing any code, but you and I had a discussion offline, and doesn’t have to be an e-mail address that you ask for, it’s going to depend on your market.
If your audience is online, then yes, an e-mail address and a first name is fantastic, super helpful. But maybe you could ask for phone number instead if you feel like that’s going to be a quicker or an easier way to get in touch with people, or maybe you can just have a button right there that says, “Hey, if you want to hear about it when it launches, if you’re all in, give us your e-mail or otherwise, click this button right here and this will call me on Skype.”
There is like click to call services all over the place where they can click and they can either have a phone conversation with you right now, or they can schedule one. I can imagine some developers listening to this might think [you?] I don’t want to be talking to people, right, you just want to go in a basement and write code. I’m not saying you’re going to have to talk to people every time you sell every copy of your product. But at this point, this early in the game, if you’re trying to build something that people want, you have to get into conversations with people in order to figure out if what you’re building is going to solve their problem.
Mike [19:13]: I think that’s probably the most painful part of this is because we are so used to writing code that like that’s all we want to do and it does make sense because that’s kind of your comfort zone. It’s what you’re familiar with and you’re trying to talk to people about something that is very nebulous, it’s an unknown, you’re just trying to get to the heart of, “Okay, well, what is it that you would actually pay for as oppose to solving a problem” that somebody came to you and said, “I have this problem, solve it for me and please write code to solve this.”
What you’re doing is you’re kind of going at it from another angle which you’re just not comfortable with, trying to say, “Well, what problems do you have and are they painful enough that you will pay me for them or pay for a solution to them.” It’s just because of that, I’ll say, that awkward angle of approach, it makes it difficult for most people that are trying to make that mental leap.
Rob [19:57]: The last piece I’ll say about this building your launch list is we get this e-mail a lot saying, “How do I drive traffic to a pre-launch landing page?” and frankly, [?] you would do it after launch, you can do it pre-launch. There is SEO, there is pay-per-click that was mentioned in forums, there is in person conversations, there is called e-mails, and there is all types of stuff.
The point is not to get hung up with figuring out the silver bullet that’s going to drive this. The point is, at this point, really trying to validate the idea, make sure some people will pay you for it, and trying to build as large of an interest list as you can. Milestone number three is to get that first paying customer and this is that point, you’re still pre-launch, right?
But let’s say you’re approaching launch. I think this is when you probably have a beta version that does something and it does something well enough that some person says, “Hey, I’m really willing to kind of take a leap on you.” You give that credit card form, maybe you’ve let him use the app, you’ve let him tried out, get some value out of it, and then you ask him the big question [?] getting enough value out of this to pay X dollars for this app, whether it’s one time or monthly, and this is a big milestone. It’s milestone number three, which is basically to get some amount of money in your bank account from someone who is willing to buy your app.
Mike [21:14]: You’ll notice that this kind of comes before the full launch for the product. I think the last thing you probably want to do is to launch your app and have a ton of people using it, and only to find out that there are major problems with it, or there are things that you hadn’t considered in solving the problem that other people are having. I’m kind of a big fan of like the slow launch, where you take the product, you put it out there to like one or two people and get that feedback from them that you need in order to help make it better, but to also help flush out the bugs because you’re not going to have a perfect product from day one, and you want to start getting that feedbacks, so you can have conversations around some of the deficiencies of the product. Because there will be deficiencies, it’s not going to be perfect out the door.
The other thing that that does as kind of a side effect is that when somebody comes to you and says, “Hey, I like this and all but it would be great if it did this.” If you’ve already had those conversations, you kind of have a ready answers for those types of objections, and you can use that to help push people in one direction or the other, either that’s to say, “No. We are not going to do that because it just doesn’t make sense, it’s not in the road-map” or you can kind of twist that and say, “Well, yes, it is. That’s something that we are going to do and we are putting it in next week. Can I call you then or can we talk about it and revisit this conversation at that point?”
It puts you in a position such that you can have those conversations, you can have intelligent answers immediately at your tongue so you don’t have to sit around and agonize over what should I do here because you’ve already have the conversations, you know what the answer is.
Rob [22:44]: Milestone number four is to actually launch. Obviously, we can and have devoted entire podcast episodes to launching so I don’t think we should [?] this point. But what I do want to call out is that launching is maybe your halfway point. It might even be your third of the way point, because you barely have any revenue at this point. You kind of know that you might solve a problem for a small group of people.
