/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including the value of startup accelerators, onboarding, liability insurance and more.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about the value of startup accelerators, better onboarding, liability insurance, and answering more listener questions. This is Startups for the Rest of Us, episode 435.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week sir?
Mike: Well, I wanted to give a congratulations to Ty Wood. He was the winner of the AppSumo contest last month and he won a all expense paid trip to both MicroConfs.
Rob: Nice.
Mike: That was courtesy of AppSumo. I just wanted to say a big shout out to those guys and say thank you to them for sponsoring that. We’ll see Ty Wood at MicroConf.
Rob: Yeah, Ty, please come up, introduce yourself. It would be good to meet you. Thanks to AppSumo for that. Speaking of MicroConf, I believe this episode goes live just a couple of weeks before MicroConf. I’m guessing we might have a few tickets left either for Starter or Growth. If you’re interested with hanging around with a couple of hundred other serious SaaS software startup founders, you should head over to microconf.com, take a peek at it and hopefully, we’ll see you in Vegas.
Today, we’re going to dig into some listener questions after we’re down to absolute zero a couple of episodes ago. We got a nice little influx, we got a few voicemails, but I wanted to kick us off with first a thank you from James.
He says, “Hi, Mike and Rob. I’ve been listening since 2014. I’m a solo entrepreneur living in Central Africa, in Burundi, Rwanda. Here, we don’t have angel investors. Instead there are people with cash but most of the time, they aren’t people who share my same values. There’s a lot of financial corruption here. I decided to go solo, train another developer. Now we have two main products that can serve two different niches locally. The wisdom on your podcast has helped me so much during my journey. We have different realities, but I regularly find motivation to continue on and a clear understanding during the journey, so thank you so much.”
Thanks so much for that, James. I really appreciate it. We started the podcast, both to find other people like us because it was like, “Hey, you and me, are the only people doing this,” and then to find a handful of others that were doing it? Along the way, I’ve really seen it as an amazing by product that we’re able to help people whether it’s directly or indirectly, whether it’s us just talking and giving motivation or tactics or through the conference that we started and the community we’ve built. I love getting emails like this. these kinds of things make my week.
Mike: Yeah, congratulations, James. It’s hard enough to put one product together but you’ve got two that are serving two different niches and both helping out underground where you’re living. It’s fantastic to be able to help out the local community and be able to make a living from it as well. Really appreciate hearing from you and best of luck with that.
Rob: Our first question of the day is a voicemail on the value of joining an accelerator if you ultimately want to raise institutional funding.
“Hey, Rob and Mike. This is Sree, cofounder of clocr.com, it’s short for cloud locker. We are an early stage startup company based out of Austin, Texas. CLOCR empowers you to manage and protect your family’s most important documents and enables you or your loved ones to have instant access in case of financial, personal, or medical emergencies. We are currently in a pre-launch stage and we’re giving away about 1000 lifetime subscriptions for early adopters. I found you guys about four months ago on the podcast and it changed my life forever. Seriously. The amount of guidance you both provide is invaluable. I wish I had found this podcast about a year ago. Please do keep up the good work. I can’t wait to meet both of you at the Micro Conference.
I found several co-founders for CLOCR and that is [inaudible 00:04:20] our LinkedIn and angellist. I’ve been self-funding CLOCR for about a year or so—less lower than a year. I’m getting ready for the launch in the next four weeks. My strategy is to seek a small amount of funding, $200k-$300k for the next 18 months or so to a kind of a workable debt. Our plan is to aggressively bring in users before going in for institutional funding. I denied a few requests for funding. Here are the questions: Now that I have a few advisers joining CLOCR and I continue to add advisors as we go, is there a value in going down the accelerator path? Will that add any value in terms of the buzz and visibility or will it be a distraction? Will these accelerator programs help set-up for funding, or will they help me grow the user base? My main goal is to increase the user base and set-up the [00:05:17] vision thing and folks to build the company. Second question, I do like the participate in a startup innovation competition, do you have a short list of companies that we can participate on? Thank you.”
I kind of took three questions away from that. He said, “Is there value in joining an accelerator? Will it provide buzz or visibility?” Second question is, “Do accelerators help grow the user base?” and will it help him get set-up for funding or will it be counter to that, will it be a distraction. The third one is about innovation competition.
I think I’ll start with the innovation competition and say, I don’t know, I would probably just Google it. There’s one called 59 Days of Coding in Fresno. That’s really the only one I’ve been involved in that and that’s the only one I know off the top of my head.
Mike: Going back to Sree’s first couple of questions, is there value in going through an accelerator in terms of buzz and visibility. I would think that for some accelerators you would get some buzz from it but for something like CLOCR that is more B2C oriented, I suspect that the buzz you get from it is probably not going be to nearly as helpful. They may have PR outlets that could help you generate more publicity and get in front of more consumer type of users. But I think the main value in joining an accelerator—I guess there’s a couple of different things you can get out of it—but the first one would be the mentorship.
It’s not necessarily about growing your user base directly by virtue of joining an accelerator but rather you get mentorship to point you in the right direction and helps guide you in terms of what other people have done before you, what mistakes they’ve made, what things they’ve done that’s gone really well, people they can introduce you to, the network. Those are the types of things that are going to grow your user base. It’s not like you just join and you suddenly get a magic ticket that pumps 5000 new users into your app. It’s not how it works. You have to basically go through the program and talk to people and figure out what it is that you’re supposed to do that’s going to have the most impact and then go do it. That is going to grow your user base.
The other thing that the accelerator’s going to do for you is if it’s coupled with funding of any kind, it’s going to help give you runway and allow you to focus on working on the business as opposed to working on it as a side venture. Because if you’re trying to do something nights and weekends, that’s great and all, but you only have so much time to do that, and a lot of your time is probably going to be spent on your main job trying to make ends meet for you and your family. Getting rid of that as a distraction is going to be one of those main benefits of that accelerator.
The other one is if you’re looking to raise money down the road, an accelerator, going through a program like essentially gives you validation, and to some extent, trust from other investors that, “Oh, this accelerator invested in me and the business because they believe what we’re doing.” By virtue of that, that’s transferred to other investors. There’s a lot of credibility that you can gain in your business just by virtue of being attached to them. But because they have presumably vetted you in some way, shape, or form in order to accept you into the accelerator program.
Rob: I would agree with that. I imagine someone gets 900 applicants and they pick 10 and you’re one of the 10. There’s some signaling there. There’s some halo effect—I don’t know what you want to call it—but you were chosen. It’s different but it’s like getting into Harvard or getting into Yale; you make it through a selection process and that does lend some type of credibility.
I think like you said, it’s going to depend on the accelerator. I mean, there’s hundreds of accelerators and some of them are going to be really good, like helping you grow your user base. But you can either contact prior companies who have gone through it or you can look at the people who are running it and who the mentors are and think to yourself, “Do those people know how to grow a user base? Do I think that their advice or their network, whatever it is that they have can help translate into that?”
I have seen accelerators where I’ve looked at the list of mentors and I don’t know who any of them are or a lot of them are business coaches or college professors or people who maybe have not run a business directly. That’s always a question in my mind of like, “Are they going to give me MBA advise or are they going to be boots on the ground and really dig in to what’s going?” That’s one question I would ask about how to do that.
Certainly, a top name accelerator like YCombinator or TechStars, I think that gives you buzz and visibility. Obviously, the elephant in the room is I run TinySeed which is a startup accelerator designed for all community. I think that there will be a certain amount of buzz and visibility given within our sphere when we announce. I think that as time goes on that buzz and visibility will get bigger and bigger as we become more successful, and as our alumni, do more interesting things.
Our answer is probably the same, yours and mine. It’s like, yeah there is value, but I also—you’ve probably heard this advise of like, “If you’re going to get an MBA, you do it for the network and you do it for certain things.” There’s advises I don’t bother getting it from bottom tier school because it’s not the information, it’s more about the prestige of having Harvard on your diploma or whatever. I would think similarly of there are going to be accelerators that I’ve heard that don’t bring a ton of value. This is not a blanket answer for all accelerators. There really is a vetting process that you’re going to have to go through.
I think his second question was kind of like, “Do accelerators help set you up to raise subsequent funding?” My understanding is pretty much unequivocally, yes. That’s actually the goal of most accelerators, to provide you enough money to get to that demo day to have a product to raise funding. TinySeed in particular, that’s not our end goal, but there’s nothing in our terms or even in our goals for our companies that say you should or should not raise subsequent rounds.
One example is some of the angel investments that I’ve made in the “bootstrap space” most of them have not gone on to raise subsequent rounds but one or two have. I’ve been super encouraging about that because the founder saw the opportunity, wanted to level up, the money was there, and the choice is something you evaluate when you get there. I guess the answer to, do startup accelerators help set-up for funding, I think across the board, yes. I don’t know of an accelerator that won’t help you do that, that won’t connect you to angel investors or VCs down the line should you want to raise that money.
Now, one thing I would say is that there are some funds that are offering money to the bootstrapper space that do have clauses in them that will make it hard to raise funding later on. Just be sure you have a good lawyer, or you really look at the terms, or read. There are comparisons of these alternative funding approaches, the non-traditional VC stuff. Do your research and figure out, “If I did want to raise the $2 million later on, is this basically a poison pill?” Poison pill clause doesn’t allow me to do that. As I’ve said, we do not have that in Tiny Seed. We’re going to make it very easy to have [inaudible 00:12:37] investments. I’m thinking most will but there are some that whether intentionally or accidentally do have some clauses but those are not, as I said, they’re not accelerators.
The last thing I realized, innovation competitions. Since he’s a B2C, you should try to go on Shark Tank. It’s not a competition per se. I don’t think Shark Tank is the [00:12:58] all of anything but I do enjoy it for the entertainment value and that’s why B2C companies go on there, is to get that exposure. In addition to potentially getting a high-profile investor, but just going on there is going to drive some interest.
Mike: I’ve seen stories of people who’ve gone on to Shark Tank and whether they got a deal or not, sometimes there’s stories that circle back on those companies afterwards. There is that exposure piece of being on there whether that investor helps you or not doesn’t matter because people will see you. They see your business, they see your company, and you’re getting exposure that you probably would not have gotten otherwise.
Rob: Thanks for the question. Super interesting one. It’s good for this community to be thinking about it and talking about this. our next question is super interesting. It’s about how to better communicate to users who should be connecting to an existing SaaS account. Basically, they’ve been invited as sub-users but instead, they’re signing up for new trials over and over and over. Let’s listen to this one.
“Hi guys. It’s Jarrod from sportstrackerapp.com here. We run a website that helps teachers and students organize their track and field and swimming needs. We’ve been really successful watching it grow. At certain stage, we introduced the feature that will allow admin staff to welcome sub-account access to their students so that they can login and register themselves into different events.
It’s dramatically cut down the workload of the admin staff. However, we’ve noticed that since opening up this feature, some students—regardless of the communication that we make available to the admin staff—students are coming through and signing-up to the website as an admin user and starting trial accounts and obviously, that’s not something that’s even remotely close to what they need to do.
What actually happens is the admin staff are given a piece of print out paper or an email that they pass onto the students and it sends them to a different URL [inaudible 00:15:13]. However, regardless of that communication, we still can’t get past the few students signing up on a daily basis. What thoughts do you have around making this as clear as possible without making a trial require a credit card, because obviously that would stop students. I look forward to hearing what you think about it. Thanks!”
Should we start by saying how we would design the ideal flow just to make sure, because I know he said no matter what the communication is, the students still come in sign-up for the trial. But could we walk down the steps of how we would do it. What would the ideal flow to at least communicate to them so that maybe there’s one or two things that he’s not doing that they could try then actually get to his question.
Mike: I think that there’s a couple of assumptions that you need to make or at least clarify as part of this while we’re going through this mental exercise. Are we assuming that this app is design explicitly for colleges, universities, schools, etc., and then the students that are part of it? Or is it like a general-purpose app that can be used outside of that system because it seems that this is a very specific situation. I’m not clear on whether or not the app is geared that way.
Rob: I think it’s focused on the niche of sports, managing sports teams. I’m guessing it’s more like junior high high school.
Mike: Okay.
Rob: Let’s make that assumption.
Mike: I guess based on that, it sounds like that the fundamental problem is that there’s confusion passing the information onto the teachers as to how to invite those students. If they’re getting forwarded to a particular URL, that’s fine, but if they’re printing something out and handing it to them and then the student comes to the website because they see that on it, that poses something of a problem.
I think that one thing that does come to mind though is if this is such a serious problem and it comes up constantly then I would take a look at the sign-up process itself and ask people when they go to register, are they a student or are they a teacher/coach or whatever. By that, you could basically interject yourself into that sign-up process and say, “Well, if you are a student coming in here, chances are you’re not going to be signing up for an actual trial of the product, you actually want to be attached with a sub-account.” How do you direct them to that?
Obviously, that’s going to depend on whether or not they’re signing in with an email address that is part of the school system for example. Because with this, you can match them up and let them select stuff, but I don’t know how much privacy controls or concerns are around that either. I think that the very first thing that I would look at doing is seeing whether or not you can differentiate between a student signing up and a teacher/coach because that right there should tell you whether or not they should be actually creating a trial or not.
Rob: I would agree with that. I think that what you could do is sign-up for trial and it’s like, “Are you a student? Are you a coach or administrator?” If they say student, then you default to saying, “You should’ve received an invite from your whatever. Check that email or check the flyer. But if you really are trying to sign up for a brand-new account for your school, then click here.” Make it like really have to opt in. you have to double opt in if you’re a student where you have to click that and then click another thing whereas if you’re a coach or administrator or whatever, then make that the default.
The other thing I was thinking about—I’m trying to think how to make this work. What I’m imagining is that I’m a coach, I have my account, I log in, and it says, “Invite Users.” I can enter some email addresses of students. Then it either gives me a PDF to print out and physically hand to them, he said, the physical paper, or it sends them an email. What if on that PDF and the email that goes to the student there is no mention of the name of the URL? It does not say Sports Tracker. All it says is, “Your coach so and so is inviting you as an administrator on the thing that organizes your sports team. Go here to sign-up or to accept this invitation.”
That URL could feasibly be just a totally different URL. Just pick whatever, a random one, thesportstrackersignup.com or even just signupfortheapp.com—just pick something. If they go to the homepage or if they go to the full URL, because my guess is it says like right now, it’s sportstracker.com or .com—I don’t even know what their URL is—but let’s say sportstracker.co/ a bunch of stuff to accept the invite, and people are just typing in sporttracker.co and then hitting trial. Don’t even allow them to do that. Just give them a completely different URL and the homepage is something that says, “You need a special code. Enter the code in the URL,” or whatever. You can figure out a way how to do this intelligently but not let them get back to your main URL in anyway because you can control the message. You have this PDF and this email that go directly to them. What do you think about that?
Mike: I think that’s fine. Unless you have a situation where the professor or the coach or whoever is telling them, “Hey, I use this app. Here’s the name of it.” Because if they search for it and I think that that’s the problem he’s alluding to is that if they go online, presumably they’re web savvy enough to go online and search and then they come to the website. The one thing I would think about is giving somebody a sign up that is literally just a single field that says, “Accept Invitation,” or something along those lines or as you said, give them a PDF that they can print out.
I don’t know the mechanics of how it’s currently being done because do you want to just print something out that’s exactly the same for all 30 people on the team or do you have individual ones for all 30 of them? I would imagine you would want the former rather than the latter so that you don’t have to plug in 30 different email addresses. You print the exact same thing, hand it out to everybody in the team and say, “Go here and do this.” And then they basically join. Maybe it’s like a 6-digit code or a 10-digit code or something like that. They just go to, as you said, the URL, plug it in, and that’s the end of it. I think hiding the name of the product is probably the best bet because that way, the kids won’t search for it.
Rob: To be honest, Sports Tracker, when I go to just search for that phrase in Google, there’s a bunch of iOS apps that come up. I can’t find the app that he’s talking about in Google right now. There’s sports-tracker.com, there’s SportsTrackr with no E, there’s all these things and I don’t think any of them are his app. I actually don’t know that even hiding the name, I really think it’s just the URL. You know what people could do is if it says Sports Tracker on the PDF and they go to Google and type it in then sign-up for the first one, it’s going to be the wrong app. Maybe they should just hide the name and the URL and try to get them there.
Like I said, it’s an interesting problem—user behavior thing—to have but I think there are probably some ways that we’ve thrown out. Hopefully, those are helpful to him. Thanks for the question.
Our next question is about liability insurance. It’s from Z and he says, “Hey guys. Could you talk about what types of liability insurance SaaS companies should get? It’s very confusing, there’s not much information out there. What type of insurance should founders get for their companies depending on the stage they’re in and to protect themselves and the company?”
We have talked about this in the past, right, Mike? We’ve talked about getting an LLC and maybe worrying less about the insurance aspect of it because you have the liability protection there in the early stages. Obviously, we’re not attorneys, we can’t give legal advice and really, you should not take advice from two chuckle heads like us. But in the early days of a product, I would tend to have any type of E&O insurance. When you have 10 customers or something unless you’re in a particularly litigious niche.
Mike: I think the question here is different though. He’s talking specifically about liability insurance versus the liability of having things under a company. To his point, this is very confusing and there’s not much information out there. The reason it’s confusing is because insurance is one of those old industries where they profit based on your lack of knowledge and them being able to be kind of opaque about stuff.
If you go to, let’s say, two or three or five different insurance companies and ask them for a quote for liability insurance for your company, they’re going to say, “Okay. Fill out this form and give us a bunch of information.” Every single one of those forms is going to be different. It’s not like going to a sandwich shop and ordering a ham sandwich. That’s going to be basically the same between 30 different ham sandwich shops.
But with insurance, even liability insurance, it’s different for every single one of them. They’re going to have different questions, they’re going to want to know different things, and each of those forms is going to be different. Then they’re going to plug it in their back end of the engine and they’re going to say, “Okay. Here’s the risk profile, etc., and these are the things that we cover.” If you compare the output of each of those plans, there are going to be differences between them. It’s not like there’s a standardized liability insurance. There’s going to be some like Plan 1 from Company 1 might include XY and Z and then the same exact information that you gave to Company 2, they’re going to say, “We cover X and Y,” but they’re not even going to mention Z because it’s not covered but they cover QR and L.
It’s complicated and the reason you’re finding it that it’s confusing is because it is confusing. It sucks. It’s weird when you have to go through those things but really, there’s the umbrella policies. You have to be careful about what you’re doing in terms of what access to customer information you have, what your access level is to your on-site software or databases, or level of access that you need in their environment. All those things are going to be questions, are beyond those forms. Every company is going to quote you differently.
Rob: Yep. Insurance—not fun. I think that to protect yourself from personal liability, you can of course get an LLC or an S-Corp or whatever is the equivalent in whatever country you live in. I tend to say, when you’re young and you don’t have a lot of money or what’s called judgement proof, no one’s going to sue you because you don’t have any money. When you get to the point where you have some assets, I recommend getting a personal liability plan. I shouldn’t say recommend, this is what I have done. [inaudible 00:25:43] recommended to me and this is what I did, and it’s to get a personal liability coverage.
You can get $1 million or even a $2 million coverage for literally a few hundred dollars a year protects you from personal liability if you get in a car accident and someone sues you because their neck hurts or whatever. I think it protects your personal wealth and I don’t know all the details. It’s going to depend on your circumstance in the policy you get as to whether or not someone piercing a corporate veil. You don’t come in through an LLC after your personal asset. It’s going to protect that or not.
And then if you really want insurance for your company, personally, I would go to foundershiled.com, that’s who I use. I’m trying to think of some type of E&O or some insurance when we had to deal with a big Fortune 500 company and they required us to have, of course, crazy stuff that no one else requires you to have. I went to foundershiled.com, had a great experience with them when they were first starting out. They’re much further along now and really can’t recommend them highly enough for folks like us who really don’t want to deal with all the nuts and bolts of it but kind of need to get some [inaudible 00:26:49].
It depends on your risk tolerance how soon you want to do this but those are our general thoughts. Thanks for the question, Z. I hope that was helpful. Our next question is from Hamish and it’s about outsourcing development and NDAs.
He says, “I’m a new listener. I’m catching up with previous episodes. I’ve a question. I have a website which at the moment is no more than a hobby. I want to outsource some development to see if I can take it to the next level. I’m presuming NDA is not worth much for a small website. Should I be at all bothered about giving access to the code to a third-party developer? Are there any basic steps I can take to protect the copyright and the ideas?”
What do you think, Mike?
Mike: It goes back to the standard disclaimer: We’re not lawyers or insurance agents. An NDA is probably not going to be worth the time. The one thing I would be aware of or at least pay attention to is it when you are having somebody else build the code for you or write anything for you that you want to have a contract of some kind in place. If you’re hiring them through something like Upwork, that is generally taking care of it for you, but otherwise, you’re going to want to have something that says that it’s essentially a work for hire and that you own the output of that. That is probably the most basic thing that I would do. That ensures that you own whatever it is that they write for you. Beyond that, I don’t know. I wouldn’t worry too much about it because at this stage, it’s just an idea and it may or may not go anywhere.
Let’s say that they build it and you start making a couple of thousand dollars a month from it. The chances of them stealing it and trying to do the same thing, I would say are probably small. But even if they did try to do it, it’s not the app itself; it’s all the marketing and the sales engine and the sales funnel and emails—all the stuff that you do alongside of it—that is going to make that much money, it’s not the code itself and the app.
Rob: Yeah. I’m not sure how much I have to add there. There’s always risk with this kind of stuff. I would say that I’ve had dozens and dozens of developers that I’ve hired, some for really small projects, some for really big ones. As far as I know, none of them have ever stolen my code and gone off and tried to compete with it. I mean, maybe here’s a chance that I had a class in something that interacted with Stripe or with Twilio and they took it and used it in another project. How would I possibly know? But I have not had that experience.
I think that it’s easy to be bothered by this stuff. I think it’s easy to be overly concerned with it. It does depend on risk tolerance, but I would really air on the side of just hiring someone good and interviewing them to the point where you trust them and letting them do it and trust that they’re not going to steal your code because most people frankly, want the paycheck. It’s just so much effort to steal your code and try to do something with it. The odds of it happening I think are pretty slim.
Our next question, Mike, I pulled off of Quora. It was in the startup section and it said, “How much should an MVP cost?” What do you think about that? I love the premise of the question. It’s just like, “Oh boy!”
Mike: How much should an MVP cost? This seem like a trick question.
Rob: I would say that an MVP should cost zero.
Mike: Zero, yes.
Rob: I mean, not in all cases but remember, an MVP really shouldn’t be a software product, if at all possible. It should be me strapping a Google spreadsheet to Zapier, to a VA, to me peddling a hamster wheel that makes the thing go on, and to make give the appearance that I have a product but in fact it’s just all human-powered. I mean, that’s just one example. But I think an MVP should as little as possible. Take the number in your head and remove a zero or two.
Mike: I think the interesting thing about this question and maybe is because it comes from Quora, there’s people who are not necessarily as experienced in understanding exactly what a minimum viable product would actually be. But really what you’re looking for there is, “What is the least amount of work you can do to answer a particular question?” And you have to start with the question. If you don’t start with the question, you’re really not doing the whole MVP process correctly.
That’s kind of the core of the issue here I think is if you don’t understand what an MVP actually means, then asking how much it should cost is almost irrelevant because it really depends on what the question you’re trying to answer is. Like, “Will people pay for this?” “Well, just go online and do a Google search and see if there are other products out there that exist that solve that problem. If so, then yes.” That’s a very simple thing to do and it costs you absolutely nothing more than a few keystrokes. But if it’s a lot more complicated like, “Can you get $1000 or $10,000 people to your website in order to validate that you can acquire that traffic in order to potentially sell them something?” Well, that’s a very different question that you’re trying to answer. The amount that it’s going to cost is going to be different.
I would actually differentiate between how much time it’s going to cost you versus how much money and over what time period because all three of those things are very different. You might be able to find out a piece of information, but it could take three months. It might only take an hour or a week for the three months but the total time span that it takes is going to make a difference. If you’re trying to validate a couple of different ideas against one another or answer several different questions, it can become difficult to answer all of them in a time frame that is appropriate to whatever your current life situation is.
Rob: Yup. I think those are good points. Like I said, I think it should cost, frankly, as little as possible. You should be able to strap together a lot of tools and not have to actually build software if you’ve validated to that point or you get your 10 or 20 buy-ins, your purchases, pre-purchases, commitments, or whatever you’re going to do. I agree with you. I think I like the different dimensions you put on that words like there’s price, there’s hours of your time, and then there’s duration–is it 6 months or 12 months or 2 months or whatever.
I would love to get an MVP done in less than two months for, I don’t know, less than $5000, less than $10,000. It depends on who you hire. If you hire in the States, it’s going to be more expensive. It’s kind of hard to say, I think but I do think it’s an interesting thought experiment. It’s like, “Are you building an MVP of an email service provider or are you building an MVP of a little form app, like something that compete with Typeform or Google Forms or something.” That’s a totally different use case.
Again, if you’re going to give people Type Form, you just build the form UI, have it go straight into a Google spreadsheet so you don’t [inaudible 00:33:48] have a database and then to actually build the UI to build the form, you manually build that directly with your customers, you don’t build any type of form builder. You know what I mean? That could literally be like a weekend project of just displaying a landing page with the forms that you plug into some XML file or some database or JSON thing. That’s pretty minimally viable but it would be a product if you’re trying to test something out.
Anyways, I think that probably wraps us up for the day except for our final question of the day, Mike. The Star Wars Holiday Special marked the first appearance of which Star Wars character? There are four choices: Jabba the Hutt, Boba Fett, Jar Jar Binks, Lando Calrissian. Do you know the Star Wars holiday special? Have you heard of it?
Mike: I’ve heard of it.
Rob: It’s from the ‘70s. It’s awful. Go to YouTube and look it up. It is really not good. There’s this thing called life day and there’s wookiees and it’s really not canon.
Mike: I sort of vaguely remember hearing about it or seeing it. The question is which of these four characters shows up for the first time in that?
Rob: For the first time in the Star Wars Holiday Special that came out in ’78. It’s Jabba the Hutt, Boba Fett, Jar Jar Binks, Lando Calrissian.
Mike: I’m thinking Boba Fett.
Rob: You are correct.
Mike: Yes.
Rob: It’s in an animated segment of the show.
Mike: Oh!
Rob: Yup. This has never been released on video but as I said, you can hit YouTube or other places to find recordings of it.
Mike: Oh, that is shockingly nerdy.
Rob: It is. It is nerdy. I couldn’t get through it. I watched five minutes of it, and I had to scrap it.
Mike: Is it that painful?
Rob: It’s awful.
Mike: It’s painful as a podcast and our jokes.
Rob: Yes, it is indeed.
Mike: Oh, that’s terrible. Well, on that note, if you have a question for us, you can call it into our voicemail number 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 in 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.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week sir?
Mike: Well, I wanted to give a congratulations to Ty Wood. He was the winner of the AppSumo contest last month and he won a all expense paid trip to both MicroConfs.
Rob: Nice.
Mike: That was courtesy of AppSumo. I just wanted to say a big shout out to those guys and say thank you to them for sponsoring that. We’ll see Ty Wood at MicroConf.
Rob: Yeah, Ty, please come up, introduce yourself. It would be good to meet you. Thanks to AppSumo for that. Speaking of MicroConf, I believe this episode goes live just a couple of weeks before MicroConf. I’m guessing we might have a few tickets left either for Starter or Growth. If you’re interested with hanging around with a couple of hundred other serious SaaS software startup founders, you should head over to microconf.com, take a peek at it and hopefully, we’ll see you in Vegas.
Today, we’re going to dig into some listener questions after we’re down to absolute zero a couple of episodes ago. We got a nice little influx, we got a few voicemails, but I wanted to kick us off with first a thank you from James.
He says, “Hi, Mike and Rob. I’ve been listening since 2014. I’m a solo entrepreneur living in Central Africa, in Burundi, Rwanda. Here, we don’t have angel investors. Instead there are people with cash but most of the time, they aren’t people who share my same values. There’s a lot of financial corruption here. I decided to go solo, train another developer. Now we have two main products that can serve two different niches locally. The wisdom on your podcast has helped me so much during my journey. We have different realities, but I regularly find motivation to continue on and a clear understanding during the journey, so thank you so much.”
Thanks so much for that, James. I really appreciate it. We started the podcast, both to find other people like us because it was like, “Hey, you and me, are the only people doing this,” and then to find a handful of others that were doing it? Along the way, I’ve really seen it as an amazing by product that we’re able to help people whether it’s directly or indirectly, whether it’s us just talking and giving motivation or tactics or through the conference that we started and the community we’ve built. I love getting emails like this. these kinds of things make my week.
Mike: Yeah, congratulations, James. It’s hard enough to put one product together but you’ve got two that are serving two different niches and both helping out underground where you’re living. It’s fantastic to be able to help out the local community and be able to make a living from it as well. Really appreciate hearing from you and best of luck with that.
Rob: Our first question of the day is a voicemail on the value of joining an accelerator if you ultimately want to raise institutional funding.
“Hey, Rob and Mike. This is Sree, cofounder of clocr.com, it’s short for cloud locker. We are an early stage startup company based out of Austin, Texas. CLOCR empowers you to manage and protect your family’s most important documents and enables you or your loved ones to have instant access in case of financial, personal, or medical emergencies. We are currently in a pre-launch stage and we’re giving away about 1000 lifetime subscriptions for early adopters. I found you guys about four months ago on the podcast and it changed my life forever. Seriously. The amount of guidance you both provide is invaluable. I wish I had found this podcast about a year ago. Please do keep up the good work. I can’t wait to meet both of you at the Micro Conference.
I found several co-founders for CLOCR and that is [inaudible 00:04:20] our LinkedIn and angellist. I’ve been self-funding CLOCR for about a year or so—less lower than a year. I’m getting ready for the launch in the next four weeks. My strategy is to seek a small amount of funding, $200k-$300k for the next 18 months or so to a kind of a workable debt. Our plan is to aggressively bring in users before going in for institutional funding. I denied a few requests for funding. Here are the questions: Now that I have a few advisers joining CLOCR and I continue to add advisors as we go, is there a value in going down the accelerator path? Will that add any value in terms of the buzz and visibility or will it be a distraction? Will these accelerator programs help set-up for funding, or will they help me grow the user base? My main goal is to increase the user base and set-up the [00:05:17] vision thing and folks to build the company. Second question, I do like the participate in a startup innovation competition, do you have a short list of companies that we can participate on? Thank you.”
I kind of took three questions away from that. He said, “Is there value in joining an accelerator? Will it provide buzz or visibility?” Second question is, “Do accelerators help grow the user base?” and will it help him get set-up for funding or will it be counter to that, will it be a distraction. The third one is about innovation competition.
I think I’ll start with the innovation competition and say, I don’t know, I would probably just Google it. There’s one called 59 Days of Coding in Fresno. That’s really the only one I’ve been involved in that and that’s the only one I know off the top of my head.
Mike: Going back to Sree’s first couple of questions, is there value in going through an accelerator in terms of buzz and visibility. I would think that for some accelerators you would get some buzz from it but for something like CLOCR that is more B2C oriented, I suspect that the buzz you get from it is probably not going be to nearly as helpful. They may have PR outlets that could help you generate more publicity and get in front of more consumer type of users. But I think the main value in joining an accelerator—I guess there’s a couple of different things you can get out of it—but the first one would be the mentorship.
It’s not necessarily about growing your user base directly by virtue of joining an accelerator but rather you get mentorship to point you in the right direction and helps guide you in terms of what other people have done before you, what mistakes they’ve made, what things they’ve done that’s gone really well, people they can introduce you to, the network. Those are the types of things that are going to grow your user base. It’s not like you just join and you suddenly get a magic ticket that pumps 5000 new users into your app. It’s not how it works. You have to basically go through the program and talk to people and figure out what it is that you’re supposed to do that’s going to have the most impact and then go do it. That is going to grow your user base.
The other thing that the accelerator’s going to do for you is if it’s coupled with funding of any kind, it’s going to help give you runway and allow you to focus on working on the business as opposed to working on it as a side venture. Because if you’re trying to do something nights and weekends, that’s great and all, but you only have so much time to do that, and a lot of your time is probably going to be spent on your main job trying to make ends meet for you and your family. Getting rid of that as a distraction is going to be one of those main benefits of that accelerator.
The other one is if you’re looking to raise money down the road, an accelerator, going through a program like essentially gives you validation, and to some extent, trust from other investors that, “Oh, this accelerator invested in me and the business because they believe what we’re doing.” By virtue of that, that’s transferred to other investors. There’s a lot of credibility that you can gain in your business just by virtue of being attached to them. But because they have presumably vetted you in some way, shape, or form in order to accept you into the accelerator program.
Rob: I would agree with that. I imagine someone gets 900 applicants and they pick 10 and you’re one of the 10. There’s some signaling there. There’s some halo effect—I don’t know what you want to call it—but you were chosen. It’s different but it’s like getting into Harvard or getting into Yale; you make it through a selection process and that does lend some type of credibility.
I think like you said, it’s going to depend on the accelerator. I mean, there’s hundreds of accelerators and some of them are going to be really good, like helping you grow your user base. But you can either contact prior companies who have gone through it or you can look at the people who are running it and who the mentors are and think to yourself, “Do those people know how to grow a user base? Do I think that their advice or their network, whatever it is that they have can help translate into that?”
I have seen accelerators where I’ve looked at the list of mentors and I don’t know who any of them are or a lot of them are business coaches or college professors or people who maybe have not run a business directly. That’s always a question in my mind of like, “Are they going to give me MBA advise or are they going to be boots on the ground and really dig in to what’s going?” That’s one question I would ask about how to do that.
Certainly, a top name accelerator like YCombinator or TechStars, I think that gives you buzz and visibility. Obviously, the elephant in the room is I run TinySeed which is a startup accelerator designed for all community. I think that there will be a certain amount of buzz and visibility given within our sphere when we announce. I think that as time goes on that buzz and visibility will get bigger and bigger as we become more successful, and as our alumni, do more interesting things.
Our answer is probably the same, yours and mine. It’s like, yeah there is value, but I also—you’ve probably heard this advise of like, “If you’re going to get an MBA, you do it for the network and you do it for certain things.” There’s advises I don’t bother getting it from bottom tier school because it’s not the information, it’s more about the prestige of having Harvard on your diploma or whatever. I would think similarly of there are going to be accelerators that I’ve heard that don’t bring a ton of value. This is not a blanket answer for all accelerators. There really is a vetting process that you’re going to have to go through.
I think his second question was kind of like, “Do accelerators help set you up to raise subsequent funding?” My understanding is pretty much unequivocally, yes. That’s actually the goal of most accelerators, to provide you enough money to get to that demo day to have a product to raise funding. TinySeed in particular, that’s not our end goal, but there’s nothing in our terms or even in our goals for our companies that say you should or should not raise subsequent rounds.
One example is some of the angel investments that I’ve made in the “bootstrap space” most of them have not gone on to raise subsequent rounds but one or two have. I’ve been super encouraging about that because the founder saw the opportunity, wanted to level up, the money was there, and the choice is something you evaluate when you get there. I guess the answer to, do startup accelerators help set-up for funding, I think across the board, yes. I don’t know of an accelerator that won’t help you do that, that won’t connect you to angel investors or VCs down the line should you want to raise that money.
Now, one thing I would say is that there are some funds that are offering money to the bootstrapper space that do have clauses in them that will make it hard to raise funding later on. Just be sure you have a good lawyer, or you really look at the terms, or read. There are comparisons of these alternative funding approaches, the non-traditional VC stuff. Do your research and figure out, “If I did want to raise the $2 million later on, is this basically a poison pill?” Poison pill clause doesn’t allow me to do that. As I’ve said, we do not have that in Tiny Seed. We’re going to make it very easy to have [inaudible 00:12:37] investments. I’m thinking most will but there are some that whether intentionally or accidentally do have some clauses but those are not, as I said, they’re not accelerators.
The last thing I realized, innovation competitions. Since he’s a B2C, you should try to go on Shark Tank. It’s not a competition per se. I don’t think Shark Tank is the [00:12:58] all of anything but I do enjoy it for the entertainment value and that’s why B2C companies go on there, is to get that exposure. In addition to potentially getting a high-profile investor, but just going on there is going to drive some interest.
Mike: I’ve seen stories of people who’ve gone on to Shark Tank and whether they got a deal or not, sometimes there’s stories that circle back on those companies afterwards. There is that exposure piece of being on there whether that investor helps you or not doesn’t matter because people will see you. They see your business, they see your company, and you’re getting exposure that you probably would not have gotten otherwise.
Rob: Thanks for the question. Super interesting one. It’s good for this community to be thinking about it and talking about this. our next question is super interesting. It’s about how to better communicate to users who should be connecting to an existing SaaS account. Basically, they’ve been invited as sub-users but instead, they’re signing up for new trials over and over and over. Let’s listen to this one.
“Hi guys. It’s Jarrod from sportstrackerapp.com here. We run a website that helps teachers and students organize their track and field and swimming needs. We’ve been really successful watching it grow. At certain stage, we introduced the feature that will allow admin staff to welcome sub-account access to their students so that they can login and register themselves into different events.
It’s dramatically cut down the workload of the admin staff. However, we’ve noticed that since opening up this feature, some students—regardless of the communication that we make available to the admin staff—students are coming through and signing-up to the website as an admin user and starting trial accounts and obviously, that’s not something that’s even remotely close to what they need to do.
What actually happens is the admin staff are given a piece of print out paper or an email that they pass onto the students and it sends them to a different URL [inaudible 00:15:13]. However, regardless of that communication, we still can’t get past the few students signing up on a daily basis. What thoughts do you have around making this as clear as possible without making a trial require a credit card, because obviously that would stop students. I look forward to hearing what you think about it. Thanks!”
Should we start by saying how we would design the ideal flow just to make sure, because I know he said no matter what the communication is, the students still come in sign-up for the trial. But could we walk down the steps of how we would do it. What would the ideal flow to at least communicate to them so that maybe there’s one or two things that he’s not doing that they could try then actually get to his question.
Mike: I think that there’s a couple of assumptions that you need to make or at least clarify as part of this while we’re going through this mental exercise. Are we assuming that this app is design explicitly for colleges, universities, schools, etc., and then the students that are part of it? Or is it like a general-purpose app that can be used outside of that system because it seems that this is a very specific situation. I’m not clear on whether or not the app is geared that way.
Rob: I think it’s focused on the niche of sports, managing sports teams. I’m guessing it’s more like junior high high school.
Mike: Okay.
Rob: Let’s make that assumption.
Mike: I guess based on that, it sounds like that the fundamental problem is that there’s confusion passing the information onto the teachers as to how to invite those students. If they’re getting forwarded to a particular URL, that’s fine, but if they’re printing something out and handing it to them and then the student comes to the website because they see that on it, that poses something of a problem.
I think that one thing that does come to mind though is if this is such a serious problem and it comes up constantly then I would take a look at the sign-up process itself and ask people when they go to register, are they a student or are they a teacher/coach or whatever. By that, you could basically interject yourself into that sign-up process and say, “Well, if you are a student coming in here, chances are you’re not going to be signing up for an actual trial of the product, you actually want to be attached with a sub-account.” How do you direct them to that?
Obviously, that’s going to depend on whether or not they’re signing in with an email address that is part of the school system for example. Because with this, you can match them up and let them select stuff, but I don’t know how much privacy controls or concerns are around that either. I think that the very first thing that I would look at doing is seeing whether or not you can differentiate between a student signing up and a teacher/coach because that right there should tell you whether or not they should be actually creating a trial or not.
Rob: I would agree with that. I think that what you could do is sign-up for trial and it’s like, “Are you a student? Are you a coach or administrator?” If they say student, then you default to saying, “You should’ve received an invite from your whatever. Check that email or check the flyer. But if you really are trying to sign up for a brand-new account for your school, then click here.” Make it like really have to opt in. you have to double opt in if you’re a student where you have to click that and then click another thing whereas if you’re a coach or administrator or whatever, then make that the default.
The other thing I was thinking about—I’m trying to think how to make this work. What I’m imagining is that I’m a coach, I have my account, I log in, and it says, “Invite Users.” I can enter some email addresses of students. Then it either gives me a PDF to print out and physically hand to them, he said, the physical paper, or it sends them an email. What if on that PDF and the email that goes to the student there is no mention of the name of the URL? It does not say Sports Tracker. All it says is, “Your coach so and so is inviting you as an administrator on the thing that organizes your sports team. Go here to sign-up or to accept this invitation.”
That URL could feasibly be just a totally different URL. Just pick whatever, a random one, thesportstrackersignup.com or even just signupfortheapp.com—just pick something. If they go to the homepage or if they go to the full URL, because my guess is it says like right now, it’s sportstracker.com or .com—I don’t even know what their URL is—but let’s say sportstracker.co/ a bunch of stuff to accept the invite, and people are just typing in sporttracker.co and then hitting trial. Don’t even allow them to do that. Just give them a completely different URL and the homepage is something that says, “You need a special code. Enter the code in the URL,” or whatever. You can figure out a way how to do this intelligently but not let them get back to your main URL in anyway because you can control the message. You have this PDF and this email that go directly to them. What do you think about that?
Mike: I think that’s fine. Unless you have a situation where the professor or the coach or whoever is telling them, “Hey, I use this app. Here’s the name of it.” Because if they search for it and I think that that’s the problem he’s alluding to is that if they go online, presumably they’re web savvy enough to go online and search and then they come to the website. The one thing I would think about is giving somebody a sign up that is literally just a single field that says, “Accept Invitation,” or something along those lines or as you said, give them a PDF that they can print out.
I don’t know the mechanics of how it’s currently being done because do you want to just print something out that’s exactly the same for all 30 people on the team or do you have individual ones for all 30 of them? I would imagine you would want the former rather than the latter so that you don’t have to plug in 30 different email addresses. You print the exact same thing, hand it out to everybody in the team and say, “Go here and do this.” And then they basically join. Maybe it’s like a 6-digit code or a 10-digit code or something like that. They just go to, as you said, the URL, plug it in, and that’s the end of it. I think hiding the name of the product is probably the best bet because that way, the kids won’t search for it.
Rob: To be honest, Sports Tracker, when I go to just search for that phrase in Google, there’s a bunch of iOS apps that come up. I can’t find the app that he’s talking about in Google right now. There’s sports-tracker.com, there’s SportsTrackr with no E, there’s all these things and I don’t think any of them are his app. I actually don’t know that even hiding the name, I really think it’s just the URL. You know what people could do is if it says Sports Tracker on the PDF and they go to Google and type it in then sign-up for the first one, it’s going to be the wrong app. Maybe they should just hide the name and the URL and try to get them there.
Like I said, it’s an interesting problem—user behavior thing—to have but I think there are probably some ways that we’ve thrown out. Hopefully, those are helpful to him. Thanks for the question.
Our next question is about liability insurance. It’s from Z and he says, “Hey guys. Could you talk about what types of liability insurance SaaS companies should get? It’s very confusing, there’s not much information out there. What type of insurance should founders get for their companies depending on the stage they’re in and to protect themselves and the company?”
We have talked about this in the past, right, Mike? We’ve talked about getting an LLC and maybe worrying less about the insurance aspect of it because you have the liability protection there in the early stages. Obviously, we’re not attorneys, we can’t give legal advice and really, you should not take advice from two chuckle heads like us. But in the early days of a product, I would tend to have any type of E&O insurance. When you have 10 customers or something unless you’re in a particularly litigious niche.
Mike: I think the question here is different though. He’s talking specifically about liability insurance versus the liability of having things under a company. To his point, this is very confusing and there’s not much information out there. The reason it’s confusing is because insurance is one of those old industries where they profit based on your lack of knowledge and them being able to be kind of opaque about stuff.
If you go to, let’s say, two or three or five different insurance companies and ask them for a quote for liability insurance for your company, they’re going to say, “Okay. Fill out this form and give us a bunch of information.” Every single one of those forms is going to be different. It’s not like going to a sandwich shop and ordering a ham sandwich. That’s going to be basically the same between 30 different ham sandwich shops.
But with insurance, even liability insurance, it’s different for every single one of them. They’re going to have different questions, they’re going to want to know different things, and each of those forms is going to be different. Then they’re going to plug it in their back end of the engine and they’re going to say, “Okay. Here’s the risk profile, etc., and these are the things that we cover.” If you compare the output of each of those plans, there are going to be differences between them. It’s not like there’s a standardized liability insurance. There’s going to be some like Plan 1 from Company 1 might include XY and Z and then the same exact information that you gave to Company 2, they’re going to say, “We cover X and Y,” but they’re not even going to mention Z because it’s not covered but they cover QR and L.
It’s complicated and the reason you’re finding it that it’s confusing is because it is confusing. It sucks. It’s weird when you have to go through those things but really, there’s the umbrella policies. You have to be careful about what you’re doing in terms of what access to customer information you have, what your access level is to your on-site software or databases, or level of access that you need in their environment. All those things are going to be questions, are beyond those forms. Every company is going to quote you differently.
Rob: Yep. Insurance—not fun. I think that to protect yourself from personal liability, you can of course get an LLC or an S-Corp or whatever is the equivalent in whatever country you live in. I tend to say, when you’re young and you don’t have a lot of money or what’s called judgement proof, no one’s going to sue you because you don’t have any money. When you get to the point where you have some assets, I recommend getting a personal liability plan. I shouldn’t say recommend, this is what I have done. [inaudible 00:25:43] recommended to me and this is what I did, and it’s to get a personal liability coverage.
You can get $1 million or even a $2 million coverage for literally a few hundred dollars a year protects you from personal liability if you get in a car accident and someone sues you because their neck hurts or whatever. I think it protects your personal wealth and I don’t know all the details. It’s going to depend on your circumstance in the policy you get as to whether or not someone piercing a corporate veil. You don’t come in through an LLC after your personal asset. It’s going to protect that or not.
And then if you really want insurance for your company, personally, I would go to foundershiled.com, that’s who I use. I’m trying to think of some type of E&O or some insurance when we had to deal with a big Fortune 500 company and they required us to have, of course, crazy stuff that no one else requires you to have. I went to foundershiled.com, had a great experience with them when they were first starting out. They’re much further along now and really can’t recommend them highly enough for folks like us who really don’t want to deal with all the nuts and bolts of it but kind of need to get some [inaudible 00:26:49].
It depends on your risk tolerance how soon you want to do this but those are our general thoughts. Thanks for the question, Z. I hope that was helpful. Our next question is from Hamish and it’s about outsourcing development and NDAs.
He says, “I’m a new listener. I’m catching up with previous episodes. I’ve a question. I have a website which at the moment is no more than a hobby. I want to outsource some development to see if I can take it to the next level. I’m presuming NDA is not worth much for a small website. Should I be at all bothered about giving access to the code to a third-party developer? Are there any basic steps I can take to protect the copyright and the ideas?”
What do you think, Mike?
Mike: It goes back to the standard disclaimer: We’re not lawyers or insurance agents. An NDA is probably not going to be worth the time. The one thing I would be aware of or at least pay attention to is it when you are having somebody else build the code for you or write anything for you that you want to have a contract of some kind in place. If you’re hiring them through something like Upwork, that is generally taking care of it for you, but otherwise, you’re going to want to have something that says that it’s essentially a work for hire and that you own the output of that. That is probably the most basic thing that I would do. That ensures that you own whatever it is that they write for you. Beyond that, I don’t know. I wouldn’t worry too much about it because at this stage, it’s just an idea and it may or may not go anywhere.
Let’s say that they build it and you start making a couple of thousand dollars a month from it. The chances of them stealing it and trying to do the same thing, I would say are probably small. But even if they did try to do it, it’s not the app itself; it’s all the marketing and the sales engine and the sales funnel and emails—all the stuff that you do alongside of it—that is going to make that much money, it’s not the code itself and the app.
Rob: Yeah. I’m not sure how much I have to add there. There’s always risk with this kind of stuff. I would say that I’ve had dozens and dozens of developers that I’ve hired, some for really small projects, some for really big ones. As far as I know, none of them have ever stolen my code and gone off and tried to compete with it. I mean, maybe here’s a chance that I had a class in something that interacted with Stripe or with Twilio and they took it and used it in another project. How would I possibly know? But I have not had that experience.
I think that it’s easy to be bothered by this stuff. I think it’s easy to be overly concerned with it. It does depend on risk tolerance, but I would really air on the side of just hiring someone good and interviewing them to the point where you trust them and letting them do it and trust that they’re not going to steal your code because most people frankly, want the paycheck. It’s just so much effort to steal your code and try to do something with it. The odds of it happening I think are pretty slim.
Our next question, Mike, I pulled off of Quora. It was in the startup section and it said, “How much should an MVP cost?” What do you think about that? I love the premise of the question. It’s just like, “Oh boy!”
Mike: How much should an MVP cost? This seem like a trick question.
Rob: I would say that an MVP should cost zero.
Mike: Zero, yes.
Rob: I mean, not in all cases but remember, an MVP really shouldn’t be a software product, if at all possible. It should be me strapping a Google spreadsheet to Zapier, to a VA, to me peddling a hamster wheel that makes the thing go on, and to make give the appearance that I have a product but in fact it’s just all human-powered. I mean, that’s just one example. But I think an MVP should as little as possible. Take the number in your head and remove a zero or two.
Mike: I think the interesting thing about this question and maybe is because it comes from Quora, there’s people who are not necessarily as experienced in understanding exactly what a minimum viable product would actually be. But really what you’re looking for there is, “What is the least amount of work you can do to answer a particular question?” And you have to start with the question. If you don’t start with the question, you’re really not doing the whole MVP process correctly.