I mean, you are really, really early in the game, so don’t feel like the launch is the finish line. The launch is when you e-mail your whole list and you try to convert as many as possible, you should have a really good launch day in terms of how many people you convert because this is your biggest interest list, make sure not to [conf the app?] to everyone on your interest list. It’s like the catastrophic mistake I’ve seen folks make. [You have?] 500 people on your list, it’s the most interested people you’ve gathered over the past six months while you’re building it and then you just give it away free to everybody on the launch list just to try to get them to use that and that’s not a good way to go.
If you actually want to make some revenue and get to the point where you can quit your job. This is milestone number four. It’s essentially getting to launch, getting through it, and getting some paying customers. Milestone number five is getting that first paying customer post launch from a cold lead. This is really starting your marketing after you’ve gone through your e-mail list or I should really say, continuing your marketing, because you should’ve already started it when you’re building your launch list, but it’s continuing to do those things and getting that first paying customer who signs up after launch.
This is really getting that first paying customer after you launch and now you’re building up towards that point of your quit my job income. I really should’ve added one more point to the preparation milestone, something you should’ve done before this is to figure out what is that number that you need to quit your job. It’s not your salary replacement, right, you might make $15,000 a month in your salary. But if you can cut your expenses and live on $7000 or $8000 a month, then that’s what you’re looking to do.
That should’ve been up in step one, is figure out your number, figure out the number that you need to hit. Right now, we are at milestone number five and you have your first paying customer from your cold lead after your launch, and you should be working your way towards that quit your job number that you figured out.
Mike [25:01]: I think part of the process that you go through after getting this first customer is to identify ways to make acquiring that customer or that type of customer repeatable. It’s really difficult, I think, mainly because there is such a small sample set here that you’ve only got one, what is it going to take to get another or should you go off in a different direction?
I think that most cases, you really want to try and figure out, “Can I repeat this?” and if not, “Are there adjacent areas where I would be able to easily get more customers?” so it’s about trying to expand from that one customer that you have into other people who are also cold leads, how do you go about [?], can you set up e-mail campaigns, how do you drive traffic, should you work on paid advertising.
These were all questions that you kind of have to answer and figure out which channels are going to work for you and which ones aren’t, and that’s not always easy to do, but there are definitely great resources out there like the Traction Book from Gabriel Weinberg and Justin Mares, that talks about all the different marketing channels you can try, and how to go into those and start testing them to see what will work for you, and what will not and what are the kind of the low hanging fruit for your type of business based on where your business is today.
Rob [26:13]: This is what I like to call, the scratching and clawing phase, because you’re basically doing anything, even stuff that isn’t repeatable to try to get to your number. As you said, you might be doing things that aren’t repeatable but you’re trying to figure out how to make them repeatable. The ones that work so so, you kindly leave behind, and the ones that work the best, even they are very time consuming or require a lot of manual effort, you still need to do them.
This is where your [?] things that are not going to scale at all. Because they don’t need to scale, they just need to get you to that $7, $8, $10,000 a month mark where you can quit your job. The last two milestones are really very similar. I put milestone six as hitting an arbitrary 50% of your income and this is having a net profit after expenses 50% of your income number that you need to quit your job.
Frankly, it’s just a milestone to celebrate more than anything. I don’t think there is any action items to take care other than to high five yourself and maybe have a nice sip of scotch on your way to reaching this income. This might take a few months, this might take a year. It depends on so many factors, but it’s when your heads down and you’re hustling, I find that having these milestones that you can celebrate with your mastermind group or with your significant other become a really big deal on your way to milestone seven, which is hitting that full income number that you need to quit your job.
As I said before, don’t try to replace your salary, just figure out how much it is you need to live and focus on that. The other thing I would look at is just decimating your expenses. Mike, you talked earlier about getting rid of debt, I know a friend who like sold a rental house that he had own for a long time and I think it was like upside down, so the rent wasn’t paying the mortgage and he went to this whole process of selling that before he tried to do this. I sold thousands of dollars of stuff on eBay and Craigslist as I was trying to make this transition. I mean, talk about scratching and clawing and doing things that weren’t going to work long term.