That’s kind of the core of the issue here I think is if you don’t understand what an MVP actually means, then asking how much it should cost is almost irrelevant because it really depends on what the question you’re trying to answer is. Like, “Will people pay for this?” “Well, just go online and do a Google search and see if there are other products out there that exist that solve that problem. If so, then yes.” That’s a very simple thing to do and it costs you absolutely nothing more than a few keystrokes. But if it’s a lot more complicated like, “Can you get $1000 or $10,000 people to your website in order to validate that you can acquire that traffic in order to potentially sell them something?” Well, that’s a very different question that you’re trying to answer. The amount that it’s going to cost is going to be different.
I would actually differentiate between how much time it’s going to cost you versus how much money and over what time period because all three of those things are very different. You might be able to find out a piece of information, but it could take three months. It might only take an hour or a week for the three months but the total time span that it takes is going to make a difference. If you’re trying to validate a couple of different ideas against one another or answer several different questions, it can become difficult to answer all of them in a time frame that is appropriate to whatever your current life situation is.
Rob: Yup. I think those are good points. Like I said, I think it should cost, frankly, as little as possible. You should be able to strap together a lot of tools and not have to actually build software if you’ve validated to that point or you get your 10 or 20 buy-ins, your purchases, pre-purchases, commitments, or whatever you’re going to do. I agree with you. I think I like the different dimensions you put on that words like there’s price, there’s hours of your time, and then there’s duration–is it 6 months or 12 months or 2 months or whatever.
I would love to get an MVP done in less than two months for, I don’t know, less than $5000, less than $10,000. It depends on who you hire. If you hire in the States, it’s going to be more expensive. It’s kind of hard to say, I think but I do think it’s an interesting thought experiment. It’s like, “Are you building an MVP of an email service provider or are you building an MVP of a little form app, like something that compete with Typeform or Google Forms or something.” That’s a totally different use case.
Again, if you’re going to give people Type Form, you just build the form UI, have it go straight into a Google spreadsheet so you don’t [inaudible 00:33:48] have a database and then to actually build the UI to build the form, you manually build that directly with your customers, you don’t build any type of form builder. You know what I mean? That could literally be like a weekend project of just displaying a landing page with the forms that you plug into some XML file or some database or JSON thing. That’s pretty minimally viable but it would be a product if you’re trying to test something out.
Anyways, I think that probably wraps us up for the day except for our final question of the day, Mike. The Star Wars Holiday Special marked the first appearance of which Star Wars character? There are four choices: Jabba the Hutt, Boba Fett, Jar Jar Binks, Lando Calrissian. Do you know the Star Wars holiday special? Have you heard of it?
Mike: I’ve heard of it.
Rob: It’s from the ‘70s. It’s awful. Go to YouTube and look it up. It is really not good. There’s this thing called life day and there’s wookiees and it’s really not canon.
Mike: I sort of vaguely remember hearing about it or seeing it. The question is which of these four characters shows up for the first time in that?
Rob: For the first time in the Star Wars Holiday Special that came out in ’78. It’s Jabba the Hutt, Boba Fett, Jar Jar Binks, Lando Calrissian.
Mike: I’m thinking Boba Fett.
Rob: You are correct.
Mike: Yes.
Rob: It’s in an animated segment of the show.
Mike: Oh!
Rob: Yup. This has never been released on video but as I said, you can hit YouTube or other places to find recordings of it.
Mike: Oh, that is shockingly nerdy.
Rob: It is. It is nerdy. I couldn’t get through it. I watched five minutes of it, and I had to scrap it.
Mike: Is it that painful?
Rob: It’s awful.
Mike: It’s painful as a podcast and our jokes.
Rob: Yes, it is indeed.
Mike: Oh, that’s terrible. Well, on that note, if you have a question for us, you can call it into our voicemail number 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 in 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 434 | SaaS KPIs You Should Focus on From Day 1
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about what KPI’s to look at when launching, key metrics you should track, and what they should be.
Items mentioned in this episode:
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about SaaS KPIs that you should focus on from day one. This is Startups For The Rest Of Us episode 434.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: 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: Well, I got my tan on in Mexico. I mentioned that last episode. We got out of Minneapolis for about eight days and it was good. It was interesting that that my two boys got so much sun the first day. They got a little sunburn, but it wasn’t bad. They then the next two days had fevers and it was almost like they had sunstroke, because we have been out in the sun so little since whatever, October.
It was a trip. I was like, did they get vitamin D overload? What was the deal? But they both got sick. It was Mexico. Several of us had stomach issues, but the boys didn’t and they had this different reaction to things. They were all hot and they were tired with headaches. It was definitely like sunstroke attributes.
Mike: Interesting. I wonder if it’s just a byproduct of living in California first of all.
Rob: What do you mean living in California?
Mike: Well, because you live in California and then you moved to Minneapolis. Suddenly you’re not getting any sun and then you go back. It’s almost like dying of starvation or thirst, you suddenly get it, and then you get sick because of it.
Rob: Totally. The thing was, my boys tan really well. Before we went to Mexico, they looked grey. They looked like this really odd grey color, because again no sun exposure because it’s so cold. It’s super sunny here in Minneapolis, but it’s just so cold. You don’t go out without coverage. Your face is typically the only thing showing. If you’re going to be out for an extended time, you have gloves on, you have stuff over your arm. It was a fun trip overall and I’d recommend it.
We actually went to this smaller town called Sayulita. It’s about 45 minutes north of Port of Aorta. I know you mentioned you’ve never been to Mexico. For your first trip, maybe do go to Cancun or Port of Aorta. Those places are fine, we’ve gone there. Once you go there once, it’s super touristy, it’s packed with people and you’re not among the locals. You’re just a bunch of other vacationers. You’re hanging out with other tourists.
Whereas Sayulita is small and it’s 45 minutes north. It was a much better experience. It felt slightly more authentic and we still had access to what we needed in terms of food and such, but it did feel just like a better experience. Folks listening, if you haven’t checked it out, I recommend it. How about you, what’s going on?
Mike: I’m in the process of going through the scholarship applications that came in.
Rob: For MicroConf, right?
Mike: Yes, for MicroConf. I really think that if I were going to make any predictions right now, that this would probably be the single biggest mistake that I will make for the entire year. I forgot to include the email address field until basically like 2/3 or 3/4 of the way through it and I didn’t notice it until then.
Rob: You have a scholarship application like a Google form or Typekit, you send an email to the MicroConf list, you send people to come apply for scholarships, they give all this information, and you have no email address form?
Mike: Exactly.
Rob: That’s nuts. There’s no way to map since it’s third party. I was trying to get you the link back because when they click through the Drip email, there’s going to be their subscriber ID and the URL, but there’s no way to go back and try to get that matched up or anything.
Mike: No, not from a Google Form. The thing is, it’s not even that I actually forgot it, it’s that it disappeared because I copied the application form from last year. I don’t know what happened. I must’ve clicked something and accidentally deleted it or something, I don’t know. I didn’t notice until well into it and I was just like, “Oh my God.” I’m in the process right now of going through and trying to figure out how to reach each of these people. The nice thing is, because it’s an application, it asks for a lot of information.
Most of the ones that are missing, I have at least Twitter account information for it. I can send them a message and try and get in touch with them through that. Then other ones I’ve been able to map back to some of the different email lists that we have. The one really helpful piece of information is that I ask where they heard about it from and if they say email list, then I can go look at the email at list.
If they say that they heard from a certain person, I think there was only one, possibly two that I’m not sure how I’m going to be able to get that information. But I think for the most part, I’m going to be able to clear it out. It’s just going to take time and effort though. That’s the part that sucks.
Rob: That’s the thing. These are those fixable problems that are a ton of ground work to get done. It’s like, “I could have saved myself hours taking through this thing if I’d remembered to put the email address.” I have done this plus way worse. These are things that happen as you’re moving fast and doing a bunch of stuff. That’s brutal.
Mike: Oh well, I got to do what I got to do, though.
Rob: Yeah. My guess is you will never ever again forget to put an email address on a form like this.
Mike: Like I said, I don’t think I forgot. I think it’s accidentally deleted.
Rob: It deleted itself, yeah. From my end speaking of applications, the TinySeed application process ran for a month from mid-January to mid-February. I guess around four weeks. We got just under 900 applicants. It was a lot more than I thought. I was ambitious in hoping we’d get 400. I had heard through the GreatFind that a lot of more well-known accelerators get 500 to 700 depending on location. I’m sure Y Combinator gets more than that I’d imagine. It’s a big number and it’s what I’m very happy with.
It also creates what we call a good problem to have. The good problem is we have a lot of applicants. The bad problem is, I’ve been sifting through almost 900 applicants for the past two weeks. It’s just a lot of work. I’m not complaining obviously because this is what I would want to be doing, but it’s definitely going to be a process to get through all these. I already started having conversations with founders as I mentioned a few weeks ago. It’s going well.
Mike: Awesome. The only other thing on my side is that I’ve got an upcoming webinar that I’m going to be doing for hr.com which is kind of, I don’t know, you look at those 2-letter domain names and you’re like, “Wow,” it’s nice that I was able to finagle that. I’ll be doing a webinar for them on personalized email strategies to drive traffic, engage leads, close deals, and more. That will be on April 29th and I’ll link it up in the show notes in case anybody’s interested.
Obviously because it’s for them, their audience tends to be people who are reaching out to HR professionals in that particular space. They have a couple of different audiences, but one of them is the HR reps themselves, and then the other one is people and vendors who are trying to get in touch with HR people. This is basically aimed at those people who are trying to get in touch with the HR reps. It’s more of a general presentation that I’m putting together for them. It could very well be applicable to people who are listening.
Rob: We will link that up in the show notes.
Mike: I know I did the intro today, but what are we talking about?
Rob: Actually, we designed the entire outline around a listener question. I’ll play the voicemail in a second, but it’s about what are the key performance indicators or KPIs. By the way, I hate that term. I feel like it’s such an MBI, I hate it. It’s a shorthand that everyone understands. What are the numbers, the metrics that you should be tracking when launching and growing a SaaS app. Let’s dive into the voicemail here.
Adam: Hey Rob and Mike, I’m Adam Hawkins. Thanks for running the show, it’s been awesome. I’ve learned a lot from you over the past few episodes and I appreciate that both of you mention metrics and discuss these app businesses. One of you mentioned that you needed to have X thousand visitors on your landing page to pull your funnel in a previous episode. That really got me thinking of a fellow bootstrapper. Here’s my question, what are the KPIs and target values in launching in SaaS? I’m kind of thinking something along the lines of numbers that will keep me on track in launching my own SaaS. That’s all for me. Thanks guys and keep up the good work.
Rob: The first thing I want to say about this is, when we make statements like you need X thousand people to hit your landing page to validate or whatever. Often that’s a rule of thumb and it’s something to start from, but please don’t take that as gospel. I think in the past we’ve said you need 30 people, or you should talk to 30 people and have them say yes to your product, and consider that validated.
With Drip, I only did 10. It just depends. It’s all a spectrum. It’s like a risk tolerance. These numbers are not set in stone. None of this stuff is set in stone. With that said, there are rules of thumb. From doing this for 15 years, you start to see patterns and you know that a metric is out of whack if, let’s say I have a SaaS app that’s $50 Bucks a month, I ask for a credit card upfront, and my trial to pay is 10%. I know that is way too low and we have a major problem in our funnel.
That’s what we’re going to talk through today. These loose ranges when I see an app performing at 40% versus 60%, how we think about that, and how it indicates where you might have an issue in your funnel. It really helps you figure out what to focus on, because at any given time, you’re going to have one or more things that are just going sideways with your business. It’s just the nature of doing startups. You’re always that duck on the pond where above the water, you look like you’re just gracefully moving along, and under the water you’re just paddling like crazy to stay afloat. Your numbers are sideways and you got to figure out what do you focus on.
That’s really the point of this episode. It’s to try to give you some guidance so that you’re thinking about it as someone with a background. Even if this is your first time that you’re kind of taking the wisdom and the rules of thumb from us. Basically, folks who have seen these SaaS apps, seen a lot of numbers, know what a healthy SaaS business looks like, and know where to focus on to help improve them.
Mike: Yeah. As you said, these are guidelines and general patterns. It doesn’t necessarily mean that if you are in this range, then things are going great. I think one of the big drawbacks of using this information as gospel is the fact that you never really know whether or not you have room for improvement or how much will you have room for improvement. If you have this general range, let’s say it’s between 2% and 4% for any given number, and let’s say you’re smack in the middle at 3%, that seems reasonable.
There’s probably other areas in your business that you should be focusing on, but is it possible that that number could be 6% or 8% depending on your type of business or the vertical that you are in. The answer is absolutely yes, it could be that high, but you don’t really know unless you are directly comparing yourself against other businesses that are similar to yours.
Again, these are general guidelines. They are helpful in terms of determining whether or not you should continue to focus on that area. Maybe you should, but chances are good that if you’re in the general ballpark, I’ll say that there’s other things you should be going to look at before you come back and try to optimize and double down on whatever that particular thing is to improve it.
Rob: That’s the thing, if you’ve ever gotten a piece of mail from your city water quality control board, they’ll show you all the lead and this and that, and then they’ll show you the acceptable ranges, because without the acceptable ranges, you have no idea what the numbers mean. It’s like one part per million of lead. Does that mean anything to you? It doesn’t to me, so then you want to see the acceptable range, or if you get a blood test, Mike. I know you’ve never had any test on you.
Mike: Of course not.
Rob: I’m curious. You’ve talked about it on the show, that’s why I’m bringing it up. I get a blood test every few years or whatever. There’s all these numbers that mean nothing without that guideline on the right that this is the normal range. That’s really what this is trying to do. I don’t want to over couch this and say, “These numbers? We’re just going to ballpark them and it don’t really mean anything.” They do mean things, but there’s always the caveats of, if you’re selling a $19 a month SaaS—I will try to call those out as we go through because I’ve sold $19 a month SaaSes—and then if you have one that’s $500 a month, the numbers are going to be different. We’ll try to talk through those differences as we go.
Mike: We’ve talked about KPIs and various metrics in a few other episodes. The first one was episode 112 where we talked about the startup metrics for Pirates and that’s based on AAARR. Is that what it is? I forgot.
Rob: Yes, something like that. It’s either AARRR or AAARR, I forget which it is.
Mike: I think it’s AARRR. There’s another one, Episode 187 where there is a whole slide deck that we went through from Andrea’s Cleaner. That slide deck is around 150 pages or so. It’s really in-depth. There’s a lot of good information in there. It specifically talks about the fact that your KPIs are going to change over time and very early on, there are going to be data points that you’re looking at. You have to be really careful about how you interpret them because the numbers are probably going to be much smaller, and your product market fit isn’t quite right yet.
There’s a lot of caveats to those very early numbers. We will call them out as well, but that’s something really important to keep in mind when you’re trying to figure out whether or not you should optimize something more or move on to something else. The third episode is Episode 231 with Ruben Gamez where you and him at the very end of the episode started talking about some of these general ranges that we’ll rehash in this episode.
Rob: I’ll be interested to see how close the ranges are. We literally did it off the cuff in that episode, and I’m kind of getting into it off the cuff again today. I’m hoping that the ranges are pretty close. What I’d like to do is start at the top of the funnel. Going from unique visits to your site and just go all the way down the funnel. Visits-to-trial, trial-to-paid, turn, blah-blah-blah, and go down the line.
So, starting at the top of the funnel with unique visitors. This is an interesting one because I don’t think there is a KPI for this. You want the most unique visitors you can get that are targeted at your website in any given month. I have had software products that get literally 1500 unique visitors a month that sold upwards of $4000 or $5000 a month in software. Now, it was not SaaS, it was a $300 one time purchase. The traffic was targeted, it was in a pretty tight niche, and it obviously converted quite well.
Whereas most SaaS apps I know, you’re going to be priced between let’s say $20 and $100 a month for your starting tier if you’re doing self-service. You really want to start getting into that 5000-10,000 uniques a month to try to start scaling it up. The challenge here is, if we’re talking about day one and you’ve just launched, unique visitors doesn’t have much meaning yet. What you really want to do is you’re still trying to validate your product, you’re trying to find product market fit, driving more traffic, trying to split test, and look at these aggregate numbers isn’t helpful yet.
In the early days, you should probably couch all of these metrics with that. In the early days, your numbers are going to be so small. When you have 10-20 customers and one of them turns, that doesn’t really mean you have 5% or 10% churn rate. It does technically, but it’s meaningless because you don’t have enough numbers to accurately measure things. I think that is another thing. Early day KPIs are different than later day KPIs. Early day KPIs are really how many people am I talking to? Do I think we have product market fit? Is churn going down? These are marketing resonating.
There’s a lot more qualitative questions that I ask in the early days than in the later days. You’re looking at more quantitative, because you’re just past that point. It’s hard to say for everyone, but I feel like when you hit about somewhere between 5000-15,000 MRR, that’s where I start to shift into that. You probably have 100-200 customers. That’s where you can start having numbers that are more easily measurable and you can start seeing trends instead of seeing these very spiky results because the numbers are small.
Mike: I think one of the interesting things about the number of unique visitors is that, as you said, all those not edge cases but those different factors that play into it like price point, how long it’s been around, do you have product market fit, all that kind of stuff. One of the really challenging things when you’re that early on is that a link on Hacker News, for example, can drive traffic through the roof and it is untargeted traffic. It’s good to get it and it’s nice to see that there are more eyeballs coming to your site, but what it does is it really heavily skews your metrics, because those people aren’t necessarily there as interested people, they’re there because you got a PR bump and that really seriously starts skewing your metrics.
You really have to be careful when you’re looking at everything else just because if you’re only averaging let’s say 3000 views a month, and then suddenly you get an incoming link and you end up getting 5000 over the course of a couple days, that 5000 is going to overshadow your typical 3000. And because it’s untargeted, your visitors trial and your trial-to-paid, all those numbers completely gets out of whack because of that. It skews them. It makes it a little bit more challenging to figure out what is my actual visitor-to-trial rate. You have to look at that and say, “Well, how well targeted was that traffic? Do I apply a percentage to that?” Well yes, 5000 people, but maybe only 0.5% or 1% of them were actually targeted then you multiply out from there and figure out what your actual visitor trial rate would be.
Rob: Yeah. The nice part about all these metrics but specifically visitor trial is, the more visits you get and the more trials you get, just that the further along you get, it does standardize. I used to be able to look in Google analytics or whatever dashboard I was running and just instantly know if it was a good number. My range for this is for SaaS, I want to specifically say that. For info products or for onetime purchases, you can get dramatically higher numbers, but people signing up for SaaS apps with a credit card upfront, I want to be between 0.5% and 2%.
The difference there could be a lot of things. It can definitely be your messaging and your marketing. It can be the quality of your traffic. It can also be your price point and that’s a big one. If I had an app that was $10-$20 a month for the lowest pricing tier, I would want to be closer to that 1.5% and 2% number of unique visitors translating into trials with a credit card on file. If I’m selling something that’s $50-$100 a month as the lowest tier, I’m going to be looking between 0.5% and 1%, 1% would be a pretty nice number to get on that.
Something else to think about is this is for one funnel. That’s like the visitors and turning into trial. You can also have a longer funnel that visitors turning into email subscribers and then you know how many email subscribers, over time, turn into trials. You can look at that number. If you have a good converting landing page, let’s say you’re sending either ad traffic or SEO traffic, and you’re trying to squeeze for an email address, and your offering something of value to folks with download in exchange for that email, I want the range to be between about 15% and 25% of people entering their email address on the landing page. I’ve had upwards of between 40% and 50% for certain calls-to-action with the really targeted traffic, but that’s pretty exceptional. If I’m below 15% I’m a little concerned and if I’m below 10% then I’m doing something wrong. The traffics mismatch or the call-to-action isn’t very good. If you’re going to do that, it’s a longer funnel, it’s a longer journey, but you need to then look at your email numbers in aggregate and see how many of these are turning into trials over time.
That’s where you need a good system with good tracking like Drip or I believe ActiveCampaign could do this. I’m not sure that Mailchimp, I haven’t used it in so long, I’m not sure that it’s easy to do that with Mailchimp. If you are going to go that route, you’re going to want to dial in the analytics at least to the point where you can have a relatively good insight into how many new subscribers are converting into trials. One other thing, if you’re not asking for credit card upfront and your unique visitor-to-trial rate is 5%, I’d say 5%-15%, but 5% is actually too low. I think I’d want to be more in probably 10%-20% range is where I feel comfortable. This one I have done very little because I tend to ask for credit card upfront. I have done tests with it and such, but I’ve talked to a bunch founders who run credit card free trials and that does tend to be the range.
Number three, the next KPI is of course trial-to-paid conversion. If I’m asking for a credit card upfront, I want between 40% and 60%. If I’m at 39%, I know that I have a problem. If I’m at 58%, I know that I’m doing quite well. I mean that’s really towards the top range. There was a time when Drip bumped above 60% at different times, then you know you’re kind of killing it and your onboarding is doing really well. When I took over HitTail, I acquired that in 2011, it was credit card upfront and the trial-to-paid was 15%, and so you know that there’s a major problem in onboarding. That was one of the first things that I cleaned up.
That’s why these ranges are fairly important is that you know you’re so out of whack there that if you fix that, you’re going to be going to be in a better position. If you’re not asking for credit card upfront, trial-to-paid, I would want to that one between let’s say 5% and 15% is probably a relatively decent mark. I mean I would want to be between 8% and 15% myself, but you’re just kind of a lot lower when you’re not asking for credit card, that’s kind of the nature of the beast.
Mike: One of the things that I think is probably the most challenging with trying to find out or to track some of this information is that when you’re very early on, these numbers are very misleading when one person cancels. If you’ve got 10 customers or 20 customers, having one or two customers cancel is a huge deal. One or two people who come through the funnel that don’t convert, let’s say you’ve got four of them through and not one of them converts, that’s 0%. Even having a couple after that, it doesn’t really put the number back to really where it should.
You have to eyeball those things and try to capture as much information from people who are leaving or not following through with the trial to figure out what it is that drove them away. Why did they not actually decide to follow through and sign-up for the service or continue using it. Use that information to try and figure out what it is that you’re supposed to do because the numbers are not going to be enough, especially early on.
Now, that’s not to say you shouldn’t track those numbers, just that they’re going to be misleading early on. Over time, it will get better, but those first few that come through, first 100-200 that come through, is going to be hard. You have to talk to people to figure out what the reasons are for them to move in one direction or the other.
Rob: Exactly. The numbers aren’t going to tell you the whole story. Especially in the early days. That’s something you got to dig into. The fourth KPI we’re going to talk about is churn. I’ve seen people look at churn as a blanket number. It really obfuscates what’s going on underneath. If you go to Amazon and you see that the average rating for something is 2.5 stars, but there’s actually 101 stars and 105 stars, I guess that would actually average to 3%, but you get the idea. 100 0 stars and a and 100 5 stars in average is 2.5%.
If you just have the 2.5%, it looks like a crappy product, but as it turns out with five and zero, the zeros are probably either misunderstanding, or there’s something wrong, there’s more information under that data. Churn I feel is the same way. If you look at your churn across your entire customer base, you’re missing some information. What I’ve typically seen the most success with is to look at your first 60-day of churn, and then your post 60-day churn, and separate those numbers out.
Sometime it’s up to 90 days, but really, a lot of people do an extended trial where they might enter their credit card. When the trial expires, they pay one month. They never get set up. They never get onboard and then they churn, but really what they did is they were kind of like a trial that didn’t convert to paid. I started seeing these patterns, it was before HitTail, but when I got into HitTail and really dig into the numbers, it was a huge difference. Literally in the first 60 days, especially if you’re asking for credit card upfront, but it can happen both ways, you might see churn upwards and a per cohort of between 20% and 40%.
It can be a huge number of people that are canceling there and 40% I start to feel uncomfortable, 20% I actually don’t feel terrible about that for 60 days. Then post 60 days, you want to get your churn obviously as low as possible, but I feel most comfortable in let’s say for lower priced products that are not enterprise, not annual contracts, I think between 5% and 8%. If you’re at 9% or 10%, it’s pretty brutal, 8% is about the top in where I feel comfortable. Realistically, if you’re a big SaaS app, I think WP engine probably has negative churn at this point.
I remember Jason saying in the early days, they had 2% churn. I’ve had apps that have 2% to 3% churn in that post 60-day, post 90-day mark. That’s where you want to get to. The problem is, the lower your price point, the higher your churn tends to be. That’s why a lot of folks go up market, a lot of SaaS apps do. If you can, you want to get to net negative churn where you do churn out 2%, 3%, 4% but just the growth in your existing customer base of people upgrading actually wipes out the churn. It’s a crazy thing. I’ve seen it firsthand. It just catapults your growth. Those are my loose numbers that I keep in mind when I’m looking at churn rates.
When I see someone come through with a 12% monthly churn rate, I think that’s the first thing I would attack. If I see someone come through with a 3% churn rate, I think that’s amazing. I believe you have a product market fit depending on how many people you’re putting through your funnel. Let’s look at your other metrics to figure out where we should focus position not be on churn, if your number is that low.
Mike: One thing that we should probably drill into a little bit is the idea of that negative churn, because I think that some people might get confused about that. It’s not that you’re gaining more users than you have actually signed up. Although in some cases that may actually be true, because if somebody comes in and then they invite somebody else on their team, initially they sign up with one account and then they may fall into a different tier. That’s part of where that negative churn comes from because people are essentially upgrading to a higher tier paid accounts.
Whether they’re adding users, or going to a new pricing tier, each of those things can qualify. A question for you Rob, because I’m actually not sure about this, does it qualify if they upgrade from a monthly plan to an annual plan? I don’t think that it does.
Rob: No, it doesn’t. The annual plan should be divided by 12 and added to your MRR anyways. It’s not net revenue. It really is actual MRR that I’m looking at. I’m glad you brought this up because I should have couched this when I was talking about churn and the churn you should focus on is revenue churn, not user churn or customer churn. Revenue churn is when you look at, we started the month with $100,000 in MRR and we lost $10,000 in MRR, so that’s a 10% revenue churn.
First is we started the month with 1000 customers who are paying, 1000 credit cards on file, no matter how many users are within each account. We started with 1000 customers paying us and we ended the month with 900. That’s 10% user churn or customer churn. I’ve always looked at both. By far, the most important is revenue churn. I don’t think you could have negative customer churn, because you can’t add more customers than you signed up, but you can have a net negative revenue churn. That’s where you only lose a small amount of revenue from people canceling, but the rest of your customer base is either so large or they naturally move up tiers and pay you more for stuff.
Drip is a great example of this. As people’s lists grew, they naturally moved up in tiers automatically. There was just a natural movement towards paying more to your ESP. Those are the kinds of businesses that can have negative churn. Slack probably has a negative churn rate, because teams do tend to grow. Yeah, companies go out of business, there are layoffs now, but there are layoffs from time to time in your customer base.
In general, teams that sign up Slack and start paying, I’m guessing these are startups that are adding more and more people and Slack charges $6 or $8 a month per person. I would guess with the stickiness of Slack, they’re kind of gross churn is very low. I bet their net churn including expansion revenue is what it’s called, as people expand and hire tiers is quite substantial. That’s the holy grail of SaaS.
I know people say, recurring revenue is the holy grail of software, and that’s why SaaS is such a big thing. Net negative churn is the holy grail of SaaS if you want to get into it, because that just snowballs and it means that if you do nothing, your company grows. It’s crazy to even think about it when you actually look at charts, and you look at how the numbers work out, you look at graphs of it, once you hit net negative churn, you don’t need to do much. I shouldn’t say you don’t need to do much, but you need to do a lot less to grow a lot faster is what happens.
Mike: Is that where the passive income comes in?
Rob: Passive income, money wisely. Let’s run through the last few pretty quickly. The fifth thing is MRR and that’s just your monthly recurring revenue. As we said earlier, it can get tricky if you have annual plans, you’re supposed to technically divide by 12 that annual plan and then add it onto your MRR. Hopefully you have a software that can do that like Baremetrics or ProfitWell. MRR was the number that I tracked religiously. Every night I would get an email after billing ran and it would tell me what MRR was, what the daily billing was, and all that stuff.
It’s kind of a no brainer when you think all of us track it and it’s something that talks about the health of your business. The other one is MRR growth. I always looked at this as dollar rather than percentage. A lot of people talk percentages, but it’s like when you’re at $1000 MRR, or you’re at $100,000 MRR, the percentages obfuscate so much stuff. Truly, how many dollars did you add and you want to look at not just net add, but you want to look at how many did you lose to churn, how many did you add from new customers, and how much did you add from expansion revenue. Seeing those three different numbers and then the net. There’s four different numbers that you can get into and a lot of people who are really into their SaaS numbers know these numbers cold and know where they want to be with them.
The last one is ARPU, average revenue per user. I like to call this ARPC, which is average revenue per customer, because frankly when I’m charging people money, I think of them as customers, not users. Like Drip, one account might have 20 users in it, but to me that’s a single customer. It’s apples to apples, but it’s just a terminology thing. Average revenue per user, average revenue per customer.
Frankly, if your average revenue per user is $10 or $20 a month, you have a nice little business. You can grow that to something, but the odds of you growing that to a multimillion dollar business are very low. I’ve seen businesses with very low churn, good trial-to-paid, and average revenue per customer of $10 or $15 a month. I think that’s going to be a great 30K MRR business. That’s not a bad business to have, but you’re going to struggle to get past that 30K or 50K mark. If you want to build something into a 7-figure business, not across the board, not unequivocally but in general, you need that average revenue per customer to be upwards of that $40, $50, $60 and up price point.
You want to be in triple digits. You want to get there eventually. You don’t have to be there on day one, but aspiring to get into that $100 to $500 per month, per customer. That’s where you can scale, it’s so much easier to scale a business into that seven- and eight-figure range. Because you have the money to acquire customers, the payback is fairly quick. If most people are paying you $200 a month, you can spend quite a bit on ads and salespeople. Frankly, churn will be lower. It’s always counter intuitive to say this, but lower priced products, lower ARPCs tend to lead to higher churn.
Mike: Something we didn’t talk about when we were talking about the revenue churn between the first 60 days and then post 60 days was that, if you do any sort of a pricing change that can have a massive impact on what your revenue churn looks like. If you raise prices, let’s say by 50%, make things simple. If you raise prices by 100%, you double your prices. If you lose less than half your customers, then technically you’re coming out ahead because you’re making more money. In theory, your infrastructure costs have probably gone down. The obvious downside of that is, potentially losing customers after that first month or after you initially make that change, assuming you didn’t grandfather them. At least be a little cautious of or cognizant of, because that that can seriously change some of those numbers.
It’s not something you have to worry about, as you’re launching, but down the road when you are calculating these numbers and try to figure out how to grow the company, those are things that you should at least bear in mind when you’re trying to figure out if you’re running into financial issues and you need to be able to make more money. You can just do some calculations and say, “Well, if I raised by 10%, this is how much we could get, and how many of those customers are we going to lose the because of us raising those prices.”
The other thing that I was thinking about was that, all of this information sounds great to be looking at, but how do you actually go about tracking it? There’s a lot of different tools out there that you can use. Sunrise KPI for example is one. We can look this up in the show notes. CYFE is another one. Honestly, the simplest thing to do, instead of going in and trying to figure out a bunch of different tools and things to integrate, you can just use a spreadsheet. Whether it’s a Google doc or Excel spreadsheet, it doesn’t really matter. Throw your information in there, maybe update it. You can do it as much as once a day, but you could also do it once a week or once a month, and it really gives you a sense of where things are at and what you should be focusing on. If you’re not plugging this information in and at least looking at it, then you’re never going to do anything about it. That’s the big problem that most people run into is they just don’t even look at these things or they don’t update them and keep track of them.
Rob: Yeah, that makes sense. I mean, I’ll admit with pretty much all, I think without exception, all the SaaS apps I’ve ever run, I’ve built a little scrappy page and these are just simple queries. You should have all the stuff in your own database, I’m imagining. I always did and it’s a little bit of a pain. Churn can be a pain to calculate that can take some time, but I remember hacking together a dashboard with most of these numbers in a few hours, one evening.
I was listening to music and have the lava lamp on sipping Bourbon and I just hammered through these one at a time. I really don’t have a very impressive life, do I, Mike? It’s kind of sad that that would, but it was a fun night, I’ll admit. Because once I had that, I was looking at that thing every day. It was super cool. Then by the time we were launching Drip, I remember telling Derrick, “These are the numbers I know I need. Let’s figure them out,” and it did take him probably a day to get the initial version done.
We had to kill a day of developer productivity to do it, but it was really nice to (a) be in control of those, to (b) have a all in one place, and to have them displayed in exactly like the order that I wanted. I mean, we even have trailing 7-day trials, how much each day it had, have it trailing 30-day. Then we modified it and adjusted it over time. The other cool thing is that whole dashboard and admin area became a nice training ground for new developers. We’d bring in like a junior dev or whatever. You may not want them to push production code into your app right away, because it could break something for customer, but that becomes a nice playground to be like, “Hey, let’s add this number or let’s tweak this,” and it becomes this code base that can get screwed up. If the admin console crashes or has some weird thing that happens in it, it’s not the end of the world, because it’s just us using it. That was kind of also a bonus to having that all built out.
Mike: I’ve daily email sent to me from Bluetick just to see a lot of those different pieces of data.
Rob: It’s a good way to do it. I always had it as a shortcut on my browser but it’s same thing, and that’s your pulse. We actually called it, the page that displayed all this, we called it Pulse in Drip. I always thought that was a pretty fitting name, because it’s the pulse of the business.
Mike: Got it, cool.
Rob: Forty minutes on SaaS Metrics, KPIs. I think the next episode needs to just be all jokes. You and I need to just talk about movies and jokes.
Mike: I don’t know if that’s going to be a very compelling episode.
Rob: That would be even worse than this one. All right. Let’s call it a wrap. I guess I’m the wrap guy today.
Mike: Yes, you are.
Rob: This whole episode was outlined based on a single listener question. If you have a question for us, you can voice mail 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 in 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.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: 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: Well, I got my tan on in Mexico. I mentioned that last episode. We got out of Minneapolis for about eight days and it was good. It was interesting that that my two boys got so much sun the first day. They got a little sunburn, but it wasn’t bad. They then the next two days had fevers and it was almost like they had sunstroke, because we have been out in the sun so little since whatever, October.
It was a trip. I was like, did they get vitamin D overload? What was the deal? But they both got sick. It was Mexico. Several of us had stomach issues, but the boys didn’t and they had this different reaction to things. They were all hot and they were tired with headaches. It was definitely like sunstroke attributes.
Mike: Interesting. I wonder if it’s just a byproduct of living in California first of all.
Rob: What do you mean living in California?
Mike: Well, because you live in California and then you moved to Minneapolis. Suddenly you’re not getting any sun and then you go back. It’s almost like dying of starvation or thirst, you suddenly get it, and then you get sick because of it.
Rob: Totally. The thing was, my boys tan really well. Before we went to Mexico, they looked grey. They looked like this really odd grey color, because again no sun exposure because it’s so cold. It’s super sunny here in Minneapolis, but it’s just so cold. You don’t go out without coverage. Your face is typically the only thing showing. If you’re going to be out for an extended time, you have gloves on, you have stuff over your arm. It was a fun trip overall and I’d recommend it.
We actually went to this smaller town called Sayulita. It’s about 45 minutes north of Port of Aorta. I know you mentioned you’ve never been to Mexico. For your first trip, maybe do go to Cancun or Port of Aorta. Those places are fine, we’ve gone there. Once you go there once, it’s super touristy, it’s packed with people and you’re not among the locals. You’re just a bunch of other vacationers. You’re hanging out with other tourists.
Whereas Sayulita is small and it’s 45 minutes north. It was a much better experience. It felt slightly more authentic and we still had access to what we needed in terms of food and such, but it did feel just like a better experience. Folks listening, if you haven’t checked it out, I recommend it. How about you, what’s going on?
Mike: I’m in the process of going through the scholarship applications that came in.
Rob: For MicroConf, right?
Mike: Yes, for MicroConf. I really think that if I were going to make any predictions right now, that this would probably be the single biggest mistake that I will make for the entire year. I forgot to include the email address field until basically like 2/3 or 3/4 of the way through it and I didn’t notice it until then.
Rob: You have a scholarship application like a Google form or Typekit, you send an email to the MicroConf list, you send people to come apply for scholarships, they give all this information, and you have no email address form?
Mike: Exactly.
Rob: That’s nuts. There’s no way to map since it’s third party. I was trying to get you the link back because when they click through the Drip email, there’s going to be their subscriber ID and the URL, but there’s no way to go back and try to get that matched up or anything.
Mike: No, not from a Google Form. The thing is, it’s not even that I actually forgot it, it’s that it disappeared because I copied the application form from last year. I don’t know what happened. I must’ve clicked something and accidentally deleted it or something, I don’t know. I didn’t notice until well into it and I was just like, “Oh my God.” I’m in the process right now of going through and trying to figure out how to reach each of these people. The nice thing is, because it’s an application, it asks for a lot of information.
Most of the ones that are missing, I have at least Twitter account information for it. I can send them a message and try and get in touch with them through that. Then other ones I’ve been able to map back to some of the different email lists that we have. The one really helpful piece of information is that I ask where they heard about it from and if they say email list, then I can go look at the email at list.
If they say that they heard from a certain person, I think there was only one, possibly two that I’m not sure how I’m going to be able to get that information. But I think for the most part, I’m going to be able to clear it out. It’s just going to take time and effort though. That’s the part that sucks.
Rob: That’s the thing. These are those fixable problems that are a ton of ground work to get done. It’s like, “I could have saved myself hours taking through this thing if I’d remembered to put the email address.” I have done this plus way worse. These are things that happen as you’re moving fast and doing a bunch of stuff. That’s brutal.
Mike: Oh well, I got to do what I got to do, though.
Rob: Yeah. My guess is you will never ever again forget to put an email address on a form like this.
Mike: Like I said, I don’t think I forgot. I think it’s accidentally deleted.
Rob: It deleted itself, yeah. From my end speaking of applications, the TinySeed application process ran for a month from mid-January to mid-February. I guess around four weeks. We got just under 900 applicants. It was a lot more than I thought. I was ambitious in hoping we’d get 400. I had heard through the GreatFind that a lot of more well-known accelerators get 500 to 700 depending on location. I’m sure Y Combinator gets more than that I’d imagine. It’s a big number and it’s what I’m very happy with.
It also creates what we call a good problem to have. The good problem is we have a lot of applicants. The bad problem is, I’ve been sifting through almost 900 applicants for the past two weeks. It’s just a lot of work. I’m not complaining obviously because this is what I would want to be doing, but it’s definitely going to be a process to get through all these. I already started having conversations with founders as I mentioned a few weeks ago. It’s going well.
Mike: Awesome. The only other thing on my side is that I’ve got an upcoming webinar that I’m going to be doing for hr.com which is kind of, I don’t know, you look at those 2-letter domain names and you’re like, “Wow,” it’s nice that I was able to finagle that. I’ll be doing a webinar for them on personalized email strategies to drive traffic, engage leads, close deals, and more. That will be on April 29th and I’ll link it up in the show notes in case anybody’s interested.
Obviously because it’s for them, their audience tends to be people who are reaching out to HR professionals in that particular space. They have a couple of different audiences, but one of them is the HR reps themselves, and then the other one is people and vendors who are trying to get in touch with HR people. This is basically aimed at those people who are trying to get in touch with the HR reps. It’s more of a general presentation that I’m putting together for them. It could very well be applicable to people who are listening.
Rob: We will link that up in the show notes.
Mike: I know I did the intro today, but what are we talking about?
Rob: Actually, we designed the entire outline around a listener question. I’ll play the voicemail in a second, but it’s about what are the key performance indicators or KPIs. By the way, I hate that term. I feel like it’s such an MBI, I hate it. It’s a shorthand that everyone understands. What are the numbers, the metrics that you should be tracking when launching and growing a SaaS app. Let’s dive into the voicemail here.
Adam: Hey Rob and Mike, I’m Adam Hawkins. Thanks for running the show, it’s been awesome. I’ve learned a lot from you over the past few episodes and I appreciate that both of you mention metrics and discuss these app businesses. One of you mentioned that you needed to have X thousand visitors on your landing page to pull your funnel in a previous episode. That really got me thinking of a fellow bootstrapper. Here’s my question, what are the KPIs and target values in launching in SaaS? I’m kind of thinking something along the lines of numbers that will keep me on track in launching my own SaaS. That’s all for me. Thanks guys and keep up the good work.
Rob: The first thing I want to say about this is, when we make statements like you need X thousand people to hit your landing page to validate or whatever. Often that’s a rule of thumb and it’s something to start from, but please don’t take that as gospel. I think in the past we’ve said you need 30 people, or you should talk to 30 people and have them say yes to your product, and consider that validated.
With Drip, I only did 10. It just depends. It’s all a spectrum. It’s like a risk tolerance. These numbers are not set in stone. None of this stuff is set in stone. With that said, there are rules of thumb. From doing this for 15 years, you start to see patterns and you know that a metric is out of whack if, let’s say I have a SaaS app that’s $50 Bucks a month, I ask for a credit card upfront, and my trial to pay is 10%. I know that is way too low and we have a major problem in our funnel.
That’s what we’re going to talk through today. These loose ranges when I see an app performing at 40% versus 60%, how we think about that, and how it indicates where you might have an issue in your funnel. It really helps you figure out what to focus on, because at any given time, you’re going to have one or more things that are just going sideways with your business. It’s just the nature of doing startups. You’re always that duck on the pond where above the water, you look like you’re just gracefully moving along, and under the water you’re just paddling like crazy to stay afloat. Your numbers are sideways and you got to figure out what do you focus on.
That’s really the point of this episode. It’s to try to give you some guidance so that you’re thinking about it as someone with a background. Even if this is your first time that you’re kind of taking the wisdom and the rules of thumb from us. Basically, folks who have seen these SaaS apps, seen a lot of numbers, know what a healthy SaaS business looks like, and know where to focus on to help improve them.
Mike: Yeah. As you said, these are guidelines and general patterns. It doesn’t necessarily mean that if you are in this range, then things are going great. I think one of the big drawbacks of using this information as gospel is the fact that you never really know whether or not you have room for improvement or how much will you have room for improvement. If you have this general range, let’s say it’s between 2% and 4% for any given number, and let’s say you’re smack in the middle at 3%, that seems reasonable.
There’s probably other areas in your business that you should be focusing on, but is it possible that that number could be 6% or 8% depending on your type of business or the vertical that you are in. The answer is absolutely yes, it could be that high, but you don’t really know unless you are directly comparing yourself against other businesses that are similar to yours.
Again, these are general guidelines. They are helpful in terms of determining whether or not you should continue to focus on that area. Maybe you should, but chances are good that if you’re in the general ballpark, I’ll say that there’s other things you should be going to look at before you come back and try to optimize and double down on whatever that particular thing is to improve it.
Rob: That’s the thing, if you’ve ever gotten a piece of mail from your city water quality control board, they’ll show you all the lead and this and that, and then they’ll show you the acceptable ranges, because without the acceptable ranges, you have no idea what the numbers mean. It’s like one part per million of lead. Does that mean anything to you? It doesn’t to me, so then you want to see the acceptable range, or if you get a blood test, Mike. I know you’ve never had any test on you.
Mike: Of course not.
Rob: I’m curious. You’ve talked about it on the show, that’s why I’m bringing it up. I get a blood test every few years or whatever. There’s all these numbers that mean nothing without that guideline on the right that this is the normal range. That’s really what this is trying to do. I don’t want to over couch this and say, “These numbers? We’re just going to ballpark them and it don’t really mean anything.” They do mean things, but there’s always the caveats of, if you’re selling a $19 a month SaaS—I will try to call those out as we go through because I’ve sold $19 a month SaaSes—and then if you have one that’s $500 a month, the numbers are going to be different. We’ll try to talk through those differences as we go.
Mike: We’ve talked about KPIs and various metrics in a few other episodes. The first one was episode 112 where we talked about the startup metrics for Pirates and that’s based on AAARR. Is that what it is? I forgot.
Rob: Yes, something like that. It’s either AARRR or AAARR, I forget which it is.
Mike: I think it’s AARRR. There’s another one, Episode 187 where there is a whole slide deck that we went through from Andrea’s Cleaner. That slide deck is around 150 pages or so. It’s really in-depth. There’s a lot of good information in there. It specifically talks about the fact that your KPIs are going to change over time and very early on, there are going to be data points that you’re looking at. You have to be really careful about how you interpret them because the numbers are probably going to be much smaller, and your product market fit isn’t quite right yet.
There’s a lot of caveats to those very early numbers. We will call them out as well, but that’s something really important to keep in mind when you’re trying to figure out whether or not you should optimize something more or move on to something else. The third episode is Episode 231 with Ruben Gamez where you and him at the very end of the episode started talking about some of these general ranges that we’ll rehash in this episode.
Rob: I’ll be interested to see how close the ranges are. We literally did it off the cuff in that episode, and I’m kind of getting into it off the cuff again today. I’m hoping that the ranges are pretty close. What I’d like to do is start at the top of the funnel. Going from unique visits to your site and just go all the way down the funnel. Visits-to-trial, trial-to-paid, turn, blah-blah-blah, and go down the line.
So, starting at the top of the funnel with unique visitors. This is an interesting one because I don’t think there is a KPI for this. You want the most unique visitors you can get that are targeted at your website in any given month. I have had software products that get literally 1500 unique visitors a month that sold upwards of $4000 or $5000 a month in software. Now, it was not SaaS, it was a $300 one time purchase. The traffic was targeted, it was in a pretty tight niche, and it obviously converted quite well.
Whereas most SaaS apps I know, you’re going to be priced between let’s say $20 and $100 a month for your starting tier if you’re doing self-service. You really want to start getting into that 5000-10,000 uniques a month to try to start scaling it up. The challenge here is, if we’re talking about day one and you’ve just launched, unique visitors doesn’t have much meaning yet. What you really want to do is you’re still trying to validate your product, you’re trying to find product market fit, driving more traffic, trying to split test, and look at these aggregate numbers isn’t helpful yet.
In the early days, you should probably couch all of these metrics with that. In the early days, your numbers are going to be so small. When you have 10-20 customers and one of them turns, that doesn’t really mean you have 5% or 10% churn rate. It does technically, but it’s meaningless because you don’t have enough numbers to accurately measure things. I think that is another thing. Early day KPIs are different than later day KPIs. Early day KPIs are really how many people am I talking to? Do I think we have product market fit? Is churn going down? These are marketing resonating.
There’s a lot more qualitative questions that I ask in the early days than in the later days. You’re looking at more quantitative, because you’re just past that point. It’s hard to say for everyone, but I feel like when you hit about somewhere between 5000-15,000 MRR, that’s where I start to shift into that. You probably have 100-200 customers. That’s where you can start having numbers that are more easily measurable and you can start seeing trends instead of seeing these very spiky results because the numbers are small.
Mike: I think one of the interesting things about the number of unique visitors is that, as you said, all those not edge cases but those different factors that play into it like price point, how long it’s been around, do you have product market fit, all that kind of stuff. One of the really challenging things when you’re that early on is that a link on Hacker News, for example, can drive traffic through the roof and it is untargeted traffic. It’s good to get it and it’s nice to see that there are more eyeballs coming to your site, but what it does is it really heavily skews your metrics, because those people aren’t necessarily there as interested people, they’re there because you got a PR bump and that really seriously starts skewing your metrics.
You really have to be careful when you’re looking at everything else just because if you’re only averaging let’s say 3000 views a month, and then suddenly you get an incoming link and you end up getting 5000 over the course of a couple days, that 5000 is going to overshadow your typical 3000. And because it’s untargeted, your visitors trial and your trial-to-paid, all those numbers completely gets out of whack because of that. It skews them. It makes it a little bit more challenging to figure out what is my actual visitor-to-trial rate. You have to look at that and say, “Well, how well targeted was that traffic? Do I apply a percentage to that?” Well yes, 5000 people, but maybe only 0.5% or 1% of them were actually targeted then you multiply out from there and figure out what your actual visitor trial rate would be.
Rob: Yeah. The nice part about all these metrics but specifically visitor trial is, the more visits you get and the more trials you get, just that the further along you get, it does standardize. I used to be able to look in Google analytics or whatever dashboard I was running and just instantly know if it was a good number. My range for this is for SaaS, I want to specifically say that. For info products or for onetime purchases, you can get dramatically higher numbers, but people signing up for SaaS apps with a credit card upfront, I want to be between 0.5% and 2%.
The difference there could be a lot of things. It can definitely be your messaging and your marketing. It can be the quality of your traffic. It can also be your price point and that’s a big one. If I had an app that was $10-$20 a month for the lowest pricing tier, I would want to be closer to that 1.5% and 2% number of unique visitors translating into trials with a credit card on file. If I’m selling something that’s $50-$100 a month as the lowest tier, I’m going to be looking between 0.5% and 1%, 1% would be a pretty nice number to get on that.
Something else to think about is this is for one funnel. That’s like the visitors and turning into trial. You can also have a longer funnel that visitors turning into email subscribers and then you know how many email subscribers, over time, turn into trials. You can look at that number. If you have a good converting landing page, let’s say you’re sending either ad traffic or SEO traffic, and you’re trying to squeeze for an email address, and your offering something of value to folks with download in exchange for that email, I want the range to be between about 15% and 25% of people entering their email address on the landing page. I’ve had upwards of between 40% and 50% for certain calls-to-action with the really targeted traffic, but that’s pretty exceptional. If I’m below 15% I’m a little concerned and if I’m below 10% then I’m doing something wrong. The traffics mismatch or the call-to-action isn’t very good. If you’re going to do that, it’s a longer funnel, it’s a longer journey, but you need to then look at your email numbers in aggregate and see how many of these are turning into trials over time.