This is when you really have to kind of go to the mattresses and figure out what is it that I need to do, it’s not you’re responsible in order to kind of push me pass this point to where I feel comfortable, that I can leave my gig for the product income I have. Because, it’s never going to feel fantastic, right, it’s never going to be like, “Oh my goodness, I have so much income and I have so much free time and I’m just going to leave when I want to.”
You’re not going to have enough time before you have enough income, if that makes sense. I mean, you are going to be working 40 hours during a week for your day job and then 30 hours a week at night way before you have enough income to actually leave the job. You really have to kind of maximize this thing if you want to leave the job as early as you can.
Mike [28:51]: This is one of those situations where it’s unclear early on but as your income from the side project becomes much closer to your full-time income, this is where that runway becomes super important. Because, if you have that runway and you’re able to reach, let’s say, the 50% of your income, well, suddenly, if you had six months of runway before you started this process, once you’ve reached that 50% of your income mark, you now have 12 months of runway, not just six. Because, you essentially have all this money in the bank and the money that you have coming in on a monthly basis, essentially, extends that runway for you.
As your monthly income goes up, your runway gets longer and longer. Obviously, there is subtleties in there where the business starts to tank or things aren’t going so well, your runway can decrease as oppose to increase. But it’s helpful to have that, it really helps from a piece of mind standpoint and being able to, as Rob just said, decimate your expenses and get all of those things off the table. They help to avoid eating away your runway, and getting rid of those expenses that you just simply don’t need.
Rob [29:56]: Last thing I will add about reaching this seventh milestone of kind of your full income that you need is to think about how stable that income is, is it going to fluctuate? Because obviously, if it is a bunch of one time sales and you know that you’ve started zero at the start of the next month, then maybe you need more margin, maybe you need more runway. But if you have something that’s pretty consistent, even if it’s not a subscription, but let’s say it’s a WordPress plugin or it’s a website that has nice, solid, organic SEO and it’s pretty consistent month after month, then I think that you have a little more reason to be confident in that.
Obviously, if you have true subscriptions like SaaS apps or membership website or something like that, then maybe you need a little less margin and can leave as you approach that number. I don’t necessarily know that you need to hit that number if you can see your growth number is going up and you have a trajectory that you know within a month or two you are going to hit it all together.
I stopped doing consulting when my product income hit somewhere around 70% to 80% of my number, and remember, my number was way less than what I was making consulting. But when I got to that 70% of that number that I knew that I needed to make a rent and take care of the family and such, I knew I probably make it work for the next three or four months and kind of grow the revenue to get there because I was pretty desperate to get away from work and for other people.
Mike [31:16]: Yeah. All of this is about risk tolerance at the end of the day. I mean, that income stability and being able to cut your expenses, it’s a way to help mitigate the risks of going off and doing your own thing and not being reliant upon an employer for W2 form or 40 hours a week or what have you. You want to be able to being control of your own destiny and sometimes that means taking a little bit of risk. That doesn’t necessarily mean that you should put it all on the line and take an extended amount of risk. But there are certain cases where it does make sense to do that and it’s all about risk mitigation.
I’ve talked to people before where they think, “Oh, you’re an entrepreneur. I can never do that. It’s too risky.” The reality is that almost every entrepreneur I’ve ever talked most of them don’t like taking huge risks. They like to figure out what the risks are and do whatever they can to minimize or mitigate them or make sure that it’s not going to be a problem. It’s not about having high risk tolerance, it’s about making sure that the risks that are there that you are aware of, you try and do as much as you can to get rid of those risks. The reality is like that’s what this entire outline is about, it’s about how can I minimize the risk of going out on my own.
Rob [32:23]: I’m glad you brought that up. I’m actually listening to an audiobook right now, called The Self-Made Billionaire Effect. It is that small group who researched and studied a bunch of self-made billionaires. They had a list of 600 and then they randomly narrow it down to 120. They tried to do a scientific study of them and their predispositions and distill some of the characteristics and the behaviors and one of the things they said is that they did tend to have lower risk tolerances.
They were not these crazy risk takers like the world mythologizes and the press talks about. Not that we are trying to build billion dollar businesses here, but I do think that the sentiment is shared. That most of these successful founders I know are pretty methodical and consistent and they don’t tend to just jump around and take these massive risks like I think people think they do.
Mike [33:09]: That wraps us up for today. If you have a question for us, you can call it in to our voice mail number at 1-888-801-9690, or you can e-mail it us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re out of control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