That’s where you need a good system with good tracking like Drip or I believe ActiveCampaign could do this. I’m not sure that Mailchimp, I haven’t used it in so long, I’m not sure that it’s easy to do that with Mailchimp. If you are going to go that route, you’re going to want to dial in the analytics at least to the point where you can have a relatively good insight into how many new subscribers are converting into trials. One other thing, if you’re not asking for credit card upfront and your unique visitor-to-trial rate is 5%, I’d say 5%-15%, but 5% is actually too low. I think I’d want to be more in probably 10%-20% range is where I feel comfortable. This one I have done very little because I tend to ask for credit card upfront. I have done tests with it and such, but I’ve talked to a bunch founders who run credit card free trials and that does tend to be the range.
Number three, the next KPI is of course trial-to-paid conversion. If I’m asking for a credit card upfront, I want between 40% and 60%. If I’m at 39%, I know that I have a problem. If I’m at 58%, I know that I’m doing quite well. I mean that’s really towards the top range. There was a time when Drip bumped above 60% at different times, then you know you’re kind of killing it and your onboarding is doing really well. When I took over HitTail, I acquired that in 2011, it was credit card upfront and the trial-to-paid was 15%, and so you know that there’s a major problem in onboarding. That was one of the first things that I cleaned up.
That’s why these ranges are fairly important is that you know you’re so out of whack there that if you fix that, you’re going to be going to be in a better position. If you’re not asking for credit card upfront, trial-to-paid, I would want to that one between let’s say 5% and 15% is probably a relatively decent mark. I mean I would want to be between 8% and 15% myself, but you’re just kind of a lot lower when you’re not asking for credit card, that’s kind of the nature of the beast.
Mike: One of the things that I think is probably the most challenging with trying to find out or to track some of this information is that when you’re very early on, these numbers are very misleading when one person cancels. If you’ve got 10 customers or 20 customers, having one or two customers cancel is a huge deal. One or two people who come through the funnel that don’t convert, let’s say you’ve got four of them through and not one of them converts, that’s 0%. Even having a couple after that, it doesn’t really put the number back to really where it should.
You have to eyeball those things and try to capture as much information from people who are leaving or not following through with the trial to figure out what it is that drove them away. Why did they not actually decide to follow through and sign-up for the service or continue using it. Use that information to try and figure out what it is that you’re supposed to do because the numbers are not going to be enough, especially early on.
Now, that’s not to say you shouldn’t track those numbers, just that they’re going to be misleading early on. Over time, it will get better, but those first few that come through, first 100-200 that come through, is going to be hard. You have to talk to people to figure out what the reasons are for them to move in one direction or the other.
Rob: Exactly. The numbers aren’t going to tell you the whole story. Especially in the early days. That’s something you got to dig into. The fourth KPI we’re going to talk about is churn. I’ve seen people look at churn as a blanket number. It really obfuscates what’s going on underneath. If you go to Amazon and you see that the average rating for something is 2.5 stars, but there’s actually 101 stars and 105 stars, I guess that would actually average to 3%, but you get the idea. 100 0 stars and a and 100 5 stars in average is 2.5%.
If you just have the 2.5%, it looks like a crappy product, but as it turns out with five and zero, the zeros are probably either misunderstanding, or there’s something wrong, there’s more information under that data. Churn I feel is the same way. If you look at your churn across your entire customer base, you’re missing some information. What I’ve typically seen the most success with is to look at your first 60-day of churn, and then your post 60-day churn, and separate those numbers out.
Sometime it’s up to 90 days, but really, a lot of people do an extended trial where they might enter their credit card. When the trial expires, they pay one month. They never get set up. They never get onboard and then they churn, but really what they did is they were kind of like a trial that didn’t convert to paid. I started seeing these patterns, it was before HitTail, but when I got into HitTail and really dig into the numbers, it was a huge difference. Literally in the first 60 days, especially if you’re asking for credit card upfront, but it can happen both ways, you might see churn upwards and a per cohort of between 20% and 40%.
It can be a huge number of people that are canceling there and 40% I start to feel uncomfortable, 20% I actually don’t feel terrible about that for 60 days. Then post 60 days, you want to get your churn obviously as low as possible, but I feel most comfortable in let’s say for lower priced products that are not enterprise, not annual contracts, I think between 5% and 8%. If you’re at 9% or 10%, it’s pretty brutal, 8% is about the top in where I feel comfortable. Realistically, if you’re a big SaaS app, I think WP engine probably has negative churn at this point.
I remember Jason saying in the early days, they had 2% churn. I’ve had apps that have 2% to 3% churn in that post 60-day, post 90-day mark. That’s where you want to get to. The problem is, the lower your price point, the higher your churn tends to be. That’s why a lot of folks go up market, a lot of SaaS apps do. If you can, you want to get to net negative churn where you do churn out 2%, 3%, 4% but just the growth in your existing customer base of people upgrading actually wipes out the churn. It’s a crazy thing. I’ve seen it firsthand. It just catapults your growth. Those are my loose numbers that I keep in mind when I’m looking at churn rates.
When I see someone come through with a 12% monthly churn rate, I think that’s the first thing I would attack. If I see someone come through with a 3% churn rate, I think that’s amazing. I believe you have a product market fit depending on how many people you’re putting through your funnel. Let’s look at your other metrics to figure out where we should focus position not be on churn, if your number is that low.
Mike: One thing that we should probably drill into a little bit is the idea of that negative churn, because I think that some people might get confused about that. It’s not that you’re gaining more users than you have actually signed up. Although in some cases that may actually be true, because if somebody comes in and then they invite somebody else on their team, initially they sign up with one account and then they may fall into a different tier. That’s part of where that negative churn comes from because people are essentially upgrading to a higher tier paid accounts.
Whether they’re adding users, or going to a new pricing tier, each of those things can qualify. A question for you Rob, because I’m actually not sure about this, does it qualify if they upgrade from a monthly plan to an annual plan? I don’t think that it does.
Rob: No, it doesn’t. The annual plan should be divided by 12 and added to your MRR anyways. It’s not net revenue. It really is actual MRR that I’m looking at. I’m glad you brought this up because I should have couched this when I was talking about churn and the churn you should focus on is revenue churn, not user churn or customer churn. Revenue churn is when you look at, we started the month with $100,000 in MRR and we lost $10,000 in MRR, so that’s a 10% revenue churn.
First is we started the month with 1000 customers who are paying, 1000 credit cards on file, no matter how many users are within each account. We started with 1000 customers paying us and we ended the month with 900. That’s 10% user churn or customer churn. I’ve always looked at both. By far, the most important is revenue churn. I don’t think you could have negative customer churn, because you can’t add more customers than you signed up, but you can have a net negative revenue churn. That’s where you only lose a small amount of revenue from people canceling, but the rest of your customer base is either so large or they naturally move up tiers and pay you more for stuff.
Drip is a great example of this. As people’s lists grew, they naturally moved up in tiers automatically. There was just a natural movement towards paying more to your ESP. Those are the kinds of businesses that can have negative churn. Slack probably has a negative churn rate, because teams do tend to grow. Yeah, companies go out of business, there are layoffs now, but there are layoffs from time to time in your customer base.
In general, teams that sign up Slack and start paying, I’m guessing these are startups that are adding more and more people and Slack charges $6 or $8 a month per person. I would guess with the stickiness of Slack, they’re kind of gross churn is very low. I bet their net churn including expansion revenue is what it’s called, as people expand and hire tiers is quite substantial. That’s the holy grail of SaaS.
I know people say, recurring revenue is the holy grail of software, and that’s why SaaS is such a big thing. Net negative churn is the holy grail of SaaS if you want to get into it, because that just snowballs and it means that if you do nothing, your company grows. It’s crazy to even think about it when you actually look at charts, and you look at how the numbers work out, you look at graphs of it, once you hit net negative churn, you don’t need to do much. I shouldn’t say you don’t need to do much, but you need to do a lot less to grow a lot faster is what happens.
Mike: Is that where the passive income comes in?
Rob: Passive income, money wisely. Let’s run through the last few pretty quickly. The fifth thing is MRR and that’s just your monthly recurring revenue. As we said earlier, it can get tricky if you have annual plans, you’re supposed to technically divide by 12 that annual plan and then add it onto your MRR. Hopefully you have a software that can do that like Baremetrics or ProfitWell. MRR was the number that I tracked religiously. Every night I would get an email after billing ran and it would tell me what MRR was, what the daily billing was, and all that stuff.
It’s kind of a no brainer when you think all of us track it and it’s something that talks about the health of your business. The other one is MRR growth. I always looked at this as dollar rather than percentage. A lot of people talk percentages, but it’s like when you’re at $1000 MRR, or you’re at $100,000 MRR, the percentages obfuscate so much stuff. Truly, how many dollars did you add and you want to look at not just net add, but you want to look at how many did you lose to churn, how many did you add from new customers, and how much did you add from expansion revenue. Seeing those three different numbers and then the net. There’s four different numbers that you can get into and a lot of people who are really into their SaaS numbers know these numbers cold and know where they want to be with them.
The last one is ARPU, average revenue per user. I like to call this ARPC, which is average revenue per customer, because frankly when I’m charging people money, I think of them as customers, not users. Like Drip, one account might have 20 users in it, but to me that’s a single customer. It’s apples to apples, but it’s just a terminology thing. Average revenue per user, average revenue per customer.
Frankly, if your average revenue per user is $10 or $20 a month, you have a nice little business. You can grow that to something, but the odds of you growing that to a multimillion dollar business are very low. I’ve seen businesses with very low churn, good trial-to-paid, and average revenue per customer of $10 or $15 a month. I think that’s going to be a great 30K MRR business. That’s not a bad business to have, but you’re going to struggle to get past that 30K or 50K mark. If you want to build something into a 7-figure business, not across the board, not unequivocally but in general, you need that average revenue per customer to be upwards of that $40, $50, $60 and up price point.
You want to be in triple digits. You want to get there eventually. You don’t have to be there on day one, but aspiring to get into that $100 to $500 per month, per customer. That’s where you can scale, it’s so much easier to scale a business into that seven- and eight-figure range. Because you have the money to acquire customers, the payback is fairly quick. If most people are paying you $200 a month, you can spend quite a bit on ads and salespeople. Frankly, churn will be lower. It’s always counter intuitive to say this, but lower priced products, lower ARPCs tend to lead to higher churn.
Mike: Something we didn’t talk about when we were talking about the revenue churn between the first 60 days and then post 60 days was that, if you do any sort of a pricing change that can have a massive impact on what your revenue churn looks like. If you raise prices, let’s say by 50%, make things simple. If you raise prices by 100%, you double your prices. If you lose less than half your customers, then technically you’re coming out ahead because you’re making more money. In theory, your infrastructure costs have probably gone down. The obvious downside of that is, potentially losing customers after that first month or after you initially make that change, assuming you didn’t grandfather them. At least be a little cautious of or cognizant of, because that that can seriously change some of those numbers.
It’s not something you have to worry about, as you’re launching, but down the road when you are calculating these numbers and try to figure out how to grow the company, those are things that you should at least bear in mind when you’re trying to figure out if you’re running into financial issues and you need to be able to make more money. You can just do some calculations and say, “Well, if I raised by 10%, this is how much we could get, and how many of those customers are we going to lose the because of us raising those prices.”
The other thing that I was thinking about was that, all of this information sounds great to be looking at, but how do you actually go about tracking it? There’s a lot of different tools out there that you can use. Sunrise KPI for example is one. We can look this up in the show notes. CYFE is another one. Honestly, the simplest thing to do, instead of going in and trying to figure out a bunch of different tools and things to integrate, you can just use a spreadsheet. Whether it’s a Google doc or Excel spreadsheet, it doesn’t really matter. Throw your information in there, maybe update it. You can do it as much as once a day, but you could also do it once a week or once a month, and it really gives you a sense of where things are at and what you should be focusing on. If you’re not plugging this information in and at least looking at it, then you’re never going to do anything about it. That’s the big problem that most people run into is they just don’t even look at these things or they don’t update them and keep track of them.
Rob: Yeah, that makes sense. I mean, I’ll admit with pretty much all, I think without exception, all the SaaS apps I’ve ever run, I’ve built a little scrappy page and these are just simple queries. You should have all the stuff in your own database, I’m imagining. I always did and it’s a little bit of a pain. Churn can be a pain to calculate that can take some time, but I remember hacking together a dashboard with most of these numbers in a few hours, one evening.
I was listening to music and have the lava lamp on sipping Bourbon and I just hammered through these one at a time. I really don’t have a very impressive life, do I, Mike? It’s kind of sad that that would, but it was a fun night, I’ll admit. Because once I had that, I was looking at that thing every day. It was super cool. Then by the time we were launching Drip, I remember telling Derrick, “These are the numbers I know I need. Let’s figure them out,” and it did take him probably a day to get the initial version done.
We had to kill a day of developer productivity to do it, but it was really nice to (a) be in control of those, to (b) have a all in one place, and to have them displayed in exactly like the order that I wanted. I mean, we even have trailing 7-day trials, how much each day it had, have it trailing 30-day. Then we modified it and adjusted it over time. The other cool thing is that whole dashboard and admin area became a nice training ground for new developers. We’d bring in like a junior dev or whatever. You may not want them to push production code into your app right away, because it could break something for customer, but that becomes a nice playground to be like, “Hey, let’s add this number or let’s tweak this,” and it becomes this code base that can get screwed up. If the admin console crashes or has some weird thing that happens in it, it’s not the end of the world, because it’s just us using it. That was kind of also a bonus to having that all built out.
Mike: I’ve daily email sent to me from Bluetick just to see a lot of those different pieces of data.
Rob: It’s a good way to do it. I always had it as a shortcut on my browser but it’s same thing, and that’s your pulse. We actually called it, the page that displayed all this, we called it Pulse in Drip. I always thought that was a pretty fitting name, because it’s the pulse of the business.
Mike: Got it, cool.
Rob: Forty minutes on SaaS Metrics, KPIs. I think the next episode needs to just be all jokes. You and I need to just talk about movies and jokes.
Mike: I don’t know if that’s going to be a very compelling episode.
Rob: That would be even worse than this one. All right. Let’s call it a wrap. I guess I’m the wrap guy today.
Mike: Yes, you are.
Rob: This whole episode was outlined based on a single listener question. If you have a question for us, you can voice mail 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 in 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 433 | Managing Your Emotions, the Cost of an MVP, and More Listener Questions
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including managing emotions, cost of an MVP, taking a business idea and more.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about managing your emotions, the cost of an MVP, and more listener questions. This is Startups For The Rest Of Us Episode 433.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Well, just wanted to give people a reminder that today is the last day to apply for the Starter Edition scholarship and I said before, we’ve got over 25 to give away. We will link it up in the show notes, but definitely go check it out if you’re interested at all in coming to MicroConf Starter Edition. Just fill out the application, it doesn’t take more than 5-10 minutes to do, and we will have those within the next couple of days. The notifications will go out and let people know who’s been awarded the scholarships and hopefully everybody who is able to accept them. If not, then we’ll go back to the pool and go to the “runners-up” to see who else is available. Obviously, some people’s travel plans change or whatever. So, we’ll make sure that if we’re going to give somebody a scholarship, they can actually use this. It may take a few extra days.
Rob: Yup. Head over to Episode 433 on startupsfortherestofus.com for a link to that in our show notes. For me, not a ton of updates. Was on vacation and now, looking forward to some home construction being done on our house here in Minneapolis. We bought it about eight months ago and during the escrow process, an inspection picked up some anomalies in the stucco so we got a credit to have those fixed. All that’s fine except for the fact that it was supposed to take two months and it’s been like seven months of construction.
Things are getting put back together now but it just kind of wears on you and it can be loud. You and I’ve recorded in the past few months, I’m having to mute, we have to edit out things, and there’s people in my house all the time. So, I’m really looking forward to that being done. They had to replace some windows and re-stucco things. They can’t re-stucco things because it’s too cold right now, so they have to wait. There’s scaffolding and such. It’ll still be up, I’m guessing, for another month or two until it warms up. At least the inside can be completely done and all the outlets work again. They had to rip receptacles out and turn the power off on certain parts of the house.
Given that two of us work from home and we homeschool the kid, a lot of us are home a lot of the time. I think if I was going into an office, it will almost be easier because it will just be done while we’re not here. But when I’m talking to you on this podcast and then two construction workers walk in and start painting the walls, I’ll admit, it’s a little distracting.
Mike: You think?
Rob: Yeah. So I’m looking forward to that. That’s really in the kind of end-game right now. They’re just putting trim on things, and hanging blinds and such. I’m very much looking forward to getting past that.
Mike: Yeah. Having to redo anything in your house just really sucks. It’s just the worst.
Rob: Yup. Always costs more. It’s like software. Always costs more than you wanted to. It always takes longer to do than you think.
Mike: Yeah. So, what are we talking about this week?
Rob: Well, we have some listener questions. We’re going to kick us off with a voice mail. As always, voice mails rise to the top of our listener questions stack. This is a good question about the emotional side of running a startup and what to do when you make a change and it makes people angry. How to handle that?
Benjamin: Hey guys. It’s Benjamin from Philadelphia. I run a company called Commit Swimming. It’s a small SaaS app product. Recently, I raised prices and I’m looking to hear you guys thoughts on some feedback that I’ve gotten. I thought I did everything that I could to properly communicate to customers, like that the price increase was coming, why it’s happening, and what it was going to be. I also communicated clearly what it was then a couple of months later.
I inevitably would like about 1500 paying subscribers. I’ve gotten a few pretty nasty emails back on the topic and it’s one of those things that I just feel kind of down as a founder. It wasn’t like a money-grab situation. It was in order to pour more money developing features for the same customers that I’m serving. That type of emotional backlash can really take a toll.
I’m just curious to have a discussion around. I could hear Mike and Rob’s talk on what situations have you come across that made you feel like, “Oh did I do something wrong? How can I right this wrong?” and how do you deal with that internally? Another founder with all that emotional baggage riding on you, either in the sales process or in a situation with increasing prices or dissatisfied customer, that feeling that you just messed up and you disappointed somebody. How do you handle that internally and then how do you try to make it right with the customer?
I’d love to hear your thoughts, in particular, the emotional side of it? Thanks again for everything you guys do. I love your podcast, I love everything that you have done so far for the community, and I look forward to hearing your thoughts on this. Thanks guys. Bye.
Rob: So price increases huh, Mike? Nothing ever goes wrong with those.
Mike: Of course not.
Rob: That’s a good question. Obviously, we could talk about the price increase specifically, but that’s not really his question. It’s just that, what do you when people get mad. Did you do something wrong, didn’t you, and how do you deal with all that? What are your thoughts on it?
Mike: I think that the one piece of advice I have that trumps everything else is context matters here. If you were to take a few steps back and try to be extremely objective about what the situation was and what happened, does it makes sense for people to be extremely angry? The number of people has a big impact. He says he’s got 1500 paying subscribers. Well, how many nasty emails did you get from that? Was it 5 or was it 500? That’s a big difference.
Rob: Yeah. He says it was only a couple, which is an indicator, right?
Mike: Exactly. That was my point was that when he said he only got a couple of emails, to me that says that it’s probably not a big deal. That’s only partially related to his question because the question was how do you deal with the emotional side of it? My point here is that you should take a few steps back to make sure that you’re being objective about how you addressed the situation, how you brought it to them, how you let people know, and then is their response justifiable? If it was 500 people complaining, then obviously that means you probably screwed up. If it’s only a couple and even if they’re extremely vocal and extremely upset over, it’s probably not your fault.
I’ll point to an email that I got literally two days ago from Backblaze saying, “Hey, just wanted to let you know, we’re raising our prices.” They’re raising them from $5 a month to $6 a month. I literally just got done using Backblaze. To make sure that my entire machine was backed up, I’m going through and pulling down files that I wasn’t sure whether or not would be included in my end of backup that I did at home, and I’m extremely happy with it.
So when I got this email saying they’re going to increase it from $5 to $6 a month, that’s technically a 20% increase. But at the same time, I am ecstatic with that. You can raise it to $7.50 and I really would not care. I would pay you right now again. They even have a button there inside the email that says, “Hey, you can purchase an extension and essentially grandfather yourself in for the next two years at the original price that we had put forth back in 2008,” but they went through and they laid out their entire justification for it.
Again, that’s actually a little hack that I would say you can offer to them to extend their current pricing by a predetermined amount of time. If there were 5 or 10 people who emailed you and they were extremely upset about it, it has nothing to do with you. It’s about them. It’s about their situation. Whatever you did was like the straw that broke the camel’s back. It has nothing to do with the specifics of what you did or how you could have done things differently. It’s there’s probably something else going on there that you didn’t know about, you couldn’t have known about, and quite frankly there’s nothing you could have done about. I probably wouldn’t worry about it if it fell into that category.
Rob: Yeah. There are rules of thumb when doing price increases, specifically, and we’ve talked about it on the show, I had tweets written about it barely four weeks ago, and I don’t think that’s the point of this question. The point really is what you said, which is gathering context and trying to look at it rationally when it’s an emotional response that we all have because we relate to other people, we want to do well, we want to do right by our customers, and if you get even one or two really nasty emails, it can bring you down, even if you did everything right. Everything is right as you could possibly do it and communicated it well and all that stuff.
Just at any point when you make a person or some people angry, I think the things that I always remember is to number one, to apologize, number two, if it’s really a super small minority then to hold your ground. That’s something that you could always evaluate. If someone says, “Hey, I’ve been a customer for 10 years, I recommended all these people, and I use it when I teach my class at this college or blah-blah-blah,” then maybe you do make an exception.
Overall, if it’s just someone who’s just angry because you’re doing something that you need to keep your business afloat or you need to continue running your business, then you probably just need to apologize and be like, “Hey, maybe there are other options for you.” That is what I found over the years is the people who tend to get all huffy about things, get huffy about everything. They’re the most vocal ones and they’re frankly people who you would rather not have their money. I would rather have them use a competitor that can be something that you suggest to folks.
That doesn’t cover really his question which is, how do you handle it mentally and emotionally. I think there’s a few coping strategies that I’ve learned and developed over the years. The first thing is try not to take it personally. Easier said than done but really step back and say, “Look, this person doesn’t know me. They don’t know what’s going on. They’re just typing stuff. They wouldn’t say this to my face at a conference or whatever.” That’s the first thing. Second thing is get a sanity check on it. This is something I would bring up in my mastermind group. I would throw this out, “Hey, this is what’s happened, this was the email, and it was brutal.” You are going to have camaraderie. You’re going to have that community from people who are saying, “Yeah, this happened to me, too,” and then it normalizes the experience.
Let’s say a couple of times a year, I’ll get an email from a founder who’s like, “Oh my gosh. This person’s totally railing on me on Twitter about XYZ. Tell my what I should do?” or like, “Help me,” or whatever, and I will basically give them advice like, “Yup, this has happened to me. This is how you deal with it. It sucks but it happens to all of us.” If you’re doing anything interesting out in the world, you’re going to have people get mad about something at some point. That’s not a justification for pissing everybody off all the time, but once in a while you’re going to do something or say something or make a move that’s going to do it. Realize that that comes with doing interesting things and realize that it’s part of the course and it’s something you have to develop a thicker skin about.
Those are the basic open strategies and that’s probably what I would do. I would also not send flippant or rush responses. Boomerang or snooze those emails for a day to give yourself time to think about it. Don’t ruminate on it. Don’t sit there and stress about it constantly. It’s not as big of a deal as you think.
I think on the flip side is, did the person change and you have 100 people email you, like you said, Mike, 50 or 100, well then realize that you may have done something wrong and try to figure out what that is. Is it really unfair or did you just not communicate it well? Can you go back and communicate it better? Or do you need to back away? Do you need to undo it?
Intercom did this 3-4 years ago, where they were going to double or triple their prices and they grandfather for 6-12 months. People were furious and there was a huge uproar. They actually backed down and they didn’t raise their prices. Then and there, I think raise them two years later and they did the same thing but they communicated it better. It still made people mad but don’t give them an excuse to be mad. They’re going to be mad about a pricing change, anyway.
Check the boxes of grandfather if you can. If you can’t, then you really got to communicate why the product is better. There’s all these steps and mitigation to raising prices that I would do. But really, it’s with experience and going through this a few times, you just learn to not take it so personally and to try to get a realistic gauge of, anytime anyone’s mad it doesn’t mean you’re wrong.
That’s the thing. A lot of us take that on like, “Oh someone’s mad at me. I did something wrong.” That’s not necessarily true. There are people who are just mad at about everything all the time and today is their day to be mad at you for something that frankly probably is better for all of your customers in the long term. If you have more money to keep the business afloat and that build the app out and whatever else, and if no one else had an issue with it like you said, Mike, with CrashPlan, $5 to $6, you just don’t care. Netflix raise their prices a dollar, I just don’t care because it’s a good service. I’m going to keep it and I’m not going to get in this fake outrage over $12 a year.
Mike: Another strategy is, if you have objectively determined that you are not at fault and it is really the other person there, not you, you kind of step away from those things. If it’s emails that would come in, hand them to a support rep and say, “Just respond to this as nicely and politely as you can.” That way, you’re not the one who’s suffering the mental anguish over having to respond to those because honestly, you’ve got other things to deal with in the business than replying to a support email from somebody who is going to cancel anyway.
Rob: Thanks for that question. I hope our thoughts were helpful. The next question is from Rodrigo Pontes and his question is, “Should I target the manager or the company?” He says, “Long time fan, first time caller.” Actually he said first question but long time, first time. Have you heard that, Mike, on the morning DJ stuff?
Mike: Yeah, I have.
Rob: Long time, first time. Long time listener, first time question asker. “I’m a solo founder bootstrapping a SaaS web app called OneOneMeeting, oneonemeeting.com. OneOneMeeting is a note-taking app exclusively for one-on-one meetings. It allows you register meeting notes, commitments, goals, and share it between the leader and the team members. So, it’s specifically one-one-one between managers and people that report to them.”
“What should I do in my early marketing efforts? Target individual managers that could buy OneOneMeeting for their own use, or target HR executives that could implement it in the whole company? For more details, I have two paying customers that bought it for their own use and I have about five colleagues of my day job employer on a free trial and a scheduled meeting with our VP. They try to demo it and try to sell a corporate account for my whole company. I’m still at my day job, so I have limited time to do sales and in-person presentations during work hours.”
What are your thoughts?
Mike: This is one of those questions where I’m not necessarily the target market, so my advice here should be taken with a grain of salt. I think if I were to say one way or the other you should target this one or that one, the reality of the situation is I don’t really know, but what I would say is that there’s a couple of different ways I would try and find that out.
I think that the question or the point about having limited time to sales and personal meetings right now is a limiting factor, I would try to go outside of your current network and go to, as you said, the colleagues of your day job employer, go find out information from those people and try and narrow down, as quickly as possible, which of these two you should go after. Then from there, you also want to branch out and ask every single person who’s using it, if they would introduce you to somebody else who might be a good fit for it.
If you can get three introductions, that’s great. Always ask for three, settle for one, but push for that one. This is a one-to-one meeting note-taking app, so if they’re not willing to introduce you to one other person, then they’re probably not willing to actually use it to have these meetings anyway. So, I would go down that path and try to figure that out.
The other thing I would comment on is that, because it’s so early on, I don’t know if you really know what your pricing model is actually going to be yet, like individual plans versus corporate plans. I think those are kind of up the air and exactly what the pricing around those should be. I feel like it’s too early to tell. I seem to think that you need to go down a little bit further in the rabbit hole and try to figure out where it’s going to resonate and get traction before you start focusing on one or the other.
Rob: This wouldn’t normally be a clear-cut decision except for the fact he said his time is limited during the day. I think that if you go after a HR execs, they’re getting so hounded by people trying to sell them stuff, that they really are going to require a lot of hand-holding and a lot of proof to push it through.
I feel like you should go with the more guerrilla approach, like Slack and Dropbox do, where they infiltrate at a lower level in the org chart and then once you’ve got a bunch of people using it, then you ring them up and you say, “Hey, I’ve noticed that you have 10 different managers using this. You want to have good management of this, an insight, blah-blah-blah. You know, you need to get our enterprise account.”
I don’t know if that means that it needs to be free for one manager at a time or whatever. You look at Slack and you look at Dropbox, and that’s how they’re able to do that. People can sign-up essentially without a credit card and you can really infiltrate the org that way. You have to find if managers have a credit card with some type of limit on it so you could make it relatively inexpensive, but once you actually do sell their account to the VP of HR, that there would be a need to be a big step-up in price because selling a product like this is going to be hard to scale at a low price. Although if you do per seat pricing, then it should naturally scale itself because the successful companies tend to be growing anyway, and if it works, they’re going to want to add more and more of their teams on twit. I could see the whole $3, $5, $7 per seat pricing working if you can get 50-100 people at an org using it.
All that to say, if I were in your shoes, I would personally go after the managers because I think the managers are the ones that are going to get the value out of it. The person whose pain point it really solves in the most direct way and the managers are the ones that can start implementing it without a bunch of bureaucracy and approvals and all that stuff. If they can just run wild with it and prove it out, then it’s a much, much easier sale as you go up the chain. Thanks for the question, Rodrigo. I hope that was helpful.
Our next question is about taking someone’s business idea. I’m going to leave him anonymous. It’s interesting. He says, “Little background about me. I have a Bachelor’s of Science in Computer Science and Business Administration. I’ve been working on IT since 2006 as a developer and a manager. Two years ago, I worked for an online company that I found to be really interesting and right up my alley. I applied, I got hired on as a developer to help maintain and update their current website. Come to find out that their new site was never going to see the light of day due to the fact that the manager overseeing everything wanted to keep adding useless features to the site. The site was from the 90s and was written in a language that is no longer supported and it can’t support more modern features that a growing business website needs. This really bugged me so I left the company.”
“Then one day I was talking to a friend over drinks and he said I should start my own thing so I did. From there it snowballed into a reasonable product that I think I can take to market. My question is, when I started with the company, I had signed an NDA and a non-compete valid for one year after I left. That one year mark is coming up in the next week. I want to start pushing content out to get things going. I didn’t work on anything on the site while I was there and I’m not using any code or tech from the company because I consider that stealing. Everything I’ve created is 100% from scratch and of a different language and technology stack than the one at the prior company.”
“Have you guys ever had to deal with anything like this? Looking at it either my point of view as the startup or as the old company with the 1990s website? Also, I want to say a huge thanks for sharing your experiences. You guys answered a lot of my questions on your podcast.”
What do you think about this, Mike? Do you fully understand what he’s asking? He’s basically launching a competitor to something and they’re outdated tech. I don’t think he’s asking an ethical question because I think he’s going to do it. It’s more the legal side of it? Can they sue him?
Mike: Well, I think a lot of what he said seems to be different from what he’s actually asking. My understanding of what he has said was he was hired to help develop and maintain the current website of this other company and he signed an NDA and a non-compete. But then he left and he’s coming up a year later for his NDA and non-compete no longer being valid. And the products he wants to build is what the company was developing. I don’t think it’s actually anything related to the website for that company.
Rob: That’s what I’m confused about.
Mike: Yeah. That’s what I gather as the situation is what he’s building is actually what the company itself produced and that his non-compete would be wide enough to cover whatever their product was and is the product that he’s building is that, although he was hired to just work on the website.
Rob: Let’s go with that assumption because I was confused as to was it the website the product? Is it just like a lead gen company, the website is the product. There is no product behind it. You just drive ads or you do SEO and then you get people to send in form, and then you basically can sell those leads. That’s what I was thinking but maybe there’s a software behind it and he’s replicating that. What do you think here?
Mike: There’s the fine between what is legal and what’s not in which it’s impossible for us to comment on the specifics of that if we were in that situation. I have been in this exact situation. I was in this situation with AutoShark, where I basically knew that the product that I was rebuilding from scratch was going to go away at some point in the future. My thought was if I were to rebuild it, I can essentially come in and replace the product that was end-of-life.
What I found was that the fear of being sued by a large company that has the ability, the resources, and the lawyers that are just on staff already, was paralyzing. That is always going to stick in the back of your mind and you will not get away from it. I don’t know how big they are, or I don’t know what they do, or I don’t know how much of an impact you would have on them, but for me, it was paralyzing. I had a very hard time separating the business and marketing stuff that I was doing.
My situation was probably complicated because I was also still doing consulting work for them. It wasn’t really a non-compete because I was a separate company anyway but I was a subcontractor for them. So I was barred from going back to those existing companies that I’ve already done consulting work for which was installing the sort of software but then I’m also building a replacement for. Mentally, it’s very difficult to get past that.
I won’t say that the easier route is to just go on a completely different direction, but if you have the domain knowledge and expertise and you think you can execute on it better than them, by all means. Just be prepared that if you do a good enough job at some point, they may decide to come back and sue you, but they can sue you anyway. They can sue you and say, “Well, you developed this IP that we own,” and any company that you have left could theoretically make that claim. It doesn’t mean it will hold up, but that’s going to be an issue that you’re going to have to reconcile and come to terms with. Is it realistic that they can do it? Is it going to happen? It’s probably not, but it could.
Then there’s the other side of the coin where if you do a good enough job, they may decide, “Hey, it’s going to be better for us to acquire this than to continue building the thing that we have in-house.” That’s entirely possible as well. But again, it’s probably just as likely is them suing you. That’s something that you’re just going to have to mentally deal with, make a decision, and move on, because otherwise you’re going to spend far too much time thinking about it and not enough time actually working on the business.
Rob: Yeah. That’s a good point. It’s weird because this does get back to the ethical-moral conversation we had a couple of episodes ago. I think that legally, if you document everything and you really are on the right side of the law, then you should be okay in the long run. But they can still sue you and you still have to hire a lawyer to defend yourself. And you still have to either negotiate a settlement or go to court, which is very expensive, and you still have to prove all this. There’s a lot of ifs. Even if you’re on the right side of the law, in my distant third-hand experience with working at companies where lawsuits are going on, no one wins but the lawyers. The only ones that make money are the lawyers. It’s really not good to get involved in that. That’s always my thought with lawyers and lawsuits. It’s really kind of be on the right side of that.
Then there’s the side of it that I think about as an entrepreneur. It’s like, is this interesting to you to build this or will it be boring? Is it just an opportunistic view of like, “Hey, I can make some money with this,” or is it like, “No, this is actually something that I really, really want to do”?
I would caution against doing something just because you saw it work at a different company and you feel like you could build better tech than them. That’s not a recipe for success in my work. But if you have taken their success as a reason to not do customer development and not build an email list and not make sure there’s demand and not make sure that you have the credibility to do this, I think you’re making a mistake and I think you could build a product and release it to Crickets. Or it could be years and years of toil on this and does that sound fun? Just like any other product that would launch, I would ask myself, is there really a market here? Am I the one to do this? And does this sound interesting to me?
Mike: It looks like from the opportunistic nature of something like that, if it’s already in an established business, they are doing their sales and marketing and getting customers, it’s very easy to think you can replicate some of that. It’s like an iceberg. There’s tons and tons of things that go on under the covers of the business that you have absolutely no knowledge or exposure to and a lot of times, some of these things are very relationship-driven. You don’t even know it because you’re not even aware of how those conversations even happen. It’s very difficult to compete in those situations, so just be very cautious about that.
Rob: Yeah. It’s like you said, it’s easy to be inside a business, look around, see everything wrong with it, and be like, “I can do this better,” but it’s actually really hard to do better. It’s not something that can happen overnight. Just building better tech isn’t, in my opinion, going to be the key to that.
I think the other thing to think about is, you use the term taking someone else’s business idea. It’s a trip that if you hadn’t worked for them, you would just be a competitor. It’s like, did Drip take MailChimp’s business idea? Did Drip take Infusionsoft’s business idea because it competed with them? Well, no. We did our own thing our own way. We found customers, we got feedback, then we implemented features, and blah-blah-blah.
The difference here is you worked for them and you saw inside the business. There is complexity there where if you are going to compete with them that you need to get over the thought that you took their business idea. I think it comes back to what you said, Mike, is that it’s going to hang over your head mentally. Whether you think about the legal side of it or you just have this internal embarrassment or shame that you “took it/stole it” is what you’re implying, if you hadn’t worked for them, that wouldn’t be the case. If you think that you’re going to hang on to it like that and constantly think that you’ve taken this business idea from them, I would caution you against perhaps doing this. We’ll just ask you to think about it because it can get in your head.
More than half of being a successful founder, I believe, is just dealing with the mental side of things and being able to handle your own psychology, understanding yourself and not just stressing out or not putting much of a burden on yourself, not having things that aren’t true be running through you head, that negative self-talk, and this could be a source of that. In your shoes, I would really think hard about whether you can mentally get over that hurdle of thinking that potentially you took this business idea because you don’t want that hanging over your head for the next several years as you build this up. Thanks for the question, anonymous. I hope that was helpful.
Our next question is about how to approach a B2C company. This is a long email, someone summarized it. It says he’s a huge fan of the podcast, started listening about five years ago. He’s a senior developer, he’s always had the product itch, and he’s working on an app. It’s called VidHug, vidhug.com. It started as a scratch-your-own-itch project for his mother’s birthday and it’s definitely B2C. It’s low LTV. It’s non-recurring revenue. He says, “I feel like I have a mini Rob on my shoulder most days, saying ‘What are you even doing with this?!’ Thing is, I don’t really have a counterpoint for you except for a feeling and that feeling comes from talking to customers that are now able to do something they previously could not.”
So, the idea with VidHug is you can send out an email with a link and people can record basically birthday wishes or well wishes and they all get combined into this 30-second or 60-second video. If you go to vidhug.com you can see samples of these videos. If it’s someone’s birthday and then their grandkids in there, their kids in there, aunts and uncles, whatever, all recorded there and then all gets mashed up.
He said he launched it in July 2018 to Crickets. He didn’t do any pre-marketing, he got a few paying customers, didn’t really get a break until earlier this year when he’s got some organic traffic flowing from a referral in a blog post. He’s on pace to do $600 a month and that’s a funnel he can now improve. He says, “I’m also turned to build a B2B side of the business and I found a potential application of remote and distributed companies using VidHug to celebrate employees or onboard new employees. I’ve got three companies trying this out. I tried validating a separate B2B site for this, but I think it was spreading myself too thin and I’m just going to go down with vidhug.com for now.”
“The primary move forward is to focus on growing organic channels on the B2C side through SEO and referrals and also build a B2B side which would bring recurring revenue. Do you think I’m crazy for even trying this?” Just as a point of data, he has basically a free tier and then he has one that is $15. It’s a one-time thing for the B2C side. What do you think, Mike?
Mike: Well, to answer his question there actually, “Am I crazy for even trying?” The answer is yes. It’s just a matter of how crazy we all are.
Rob: Exactly. It’s just a specter.
Mike: It’s varying degree, yes. I feel a little bit early on to be trying to separate and go after both B2C and B2B. It seems like the revenue is a little bit low and I feel like the marketing channels you have to reach out to, the type of audience, the types of content that you have to build for them, the feature set, and all these other things, it feels like it creates two different businesses. I get where he said he tried validating a separate B2B site for the application and he felt like he’s spreading himself too thin, but it seems to me you’re going to do the same thing if you try and cater to a B2B market as well. Maybe not, maybe you can just integrate it with certain types of things or multiple-use for accounts, for example. Maybe there’s an obvious way to upsell people into a more B2B version of the app. Maybe that’s a way to go for that, but it does seem like it’s a little bit early.
So going back to the question of are you crazy for trying something that’s B2C? I would say no. I definitely think that there are opportunities out there for people to build B2C businesses that are solid and profitable. It’s just a matter of making sure you are methodical about how you pursue your different traffic sources, putting people in your mailing list, optimizing the product itself for revenue for getting people into it, and making them happy. If you can do those things, it doesn’t matter whether it’s B2B or B2C. You’re still going to have happy customers who are going to give you money. But that last piece of it is the key part. They have to be happy and give you money because if they’re not giving you money, you don’t really have a business.
I think that’s the challenge that most people run into with B2C companies is that your LTV tends to be much lower and you need a larger number of customers in order to make it work. There are a lot of viral components to something like this. You can email out to a bunch of people and if one person gets in there and then email 50 people, now you’re in front of 50 people instead of just one. That’s a huge viral aspect that a lot of things that try to do B2C don’t necessarily have because this has that kind of bait into it that’s an encouraging sign. It’s not the only thing I would look at but it’s definitely encouraging.
Rob: Yeah. It’s tough because B2C is just hard. It’s just a different game. With this customer lifetime value, you can’t run ads, you can’t pay salespeople. So many things you can’t do. It literally be outreach to bloggers, offering it free to bloggers, sponsoring bloggers, I keep saying bloggers, podcasters, whatever, people with audiences. Here’s the thing. If you’ve got a bunch if Instagramers with huge followings, YouTubers, bloggers, podcasters, yeah it would be possible to grow this. But it’s a completely different playbook than what we typically talk about or what you’re going to hear from MicroConf speakers, for example, or an attraction book where it really is more focused on doing a lot more B2B stuff.
You just have to ask yourself, is that what you want to do? Do you want to build those relationships with influencers and figure out how to get them to do it and then talk about it? That would be my playbook for this. Personally, I don’t enjoy that. It’s hard to do without the existing relationships, be it can be expensive response for them, it’s pretty risky, it’s not super repeatable, you just got to go one to the next, there’s just a lot to it. You got to ask yourself, “Hey, is this something that I want to do?” and if not, then I would look at the B2B side.
The tough part of it is it’s not a critical must-have thing, but I do think it’s kind of clever and it’s a fun nice-to-have that I have seen larger companies, even companies that 50 or 100 people, do special things when they onboard new people and make funny videos to welcome them or things like this. While I don’t know if they would pay for it, I think that would be a question you’d want to start having with people before you dug into the B2B side. That’s certainly a more repeatable thing but I still think there’s just a lot of risk.
I don’t see an angle here and that doesn’t mean there is no angle. Really, they’re just a feature. This is just one feature. It mashes up some video. It’s cool but it’s not as sweet a thing and it’s not something that people will use every week and rely on. It’s going to be harder. It’s not going to be the core of the HR’s workflow or the core of the manager’s workflow. It’s just a nice-to-have.
I think that’s the other thing to think about is, I had businesses in the early days that only made $1000 a month, $2000 a month, and frankly, I learned a lot from them. It was a stair step approach. I learned how to whatever, do run ads, do SEO, do display ads, do AdWords and that kind of stuff, and I took that experience with me to the next thing.
In its current incarnation, do I think VidHug can be a mid six-figure business? I don’t. It’s just my opinion, it doesn’t mean I’m right or wrong, but I don’t see an angle there as it stands today. But then again, I could have said that about Drip the month it launched because it was just an email capture form and autoresponder. Then we kept pivoting and grinding, customer developing, slow launching, and doing all the things that you heard me talk about on this podcast over the years, and eventually got it well under the seven-figure mark.
That’s the thing. As it stands today, VidHug is a cool side project and frankly I’m impressed that you’ve gotten it to $600 a month, given the price point and all that. But I think it depends on how you’re thinking about it. If you think about it as good learning and you want to build it up to $1000-$3000 a month, that to me seems doable, and it will be learning, it will be a little bit of income, I don’t know how you would ever get it past there. Maybe you’ll eventually come to a point where you see an angle to do that.
I also had a lot of businesses that never did. I had ebooks and info products. I had ecommerce site and I had small software products and I had one-time software products. All of those topped out and I could never get them past, let’s say, between $500-$5000 a month. I had several that were in that range. Eventually, I had to sunsetted them or I sold them as I moved on to bigger things.
My gut is that VidHug will will fit into that space, that role into your entrepreneurial career, there’s certainly a time and place for those, and you just got to figure out, I think, how you are thinking about it and where you want it to take you. Thanks for the question, Amir. That was a fund one and certainly wish you the best of luck as you move forward with VidHug.
At this point, we are completely out of questions. Zero questions, Mike.
Mike: Zero?
Rob: Zero.
Mike: I have a question for you.
Rob: What’s your question?
Mike: If Elon Musk actually gets us to the point of taking us out into the outer reaches of outer space, where do you think that we should go first?
Rob: Mars?
Mike: No, I mean not just outer space. Out of our solar system. Where do you think we should go first?
Rob: I have no idea. I don’t know enough about astronomy to know what’s interesting.
Mike: Well, do you know which star cluster’s the closest?
Rob: Alpha Centauri?
Mike: It is. You think we should go there?
Rob: Sure.
Mike: I don’t think so. I checked online, it’s only got three stars.
Rob: Badum-boom. There it was.
Mike: If you have a question for us, you call into our voicemail number 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 to each episode. Thanks for listening and we’ll see you next time.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Well, just wanted to give people a reminder that today is the last day to apply for the Starter Edition scholarship and I said before, we’ve got over 25 to give away. We will link it up in the show notes, but definitely go check it out if you’re interested at all in coming to MicroConf Starter Edition. Just fill out the application, it doesn’t take more than 5-10 minutes to do, and we will have those within the next couple of days. The notifications will go out and let people know who’s been awarded the scholarships and hopefully everybody who is able to accept them. If not, then we’ll go back to the pool and go to the “runners-up” to see who else is available. Obviously, some people’s travel plans change or whatever. So, we’ll make sure that if we’re going to give somebody a scholarship, they can actually use this. It may take a few extra days.
Rob: Yup. Head over to Episode 433 on startupsfortherestofus.com for a link to that in our show notes. For me, not a ton of updates. Was on vacation and now, looking forward to some home construction being done on our house here in Minneapolis. We bought it about eight months ago and during the escrow process, an inspection picked up some anomalies in the stucco so we got a credit to have those fixed. All that’s fine except for the fact that it was supposed to take two months and it’s been like seven months of construction.
Things are getting put back together now but it just kind of wears on you and it can be loud. You and I’ve recorded in the past few months, I’m having to mute, we have to edit out things, and there’s people in my house all the time. So, I’m really looking forward to that being done. They had to replace some windows and re-stucco things. They can’t re-stucco things because it’s too cold right now, so they have to wait. There’s scaffolding and such. It’ll still be up, I’m guessing, for another month or two until it warms up. At least the inside can be completely done and all the outlets work again. They had to rip receptacles out and turn the power off on certain parts of the house.
Given that two of us work from home and we homeschool the kid, a lot of us are home a lot of the time. I think if I was going into an office, it will almost be easier because it will just be done while we’re not here. But when I’m talking to you on this podcast and then two construction workers walk in and start painting the walls, I’ll admit, it’s a little distracting.
Mike: You think?
Rob: Yeah. So I’m looking forward to that. That’s really in the kind of end-game right now. They’re just putting trim on things, and hanging blinds and such. I’m very much looking forward to getting past that.
Mike: Yeah. Having to redo anything in your house just really sucks. It’s just the worst.
Rob: Yup. Always costs more. It’s like software. Always costs more than you wanted to. It always takes longer to do than you think.
Mike: Yeah. So, what are we talking about this week?
Rob: Well, we have some listener questions. We’re going to kick us off with a voice mail. As always, voice mails rise to the top of our listener questions stack. This is a good question about the emotional side of running a startup and what to do when you make a change and it makes people angry. How to handle that?
Benjamin: Hey guys. It’s Benjamin from Philadelphia. I run a company called Commit Swimming. It’s a small SaaS app product. Recently, I raised prices and I’m looking to hear you guys thoughts on some feedback that I’ve gotten. I thought I did everything that I could to properly communicate to customers, like that the price increase was coming, why it’s happening, and what it was going to be. I also communicated clearly what it was then a couple of months later.
I inevitably would like about 1500 paying subscribers. I’ve gotten a few pretty nasty emails back on the topic and it’s one of those things that I just feel kind of down as a founder. It wasn’t like a money-grab situation. It was in order to pour more money developing features for the same customers that I’m serving. That type of emotional backlash can really take a toll.
I’m just curious to have a discussion around. I could hear Mike and Rob’s talk on what situations have you come across that made you feel like, “Oh did I do something wrong? How can I right this wrong?” and how do you deal with that internally? Another founder with all that emotional baggage riding on you, either in the sales process or in a situation with increasing prices or dissatisfied customer, that feeling that you just messed up and you disappointed somebody. How do you handle that internally and then how do you try to make it right with the customer?
I’d love to hear your thoughts, in particular, the emotional side of it? Thanks again for everything you guys do. I love your podcast, I love everything that you have done so far for the community, and I look forward to hearing your thoughts on this. Thanks guys. Bye.
Rob: So price increases huh, Mike? Nothing ever goes wrong with those.
Mike: Of course not.
Rob: That’s a good question. Obviously, we could talk about the price increase specifically, but that’s not really his question. It’s just that, what do you when people get mad. Did you do something wrong, didn’t you, and how do you deal with all that? What are your thoughts on it?
Mike: I think that the one piece of advice I have that trumps everything else is context matters here. If you were to take a few steps back and try to be extremely objective about what the situation was and what happened, does it makes sense for people to be extremely angry? The number of people has a big impact. He says he’s got 1500 paying subscribers. Well, how many nasty emails did you get from that? Was it 5 or was it 500? That’s a big difference.
Rob: Yeah. He says it was only a couple, which is an indicator, right?
Mike: Exactly. That was my point was that when he said he only got a couple of emails, to me that says that it’s probably not a big deal. That’s only partially related to his question because the question was how do you deal with the emotional side of it? My point here is that you should take a few steps back to make sure that you’re being objective about how you addressed the situation, how you brought it to them, how you let people know, and then is their response justifiable? If it was 500 people complaining, then obviously that means you probably screwed up. If it’s only a couple and even if they’re extremely vocal and extremely upset over, it’s probably not your fault.
I’ll point to an email that I got literally two days ago from Backblaze saying, “Hey, just wanted to let you know, we’re raising our prices.” They’re raising them from $5 a month to $6 a month. I literally just got done using Backblaze. To make sure that my entire machine was backed up, I’m going through and pulling down files that I wasn’t sure whether or not would be included in my end of backup that I did at home, and I’m extremely happy with it.
So when I got this email saying they’re going to increase it from $5 to $6 a month, that’s technically a 20% increase. But at the same time, I am ecstatic with that. You can raise it to $7.50 and I really would not care. I would pay you right now again. They even have a button there inside the email that says, “Hey, you can purchase an extension and essentially grandfather yourself in for the next two years at the original price that we had put forth back in 2008,” but they went through and they laid out their entire justification for it.
Again, that’s actually a little hack that I would say you can offer to them to extend their current pricing by a predetermined amount of time. If there were 5 or 10 people who emailed you and they were extremely upset about it, it has nothing to do with you. It’s about them. It’s about their situation. Whatever you did was like the straw that broke the camel’s back. It has nothing to do with the specifics of what you did or how you could have done things differently. It’s there’s probably something else going on there that you didn’t know about, you couldn’t have known about, and quite frankly there’s nothing you could have done about. I probably wouldn’t worry about it if it fell into that category.
Rob: Yeah. There are rules of thumb when doing price increases, specifically, and we’ve talked about it on the show, I had tweets written about it barely four weeks ago, and I don’t think that’s the point of this question. The point really is what you said, which is gathering context and trying to look at it rationally when it’s an emotional response that we all have because we relate to other people, we want to do well, we want to do right by our customers, and if you get even one or two really nasty emails, it can bring you down, even if you did everything right. Everything is right as you could possibly do it and communicated it well and all that stuff.
Just at any point when you make a person or some people angry, I think the things that I always remember is to number one, to apologize, number two, if it’s really a super small minority then to hold your ground. That’s something that you could always evaluate. If someone says, “Hey, I’ve been a customer for 10 years, I recommended all these people, and I use it when I teach my class at this college or blah-blah-blah,” then maybe you do make an exception.
Overall, if it’s just someone who’s just angry because you’re doing something that you need to keep your business afloat or you need to continue running your business, then you probably just need to apologize and be like, “Hey, maybe there are other options for you.” That is what I found over the years is the people who tend to get all huffy about things, get huffy about everything. They’re the most vocal ones and they’re frankly people who you would rather not have their money. I would rather have them use a competitor that can be something that you suggest to folks.
That doesn’t cover really his question which is, how do you handle it mentally and emotionally. I think there’s a few coping strategies that I’ve learned and developed over the years. The first thing is try not to take it personally. Easier said than done but really step back and say, “Look, this person doesn’t know me. They don’t know what’s going on. They’re just typing stuff. They wouldn’t say this to my face at a conference or whatever.” That’s the first thing. Second thing is get a sanity check on it. This is something I would bring up in my mastermind group. I would throw this out, “Hey, this is what’s happened, this was the email, and it was brutal.” You are going to have camaraderie. You’re going to have that community from people who are saying, “Yeah, this happened to me, too,” and then it normalizes the experience.
Let’s say a couple of times a year, I’ll get an email from a founder who’s like, “Oh my gosh. This person’s totally railing on me on Twitter about XYZ. Tell my what I should do?” or like, “Help me,” or whatever, and I will basically give them advice like, “Yup, this has happened to me. This is how you deal with it. It sucks but it happens to all of us.” If you’re doing anything interesting out in the world, you’re going to have people get mad about something at some point. That’s not a justification for pissing everybody off all the time, but once in a while you’re going to do something or say something or make a move that’s going to do it. Realize that that comes with doing interesting things and realize that it’s part of the course and it’s something you have to develop a thicker skin about.
Those are the basic open strategies and that’s probably what I would do. I would also not send flippant or rush responses. Boomerang or snooze those emails for a day to give yourself time to think about it. Don’t ruminate on it. Don’t sit there and stress about it constantly. It’s not as big of a deal as you think.
I think on the flip side is, did the person change and you have 100 people email you, like you said, Mike, 50 or 100, well then realize that you may have done something wrong and try to figure out what that is. Is it really unfair or did you just not communicate it well? Can you go back and communicate it better? Or do you need to back away? Do you need to undo it?
Intercom did this 3-4 years ago, where they were going to double or triple their prices and they grandfather for 6-12 months. People were furious and there was a huge uproar. They actually backed down and they didn’t raise their prices. Then and there, I think raise them two years later and they did the same thing but they communicated it better. It still made people mad but don’t give them an excuse to be mad. They’re going to be mad about a pricing change, anyway.
Check the boxes of grandfather if you can. If you can’t, then you really got to communicate why the product is better. There’s all these steps and mitigation to raising prices that I would do. But really, it’s with experience and going through this a few times, you just learn to not take it so personally and to try to get a realistic gauge of, anytime anyone’s mad it doesn’t mean you’re wrong.
That’s the thing. A lot of us take that on like, “Oh someone’s mad at me. I did something wrong.” That’s not necessarily true. There are people who are just mad at about everything all the time and today is their day to be mad at you for something that frankly probably is better for all of your customers in the long term. If you have more money to keep the business afloat and that build the app out and whatever else, and if no one else had an issue with it like you said, Mike, with CrashPlan, $5 to $6, you just don’t care. Netflix raise their prices a dollar, I just don’t care because it’s a good service. I’m going to keep it and I’m not going to get in this fake outrage over $12 a year.
Mike: Another strategy is, if you have objectively determined that you are not at fault and it is really the other person there, not you, you kind of step away from those things. If it’s emails that would come in, hand them to a support rep and say, “Just respond to this as nicely and politely as you can.” That way, you’re not the one who’s suffering the mental anguish over having to respond to those because honestly, you’ve got other things to deal with in the business than replying to a support email from somebody who is going to cancel anyway.
Rob: Thanks for that question. I hope our thoughts were helpful. The next question is from Rodrigo Pontes and his question is, “Should I target the manager or the company?” He says, “Long time fan, first time caller.” Actually he said first question but long time, first time. Have you heard that, Mike, on the morning DJ stuff?
Mike: Yeah, I have.
Rob: Long time, first time. Long time listener, first time question asker. “I’m a solo founder bootstrapping a SaaS web app called OneOneMeeting, oneonemeeting.com. OneOneMeeting is a note-taking app exclusively for one-on-one meetings. It allows you register meeting notes, commitments, goals, and share it between the leader and the team members. So, it’s specifically one-one-one between managers and people that report to them.”
“What should I do in my early marketing efforts? Target individual managers that could buy OneOneMeeting for their own use, or target HR executives that could implement it in the whole company? For more details, I have two paying customers that bought it for their own use and I have about five colleagues of my day job employer on a free trial and a scheduled meeting with our VP. They try to demo it and try to sell a corporate account for my whole company. I’m still at my day job, so I have limited time to do sales and in-person presentations during work hours.”
What are your thoughts?
Mike: This is one of those questions where I’m not necessarily the target market, so my advice here should be taken with a grain of salt. I think if I were to say one way or the other you should target this one or that one, the reality of the situation is I don’t really know, but what I would say is that there’s a couple of different ways I would try and find that out.
I think that the question or the point about having limited time to sales and personal meetings right now is a limiting factor, I would try to go outside of your current network and go to, as you said, the colleagues of your day job employer, go find out information from those people and try and narrow down, as quickly as possible, which of these two you should go after. Then from there, you also want to branch out and ask every single person who’s using it, if they would introduce you to somebody else who might be a good fit for it.
If you can get three introductions, that’s great. Always ask for three, settle for one, but push for that one. This is a one-to-one meeting note-taking app, so if they’re not willing to introduce you to one other person, then they’re probably not willing to actually use it to have these meetings anyway. So, I would go down that path and try to figure that out.
The other thing I would comment on is that, because it’s so early on, I don’t know if you really know what your pricing model is actually going to be yet, like individual plans versus corporate plans. I think those are kind of up the air and exactly what the pricing around those should be. I feel like it’s too early to tell. I seem to think that you need to go down a little bit further in the rabbit hole and try to figure out where it’s going to resonate and get traction before you start focusing on one or the other.
Rob: This wouldn’t normally be a clear-cut decision except for the fact he said his time is limited during the day. I think that if you go after a HR execs, they’re getting so hounded by people trying to sell them stuff, that they really are going to require a lot of hand-holding and a lot of proof to push it through.
I feel like you should go with the more guerrilla approach, like Slack and Dropbox do, where they infiltrate at a lower level in the org chart and then once you’ve got a bunch of people using it, then you ring them up and you say, “Hey, I’ve noticed that you have 10 different managers using this. You want to have good management of this, an insight, blah-blah-blah. You know, you need to get our enterprise account.”
I don’t know if that means that it needs to be free for one manager at a time or whatever. You look at Slack and you look at Dropbox, and that’s how they’re able to do that. People can sign-up essentially without a credit card and you can really infiltrate the org that way. You have to find if managers have a credit card with some type of limit on it so you could make it relatively inexpensive, but once you actually do sell their account to the VP of HR, that there would be a need to be a big step-up in price because selling a product like this is going to be hard to scale at a low price. Although if you do per seat pricing, then it should naturally scale itself because the successful companies tend to be growing anyway, and if it works, they’re going to want to add more and more of their teams on twit. I could see the whole $3, $5, $7 per seat pricing working if you can get 50-100 people at an org using it.
All that to say, if I were in your shoes, I would personally go after the managers because I think the managers are the ones that are going to get the value out of it. The person whose pain point it really solves in the most direct way and the managers are the ones that can start implementing it without a bunch of bureaucracy and approvals and all that stuff. If they can just run wild with it and prove it out, then it’s a much, much easier sale as you go up the chain. Thanks for the question, Rodrigo. I hope that was helpful.
Our next question is about taking someone’s business idea. I’m going to leave him anonymous. It’s interesting. He says, “Little background about me. I have a Bachelor’s of Science in Computer Science and Business Administration. I’ve been working on IT since 2006 as a developer and a manager. Two years ago, I worked for an online company that I found to be really interesting and right up my alley. I applied, I got hired on as a developer to help maintain and update their current website. Come to find out that their new site was never going to see the light of day due to the fact that the manager overseeing everything wanted to keep adding useless features to the site. The site was from the 90s and was written in a language that is no longer supported and it can’t support more modern features that a growing business website needs. This really bugged me so I left the company.”
“Then one day I was talking to a friend over drinks and he said I should start my own thing so I did. From there it snowballed into a reasonable product that I think I can take to market. My question is, when I started with the company, I had signed an NDA and a non-compete valid for one year after I left. That one year mark is coming up in the next week. I want to start pushing content out to get things going. I didn’t work on anything on the site while I was there and I’m not using any code or tech from the company because I consider that stealing. Everything I’ve created is 100% from scratch and of a different language and technology stack than the one at the prior company.”
“Have you guys ever had to deal with anything like this? Looking at it either my point of view as the startup or as the old company with the 1990s website? Also, I want to say a huge thanks for sharing your experiences. You guys answered a lot of my questions on your podcast.”
What do you think about this, Mike? Do you fully understand what he’s asking? He’s basically launching a competitor to something and they’re outdated tech. I don’t think he’s asking an ethical question because I think he’s going to do it. It’s more the legal side of it? Can they sue him?
Mike: Well, I think a lot of what he said seems to be different from what he’s actually asking. My understanding of what he has said was he was hired to help develop and maintain the current website of this other company and he signed an NDA and a non-compete. But then he left and he’s coming up a year later for his NDA and non-compete no longer being valid. And the products he wants to build is what the company was developing. I don’t think it’s actually anything related to the website for that company.
Rob: That’s what I’m confused about.
Mike: Yeah. That’s what I gather as the situation is what he’s building is actually what the company itself produced and that his non-compete would be wide enough to cover whatever their product was and is the product that he’s building is that, although he was hired to just work on the website.
Rob: Let’s go with that assumption because I was confused as to was it the website the product? Is it just like a lead gen company, the website is the product. There is no product behind it. You just drive ads or you do SEO and then you get people to send in form, and then you basically can sell those leads. That’s what I was thinking but maybe there’s a software behind it and he’s replicating that. What do you think here?
Mike: There’s the fine between what is legal and what’s not in which it’s impossible for us to comment on the specifics of that if we were in that situation. I have been in this exact situation. I was in this situation with AutoShark, where I basically knew that the product that I was rebuilding from scratch was going to go away at some point in the future. My thought was if I were to rebuild it, I can essentially come in and replace the product that was end-of-life.
What I found was that the fear of being sued by a large company that has the ability, the resources, and the lawyers that are just on staff already, was paralyzing. That is always going to stick in the back of your mind and you will not get away from it. I don’t know how big they are, or I don’t know what they do, or I don’t know how much of an impact you would have on them, but for me, it was paralyzing. I had a very hard time separating the business and marketing stuff that I was doing.
My situation was probably complicated because I was also still doing consulting work for them. It wasn’t really a non-compete because I was a separate company anyway but I was a subcontractor for them. So I was barred from going back to those existing companies that I’ve already done consulting work for which was installing the sort of software but then I’m also building a replacement for. Mentally, it’s very difficult to get past that.
I won’t say that the easier route is to just go on a completely different direction, but if you have the domain knowledge and expertise and you think you can execute on it better than them, by all means. Just be prepared that if you do a good enough job at some point, they may decide to come back and sue you, but they can sue you anyway. They can sue you and say, “Well, you developed this IP that we own,” and any company that you have left could theoretically make that claim. It doesn’t mean it will hold up, but that’s going to be an issue that you’re going to have to reconcile and come to terms with. Is it realistic that they can do it? Is it going to happen? It’s probably not, but it could.
Then there’s the other side of the coin where if you do a good enough job, they may decide, “Hey, it’s going to be better for us to acquire this than to continue building the thing that we have in-house.” That’s entirely possible as well. But again, it’s probably just as likely is them suing you. That’s something that you’re just going to have to mentally deal with, make a decision, and move on, because otherwise you’re going to spend far too much time thinking about it and not enough time actually working on the business.
Rob: Yeah. That’s a good point. It’s weird because this does get back to the ethical-moral conversation we had a couple of episodes ago. I think that legally, if you document everything and you really are on the right side of the law, then you should be okay in the long run. But they can still sue you and you still have to hire a lawyer to defend yourself. And you still have to either negotiate a settlement or go to court, which is very expensive, and you still have to prove all this. There’s a lot of ifs. Even if you’re on the right side of the law, in my distant third-hand experience with working at companies where lawsuits are going on, no one wins but the lawyers. The only ones that make money are the lawyers. It’s really not good to get involved in that. That’s always my thought with lawyers and lawsuits. It’s really kind of be on the right side of that.
Then there’s the side of it that I think about as an entrepreneur. It’s like, is this interesting to you to build this or will it be boring? Is it just an opportunistic view of like, “Hey, I can make some money with this,” or is it like, “No, this is actually something that I really, really want to do”?
I would caution against doing something just because you saw it work at a different company and you feel like you could build better tech than them. That’s not a recipe for success in my work. But if you have taken their success as a reason to not do customer development and not build an email list and not make sure there’s demand and not make sure that you have the credibility to do this, I think you’re making a mistake and I think you could build a product and release it to Crickets. Or it could be years and years of toil on this and does that sound fun? Just like any other product that would launch, I would ask myself, is there really a market here? Am I the one to do this? And does this sound interesting to me?
Mike: It looks like from the opportunistic nature of something like that, if it’s already in an established business, they are doing their sales and marketing and getting customers, it’s very easy to think you can replicate some of that. It’s like an iceberg. There’s tons and tons of things that go on under the covers of the business that you have absolutely no knowledge or exposure to and a lot of times, some of these things are very relationship-driven. You don’t even know it because you’re not even aware of how those conversations even happen. It’s very difficult to compete in those situations, so just be very cautious about that.
Rob: Yeah. It’s like you said, it’s easy to be inside a business, look around, see everything wrong with it, and be like, “I can do this better,” but it’s actually really hard to do better. It’s not something that can happen overnight. Just building better tech isn’t, in my opinion, going to be the key to that.
I think the other thing to think about is, you use the term taking someone else’s business idea. It’s a trip that if you hadn’t worked for them, you would just be a competitor. It’s like, did Drip take MailChimp’s business idea? Did Drip take Infusionsoft’s business idea because it competed with them? Well, no. We did our own thing our own way. We found customers, we got feedback, then we implemented features, and blah-blah-blah.
The difference here is you worked for them and you saw inside the business. There is complexity there where if you are going to compete with them that you need to get over the thought that you took their business idea. I think it comes back to what you said, Mike, is that it’s going to hang over your head mentally. Whether you think about the legal side of it or you just have this internal embarrassment or shame that you “took it/stole it” is what you’re implying, if you hadn’t worked for them, that wouldn’t be the case. If you think that you’re going to hang on to it like that and constantly think that you’ve taken this business idea from them, I would caution you against perhaps doing this. We’ll just ask you to think about it because it can get in your head.
More than half of being a successful founder, I believe, is just dealing with the mental side of things and being able to handle your own psychology, understanding yourself and not just stressing out or not putting much of a burden on yourself, not having things that aren’t true be running through you head, that negative self-talk, and this could be a source of that. In your shoes, I would really think hard about whether you can mentally get over that hurdle of thinking that potentially you took this business idea because you don’t want that hanging over your head for the next several years as you build this up. Thanks for the question, anonymous. I hope that was helpful.
Our next question is about how to approach a B2C company. This is a long email, someone summarized it. It says he’s a huge fan of the podcast, started listening about five years ago. He’s a senior developer, he’s always had the product itch, and he’s working on an app. It’s called VidHug, vidhug.com. It started as a scratch-your-own-itch project for his mother’s birthday and it’s definitely B2C. It’s low LTV. It’s non-recurring revenue. He says, “I feel like I have a mini Rob on my shoulder most days, saying ‘What are you even doing with this?!’ Thing is, I don’t really have a counterpoint for you except for a feeling and that feeling comes from talking to customers that are now able to do something they previously could not.”
So, the idea with VidHug is you can send out an email with a link and people can record basically birthday wishes or well wishes and they all get combined into this 30-second or 60-second video. If you go to vidhug.com you can see samples of these videos. If it’s someone’s birthday and then their grandkids in there, their kids in there, aunts and uncles, whatever, all recorded there and then all gets mashed up.
He said he launched it in July 2018 to Crickets. He didn’t do any pre-marketing, he got a few paying customers, didn’t really get a break until earlier this year when he’s got some organic traffic flowing from a referral in a blog post. He’s on pace to do $600 a month and that’s a funnel he can now improve. He says, “I’m also turned to build a B2B side of the business and I found a potential application of remote and distributed companies using VidHug to celebrate employees or onboard new employees. I’ve got three companies trying this out. I tried validating a separate B2B site for this, but I think it was spreading myself too thin and I’m just going to go down with vidhug.com for now.”
“The primary move forward is to focus on growing organic channels on the B2C side through SEO and referrals and also build a B2B side which would bring recurring revenue. Do you think I’m crazy for even trying this?” Just as a point of data, he has basically a free tier and then he has one that is $15. It’s a one-time thing for the B2C side. What do you think, Mike?
Mike: Well, to answer his question there actually, “Am I crazy for even trying?” The answer is yes. It’s just a matter of how crazy we all are.
Rob: Exactly. It’s just a specter.
Mike: It’s varying degree, yes. I feel a little bit early on to be trying to separate and go after both B2C and B2B. It seems like the revenue is a little bit low and I feel like the marketing channels you have to reach out to, the type of audience, the types of content that you have to build for them, the feature set, and all these other things, it feels like it creates two different businesses. I get where he said he tried validating a separate B2B site for the application and he felt like he’s spreading himself too thin, but it seems to me you’re going to do the same thing if you try and cater to a B2B market as well. Maybe not, maybe you can just integrate it with certain types of things or multiple-use for accounts, for example. Maybe there’s an obvious way to upsell people into a more B2B version of the app. Maybe that’s a way to go for that, but it does seem like it’s a little bit early.
So going back to the question of are you crazy for trying something that’s B2C? I would say no. I definitely think that there are opportunities out there for people to build B2C businesses that are solid and profitable. It’s just a matter of making sure you are methodical about how you pursue your different traffic sources, putting people in your mailing list, optimizing the product itself for revenue for getting people into it, and making them happy. If you can do those things, it doesn’t matter whether it’s B2B or B2C. You’re still going to have happy customers who are going to give you money. But that last piece of it is the key part. They have to be happy and give you money because if they’re not giving you money, you don’t really have a business.
I think that’s the challenge that most people run into with B2C companies is that your LTV tends to be much lower and you need a larger number of customers in order to make it work. There are a lot of viral components to something like this. You can email out to a bunch of people and if one person gets in there and then email 50 people, now you’re in front of 50 people instead of just one. That’s a huge viral aspect that a lot of things that try to do B2C don’t necessarily have because this has that kind of bait into it that’s an encouraging sign. It’s not the only thing I would look at but it’s definitely encouraging.
Rob: Yeah. It’s tough because B2C is just hard. It’s just a different game. With this customer lifetime value, you can’t run ads, you can’t pay salespeople. So many things you can’t do. It literally be outreach to bloggers, offering it free to bloggers, sponsoring bloggers, I keep saying bloggers, podcasters, whatever, people with audiences. Here’s the thing. If you’ve got a bunch if Instagramers with huge followings, YouTubers, bloggers, podcasters, yeah it would be possible to grow this. But it’s a completely different playbook than what we typically talk about or what you’re going to hear from MicroConf speakers, for example, or an attraction book where it really is more focused on doing a lot more B2B stuff.
You just have to ask yourself, is that what you want to do? Do you want to build those relationships with influencers and figure out how to get them to do it and then talk about it? That would be my playbook for this. Personally, I don’t enjoy that. It’s hard to do without the existing relationships, be it can be expensive response for them, it’s pretty risky, it’s not super repeatable, you just got to go one to the next, there’s just a lot to it. You got to ask yourself, “Hey, is this something that I want to do?” and if not, then I would look at the B2B side.
The tough part of it is it’s not a critical must-have thing, but I do think it’s kind of clever and it’s a fun nice-to-have that I have seen larger companies, even companies that 50 or 100 people, do special things when they onboard new people and make funny videos to welcome them or things like this. While I don’t know if they would pay for it, I think that would be a question you’d want to start having with people before you dug into the B2B side. That’s certainly a more repeatable thing but I still think there’s just a lot of risk.
I don’t see an angle here and that doesn’t mean there is no angle. Really, they’re just a feature. This is just one feature. It mashes up some video. It’s cool but it’s not as sweet a thing and it’s not something that people will use every week and rely on. It’s going to be harder. It’s not going to be the core of the HR’s workflow or the core of the manager’s workflow. It’s just a nice-to-have.
I think that’s the other thing to think about is, I had businesses in the early days that only made $1000 a month, $2000 a month, and frankly, I learned a lot from them. It was a stair step approach. I learned how to whatever, do run ads, do SEO, do display ads, do AdWords and that kind of stuff, and I took that experience with me to the next thing.
In its current incarnation, do I think VidHug can be a mid six-figure business? I don’t. It’s just my opinion, it doesn’t mean I’m right or wrong, but I don’t see an angle there as it stands today. But then again, I could have said that about Drip the month it launched because it was just an email capture form and autoresponder. Then we kept pivoting and grinding, customer developing, slow launching, and doing all the things that you heard me talk about on this podcast over the years, and eventually got it well under the seven-figure mark.
That’s the thing. As it stands today, VidHug is a cool side project and frankly I’m impressed that you’ve gotten it to $600 a month, given the price point and all that. But I think it depends on how you’re thinking about it. If you think about it as good learning and you want to build it up to $1000-$3000 a month, that to me seems doable, and it will be learning, it will be a little bit of income, I don’t know how you would ever get it past there. Maybe you’ll eventually come to a point where you see an angle to do that.
I also had a lot of businesses that never did. I had ebooks and info products. I had ecommerce site and I had small software products and I had one-time software products. All of those topped out and I could never get them past, let’s say, between $500-$5000 a month. I had several that were in that range. Eventually, I had to sunsetted them or I sold them as I moved on to bigger things.
My gut is that VidHug will will fit into that space, that role into your entrepreneurial career, there’s certainly a time and place for those, and you just got to figure out, I think, how you are thinking about it and where you want it to take you. Thanks for the question, Amir. That was a fund one and certainly wish you the best of luck as you move forward with VidHug.
At this point, we are completely out of questions. Zero questions, Mike.
Mike: Zero?
Rob: Zero.
Mike: I have a question for you.
Rob: What’s your question?
Mike: If Elon Musk actually gets us to the point of taking us out into the outer reaches of outer space, where do you think that we should go first?
Rob: Mars?
Mike: No, I mean not just outer space. Out of our solar system. Where do you think we should go first?
Rob: I have no idea. I don’t know enough about astronomy to know what’s interesting.
Mike: Well, do you know which star cluster’s the closest?
Rob: Alpha Centauri?
Mike: It is. You think we should go there?
Rob: Sure.
Mike: I don’t think so. I checked online, it’s only got three stars.
Rob: Badum-boom. There it was.
Mike: If you have a question for us, you call into our voicemail number 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 to each episode. Thanks for listening and we’ll see you next time.
Episode 431 | Converting Free Users to Paid, Vesting, Business Ethics, and More Listener Questions
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including converting free users to paid, vesting, business ethics and more.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about converting free users to paid, vesting, business ethics, and more listener questions. This is Startups For The Rest Of Us Episode 431.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, where this week, Mike?
Mike: A couple of a personal milestones for January. The first one is that I have averaged over seven hours of sleep per night since I got my CPAP machine. So that is good. I’m glad to see that I’m actually getting sleep these days. The other one for January specifically, I kind of got back on the bandwagon for exercise. I have logged 12 days of exercise for January. It’s one of those small personal wins. It doesn’t really make a difference in the grand scheme of things, but it’s nice to see that things seem to be getting back on track.
Rob: That’s awesome. The seven hours, isn’t that up from—
Mike: Three-and-a-half?
Rob: Like four hours? I mean, that’s a huge difference. Obviously, sleep makes a difference in so much stuff. In fact, I showed an audiobook that I was listening to. The Power of When is what it’s called but a lot of it is about sleep. Just that like not getting enough sleep, it just shapes your whole mindset, you can get sad, depressed, you can be pessimistic. I’m all of those things if I don’t get enough sleep. But is that why? I mean, the 12 days of exercise for you, is it because you’re getting more sleep that your able to do that?
Mike: Yeah, definitely. I do not have the will power to go to the gym if I don’t get enough sleep. I just recognize that, which kind of sucks. It means that if my sleep goes off the rails, then pretty much everything else goes off the rails, too. The sleep is definitely kind of the underlying factor, but obviously the other stuff contributes in other ways. If I’m getting enough sleep but probably not enough exercise, then I could probably get by. But if I’m not getting to sleep then not exercising contributes to other negative things that happened and just completely throws me off the rails.
Rob: Yeah, I can totally imagine that. The same thing happens to me. Glad to hear it and has your mindset shifted as well?
Mike: Yeah, definitely. I’m definitely more optimistic about just about everything, to be honest. In some ways I look back at it and it’s night-and-day difference between now and a couple of months ago. It’s just partly the mindset but partly the ability to actually remember things. I remember conversations that I was in before where I would literally just forget words. I still have something lingering effects of that but I’m hoping that it gets better and eventually goes away.
I don’t know how bad things can get or how long it can affect you, the sleep deprivation. I have read horror stories and stuff about people who don’t get enough sleep for extended periods of time. It’s just like a long-term brain damage and stuff, which was kind of terrifying, but I don’t know how bad that was for me and it’s not something to find out exactly anytime soon. If I don’t remember it that it did ever happened, I don’t know.
Rob: That’s right. Can’t we just blame it on getting old, too?
Mike: You could. I’m young.
Rob: We had a pretty cool comment on episode 423 which is where we talked through our goals for 2019. You essentially looked back on 2018 and you said it was a complete bust. I’ve got ones out of five on all my goals and I was pulling some things out of you like what were some wins. Sarah chimed in on the comments and said, “Hey, Mike. I think you can think about 2018 a bit differently. You actually had a major win, which was finding out that you have sleep apnea. Without that discovery, 2019 would have been the same or even worse than 2018. Now you know the problem is, you can do something about it. As you both discussed, lack of sleep messes up absolutely everything.” I want to throw in here that knowing is half the battle after all, am I right?
Mike: Yeah, I guess.
Rob: So back to Sarah, she said, “So rather than feeling crappy about not meeting any of your 2018 goals, maybe you could reframe 2018 as a transition year or turning point. Best of luck for 2019. Hope it’s everything you want to be.”
Mike: Thanks there. I really appreciate that. Even recently, I’ve started kind of rethinking my thoughts on what last year were. I write it off as kind of more of a learning experience of like, yes this happen and it sucks but at the same time there’s literally nothing I can ever do to get that time back. So, I may as well just kind of buckle down and move on.
Rob: Yup. Sometimes, that’s what you’ve got to do. We also had another comment that I thought was poignant and it was about episode 428 where we answered some listener questions. One of them was about equity split. Rob chimed in. I don’t know his last name, it wasn’t me. He chimed in on the comments and he said, “Regarding the equity split question, you missed mentioning vesting periods and cliffs, which is super important.”
He’s correct and what’s interesting is normally I do when we talk about equity splits. Typically even if two co-founders are starting a company together, you want them to vest their equity over a period of time. The range tends to be to 2-4 years and you often had a cliff at the front, meaning you get zero equity until one year in. Then you vest that whole year at a time and then you vest the rest on a monthly schedule.
It’s not how you have to do it but it is the most common way to do it. I think it’s how Y Combinator is kind of setup and I believe the use are there either a three- or four-year festing with a one-year cliff upfront. I appreciate Rob for calling that out. What you’re trying to save yourself from is someone working on your business for six months, leaving, and then he or she owns half the company. You’re trying to avoid that so that everyone puts in their time and earns their equity in a sense. Thanks for chiming in with that Rob.
Mike: One other thing that I wanted to mention is that I’ve started adding to the email courses and stuff that I have on the Blue Tech website and based on those, I actually got an email this morning from somebody and invited me to contribute to their online publication, wanted to talk to me a little bit more about it, so I’m going to try and set up a meeting to discuss that with them next week. There’s another one that I have that is in the works as well that’s completely unrelated to the online course that I have. Both of them have publications that are catering to people who are doing email marketing, so it’s kind of exciting to see that those opportunities are starting to show up.
Rob: That is fun. Will you mention them on the show and/or link to them when the time comes?
Mike: I will as soon as at least when they get closer to going live or I know that they’re actually going to go live. I’m sure that you’re no stranger to this, but I’ve been on podcasts before, different places, written articles and stuff, where you write it and submit it or you record the episode and then for whatever reason, it just never sees the light of day. So I’ll wait a little while until I actually do that.
Rob: Yeah and I actually do more vetting now of podcasts or magazines or whatever that want to interview me. I have had enough for those happen where I spend the time I do it and then it never see the light of day. It’s kind of tough.
Today we are answering some listener questions. Our first is a question about business ethics check. I think this is kind of interesting. It’s from Paul McMahon and he says, “Hi guys. I don’t think you’ve ever done a show on business ethics. I’d be interested in hearing about some of the ethical challenges you face when running your businesses and how you’ve approached them.”
“For me personally, my biggest challenge has been deciding how to approach dealing with business I consider to be unethical. For example, as a business, Facebook has shown many times that they’re willing to make moral compromises in exchange for growth and revenue. This makes me not want to support them. At the same time, I have a positive ROI on Facebook ads. How do I balance my disdain for their business with growing my own business?”
“Another example is what you do about customers whose businesses or organizations you consider to be unethical. In my case, I run a niche job board tied to my personal identity. It’s a manual process onboard customers. I talk with every company wanting to use it. I’ve had some companies want to use it whose business I think is immoral while still legal. I’ve waffled on whether or not to accept them as customers. I wonder if you’ve ever faced similar challenge.”
“As bootstrappers, we normally don’t have a board or shareholders to answer to. This makes it hard to hide behind the idea that we should just do whatever is best for the company. The company is a direct reflection of our own goals and beliefs. Ultimately the specific ethical challenges we face depend on us personally. So, rather than looking for advice with challenges I faced, I’d be more interested in hearing about yours and how you’ve dealt with them.”
Mike: I think that’s a great question but it’s also extremely involved and nuanced based on who you are what you value. I’ve seen people commenting specifically on Facebook, for example. Paul specifically called Facebook out as one of those companies where he’s kind of making this moral compromise to exchange it for growth and revenue because it does bring business by spending money on Facebook ads, but how do you go about doing that and how do you justify that?
I can’t say that there’s one go to answer for is because it really depends on your level of comfortability with that, what it is you’re offering, and the types of people that you’re serving. Personally, I look at it as like, if you’re not getting in front of your customers, then are you doing them a disservice by not trying to help them? Obviously, you can go back-and-forth on that all day long. I think for me it depends a lot on the advertiser’s platform themselves, whether it’s something that I use or would use. If it’s something that I’m not going to use or have absolute qualms about using, then I probably wouldn’t do advertising on there.
At the same time, I have a Facebook account. So, would I do Facebook advertising? Yes. Do I have kind of a personal moral dilemma over them making money from that? Yes, to some extent, but there’s also not a lot of other options. I think that’s kind of a big deal to think about, like do you have other options? Are there ways that you can not support them and other financial ways but still get what you need out of them? They’re a big company. They don’t care.
Rob: I think that’s a good point I want to hop in here. Look at Amazon, Apple, Google, Facebook, GE, and Procter & Gamble. In all these companies, I don’t love everything they do. They all make missteps and they all do some things that either are unethical or immoral or whatever, however you want to frame it, and your point of it being nuanced and having to weigh these things, it’s interesting.
I like how you said, “From now I’m not going to do Facebook ads.” Really should delete your Facebook account, too. Some people do that, but if you haven’t done that, I don’t know that it matters to you enough if you’re still engaging with the platform.
Mike: That’s kind of what I was thinking. If you’re not so opposed to Facebook that you haven’t deleted your Facebook account yet, then you’re probably not that violently opposed to them such that supporting them through advertising on their platform really makes that much of a difference. But if you have deleted it, then you’re probably not going to create a new one just do you can do that.
I know there are some people who have deleted their Facebook accounts and then created one specifically so that they could do advertising. That’s because Facebook will not allow you to advertise unless you have a Facebook account linked to it, which kind of sucks but if your going to go down that route, then what you do about it? Your options are to not do the ads or to do them.
Rob: Yeah. What’s interesting is he’s asking basically about ethics and these terms, ethics and morals, they do relate to right or wrong conduct. But if I look up a definition of them, I always think of this is like they can be used interchangeably but ethics refer to rules provided by an external source and morals are individuals on principles. Ethics can be laws, or it can be workplace code of conduct, or can be religious principles, whereas morals are something that comes from inside you.
I do think here that they can overlap but they’re not always the same. Sometimes your morals can conflict with the ethics with laws. You don’t agree with a law that’s passed and you wholeheartedly don’t think that’s ethical. I’m not trying to muddy the water or get philosophical here, but I do think that with bigger businesses it is easier to make this ethical argument that it’s a larger body and there’s legal requirement that you do what’s best for the shareholders, whereas with smaller companies it’s not.
Have I faced moral dilemmas over the years? Yeah, I have. There was a time when I was unemployed. It was right after the dot com bust. Someone who’s going to give me a contract for $15,000, I would have kept this. This was when we were young and living pretty svelte. It was good. Then it keep us going for a couple months, probably three months or so. I went through, talked the guy through my hourly rate, did all the stuff, and he’s like, “This sounds great, let’s get started right away.” I was going to work from home, there was all this thing, and then when he started walking me through the site I was like, “This isn’t something I can support,” like, “I’m sorry but this isn’t something I can show to my kids.”
While I don’t have an issue with it and it’s not illegal, it’s just not something that I can do. It was a very hard decision for me but I’ve never looked back and thought, “Boy, I really should have sacrificed…” There was just something in me that didn’t agree with it. I’m not sure I can count any of the times where I’ve followed my moral compass, that I regret doing that.
So, if I were onboarding customers and I had an issue with what they’re up to, I guess you can piss people off by saying, “Hey, you know what? I’m sorry, we just can’t accept you.” They could get angry. Could they sue you? I suppose, but is it really worth their time and if you have something in your terms of service to cover you there, that you can cover that legal thing?
In my opinion, if you run your own business and you bootstrap, you’re doing it for a lot of reasons. One of those is so really you control your own destiny. I feel like I want to be able to get up everyday, look myself in the mirror, and believe in what I’m doing. Each of us might have a slightly different definition of that because our morals are different from person-to-person.
One part of that for me is I want to be able to tell my kids about any investment I make in any company and any company that I fund, that I advise, that I work on, I never want to have to say, “Oh yeah. Don’t tell the kids about that company.” There are certain businesses that are legal, that I am going to personally not invest in or be associated with because of that. That happens to be my moral compass but it doesn’t necessarily need to be yours as a listener.
Mike: Yeah. I think there’s a good distinction there between ethical, moral, and illegal. I definitely don’t want to be on the side of doing things that are illegal, but at the same time, I think if you take a step back from that and look at the United States, for example, there is marijuana legalization all over the place but it’s still not legal at a federal level. It becomes a very much gray area at that point. Is it legal? Is it not? It depends on which laws you’re looking at.
There are some people who are like, “I don’t care,” or, “I don’t agree with the law and I’m not going to follow it.” That’s totally your choice and maybe you’re doing something illegal at that point, but is it moral or ethical? I think that your points about the difference between those are head on. I agree with you in terms of what I would be willing to do and what I would want to be able to show to my kids. I wouldn’t want to be involved in stuff that I will have to hide from them. I’m not in the hiding things.
Rob: This is an interesting one and I think that Paul asked specifically about the ethics, but I think what he’s talking about is morals. He talked business ethics but he said, “I had some companies want to use it whose business I think is immoral,” and that is subtle, it’s nuanced, but it actually is a different thing because ethics would be, again, an external kind of force on you.
Mike: And honestly, this is something that I’ve struggled with to some extent because with Blue Tech, specifically, people can use Blue Tech for cold email outreach. I’m not a huge fan of it. I don’t do a lot of cold email outreach mainly. I will pinpoint, email certain people but I’m not going to throw them into an automated sequence if I don’t think that it’s a good chance that they’re going to be interested in. Quite frankly, I will find ways to make it a warm introduction instead of a cold email. I’m just not going to drop somebody a completely cold email because (1) I don’t think that it works very well, and (2) I think there’s better ways to provide value and get in front of people than just drop in a completely cold email out of the blue.
There are people who do feel that that’s a viable strategy and they want to do that. I do struggle to some extent with what do I do with those people and how should they be treated. I don’t treat them any different than any other customer, but at the same time I do struggle to some extent with what should I do with the business itself, how do I turn these people away, or say, “Hey, maybe there’s another piece of software the you should be going to use,” because some of them will come to me and say, “Hey, I have my own mail server and I am able to send…” I forget what it was. Some customer came to me, a prospective customer and they said they got their own mail server and they bumped it up for 32 processors and could send thousands of emails per second. This is not something I really want to be involved in. I kind of know in the back of my mind without being told what is probably going to happen there.
Rob: Right. Some of that is kind of a morality thing or kind of moral compass. The other part of it is risk mitigation of like, “This is going to end poorly and I don’t want to be associated with that,” and I think these two can overlap at times.
Mike: Oh yeah, definitely. There is that aspect of it. We talked about this at MicroConf to some extent, too. There’s certain marketing strategies that people will use and it’s not illegal, it’s not something that you can’t do, it’s just you’re not necessarily entirely comfortable with it, so you won’t do that. It’s a hard decision making and every single situation is a little bit different. It’s just hard and I don’t have a great advice for that.
Rob: I hope our thoughts are helpful, Paul. Thanks for writing in. Our next question is perhaps an easier one. It’s about converting free users to paid. Someone has a freemium product, his name is Mark, and he actually asked this question openly on Twitter about a week ago. I think it was Adrian Peter, he kind of pinged you and I and Reuben on Twitter. I said I have some quick thoughts but frankly, this deserves more than 280 characters of thought.
I ask Mark, the original poster, to write in with more details. He didn’t. I’m assuming he either got busy, just wasn’t that interested in hearing our thoughts or whatever. I still think it’s an interesting question to talk about because I think this is something that folks struggle with. He said, “I’ve just found out that my freemium product has on average 9000 users a day, access it with only 140 people paying for the advanced features. I’m looking for someone who can mentor me on how to migrate those free users to happy paying users without pissing them off.” While we’re not going to mentor him, I have some thoughts on how to think about doing this. But why don’t you kick us off with some ideas?
Mike: I think to start with is that 140 people out of 9000 is about a little over one-and-a-half percent. It’s like 1.55%. If my memory serves me, that’s actually not a terrible freemiun rate.
Rob: Yup. I believe Dropbox, in the early days, the numbers they published was like 3% from free to paid over 12 months. When they did that, they had such a high funnel volume, that that was their business model. Who knows what it is now. I agree, 1.5% is in the order of magnitude or what Dropbox had.
Mike: Right. To start off, that’s not terrible. Did he say what this product was? I don’t see that here.
Rob: No, he didn’t. That’s, again, why I asked him. I don’t know if it’s B2C. I don’t know.
Mike: My guess is that it would be B2C. It doesn’t seem like it would be anything else.
Rob: Yeah, I would think so. I’m not sure why you would do freemium with deep B2B. I shouldn’t say that because there’s MailChimp and Drip and they have free plans. There’s whole reasons for that. But flippantly on the service, if you have 9000 free users and 140 paid, I’m guessing it’s the B2C product.
Mike: Right. I think there’s a few different ways you could go about this. It looks to me he’s going down the path of analyzing who is using the product. That’s a great place to start. If he know that 9000 users a day are accessing it, something that brings that to mind, though, is that the users per day is not necessarily reflective of the total number. That 1.5% that you and I just talked about is probably substantially lower than that because he’s saying users per day are actively logging in versus how many is it over a month, or three months, or over the course of the year? How many total accounts are there versus the number of people who are using it? I’m not saying that you’re going to be able to charge all those people. It’s kind of like a benchmark for how many people have started using it and decided to keep using it versus how many people decided that it was worth it enough to pay.
That aside, take a look at seeing what features people are using. Compare them between the paid users and the free users. See if there are places where they are using certain features or using a certain amount of it. Let’s say Buffer, as an example. If you have a certain number of social profiles connected, I think it’s three or four, you’re still qualified for the freemium plan. But then, once you get above that, then you have to pay for it. See what those metrics look like and see if there are places where you can see that there are people who would probably pay for it if there was a barrier there or there was a paywall to go over that limit.
In order to convert them over from free to paid, you’re going to have to be really, really careful because if you simply take something away, let’s say that the limit was, you decided that it should be 5 and a lot of people have 10, those people who are not paying for it now are going to be really, really upset that you made them start paying for it, even though you’re providing value. You can kind of segment your list a little bit, see who signed up with a work account versus a free account.
There’s places on GitHub where you can go in and you can find a list of mail servers. They include things like Gmail, Yahoo!, AOL, and all those things, basically free email accounts. Those providers, match that up against your list, see who’s probably using a work account versus a free account, and target those people who are using a work account first as the people to try and get them to upgrade. Offer them some sort of special discount or incentives, Maybe something above and beyond what the typical package would be.
You can also do kind of a Netflix model where you grandfather them in for a certain time period, let’s say six months or a year, and say, “Look, we’re going to start charging for this but we’re not going to do it right now. We’ll do it in that timeframe.” That way, you can kind of gauge the response as opposed to just doing it and then dealing with the fallout. Those are just a bunch of things off the top of my head. Rob, I’m sure you have plenty to add.
Rob: Yup. I totally do. That’s the thing. I think there are different options here that you have to think about. If it’s B2C, the numbers are actually not that bad. The first thing I try to figure out is why are people not upgrading and I probably email or everybody who is not and say, “What are you looking for?” Just start conversations. “What in our paid plans isn’t that enticing? What do you need?” Maybe 8000 of them are just teenagers or are people who live in a country where they just don’t have the money to pay for it. None of this is worth it. It’s trying to get to not that they aren’t upgrading but why aren’t they upgrading. That would be the first thing I’d think about.
If you decide, “Oh, there’s a bunch of businesses using this and they should be paying for it more than 1.5% or whatever,” then I think you kind of have four options. You can email everybody with a one-time upgrade reward like, “Hey, get a free $20 Amazon gift card.” That’s a terrible idea but this free ebook or this free audio series or this free physical book or just some type of reward to upgrade right now to paid. Probably not going to do great but it’s one option. It’s simple. It’s quick.
Another option is to offer maybe a one-time special pricing tier and be like, “This is only available once and it’s the same price as what everyone else is getting but you get twice as much or three times as much if you upgrade now.” That keeps your price the same.
The next level up is to kind of giving a lot of stuff is offer a one-time lifetime discount and be like, “Look, the price will be half of what everyone else is the normal sign-up for the rest of the time that you’re on the product,70%, or whatever you want to do, but you have to pay for a year in advance,” and just see what kind of result you can get there.
The last option is, frankly if free plan is working for you and it is marketing which is really what free plans are supposed to be, then you don’t want to close it down. But if free plan is a lot of cost for you, whether it in support or it’s in hosting, and you want to consider closing it down, then that’s kind of your last option. Yes, you will make a few people mad but there’s always fewer people mad than you think will be.
You could close the free tier with 3-12 months of notice basically offer one of the above options that I’ve already given, and just say, “Look, due to this and that, I’m a single founder, small bootstrap company, we don’t have the resources. I’m sorry, it was an experiment, and sometimes, these things happen.” People understand that. You’ll get two responses from 8000 that will be all huffy about it. Or maybe it’s 10 but still, it will be a tiny fraction.
I have done this before. I acquired HitTail and there was this huge free tier. People were abusing the system, frankly, and I have to shut one down. I did it just like that. I did and I’ve got some emails from people who are mad, and then I’ve got a bunch of people that upgraded. It was enough to kind of co-hosting cost for each month, based on the number of people that upgraded.
Those are the options I think that really come to mind and obviously some of those overlap. […] what you said but I think there are definitely ways to be thinking about this. Free plans are tricky. I think that’s the bottom line. They’re not as clear-cut, not as easy to navigate as just straight ahead trial to paid, but that doesn’t mean you shouldn’t do them.
Mike: Yeah. I think there’s definitely an approach to basically chipping away at that number and increasing it from 140 to as high as you can get it obviously, but there’s ways to do it and it depends a lot on how much time you have or how much time you want it to take. You can just send out an email and say, “Hey, in two weeks we’re going to start charging for this and kind of shut down the free plan.” But that’s a hard line in the sand and it’s difficult to back away from versus the opposite approach which is approach them with a soft hand and try to slowly move people over and not make them too upset. You just take a much longer period of time to do it and over time you kind of ratchet that up and slowly be a little bit more tightfisted about it. I would be a little cautious with that number of people.
Rob: Yup, I agree. I got a couple of other questions. We only got a couple of more minutes but I went to Quora and I went to the startups category. I pulled a few more questions out. We’ll see how many we have to get through. Mike, I’m curious. What is the worst startup business idea that you’ve ever heard?
Mike: I have the perfect one that I’ve heard. I was talking to somebody. It was maybe 2-3 years ago. He has told me how he had this great idea for a startup and they’ve already gotten something like $300,000 worth of funding for it and have basically burned through it all. Somehow, this company is worth $8 million and the basic idea of it—this is kind of his words, I’m paraphrasing this to some extent—he kind of said it’s a combination of Facebook, Pinterest, Twitter, and he named off two or three other major online businesses like that people who listen on this show would recognize. I’m just like, “You have got to be kidding me.” I don’t want to mash them all together and create one giant platform for everybody to use.
Even after burning through $300,000 worth of investment capital, I was like, “How many paid customers do you have?” Of course, getting that out of him was like pulling teeth and he was like, “None.” Then I said, “Okay, so you haven’t made any money. How many users do you have? Like free people? Like people who are just using it?” and the answer was still none. I’m like, “Oh my God, I can’t even believe I’m entertaining this conversation.”
Rob: Yeah, and that’s a tough thing. It’s like I run into some entrepreneurs who wanted to start a startup and they don’t have any connection to the startups space. That’s okay, you don’t have to be part of the community and drink the Kool-Aid of any one person. You don’t have to be part of the MicroConf crowd or be part of the Silicon Valley crowd or the SaaS or whatever, but I do think that there are learnings and general knowledge that we all roll our eyes at, that are so fundamentally known within the circles, that if you want to start a startup, having some of that knowledge is just as helpful as some guard rails.
When you say that Facebook, Pinterest, Google, Apple combination or whatever the guy said, this is one that just breaks so many rules that you know that it’s probably a bad idea, but he didn’t know. He doesn’t know that it breaks the rules because he doesn’t know what kind of “rules” are in terms of trying to get some off the ground.
Mike: Yeah. I think even objectively though, you’re trying to build something that is that broad and it just struck me as odd. Delusional is really the word.
Rob: I don’t know the worst. It’s hard to nail the worst one. Probably some of the worst ever have been ideas that I’ve come up with myself. There is one. I was a contractor-developer years ago. It was during the dot-com boom. Of course, that’s when a lot of the worst ideas came out. One of them was—I won’t say the name of it—they had this system where you could come to the website—remember, there were no mobile phones, it wasn’t a mo-app—you could log into the website on your computer and if you have seen someone on the road that you wanted to get in contact with—I was assuming it was a dating kind of social network thing before social networks—if you’ve got their license plate number, you type it into the startup website, they would notify that person and say, “So and so wants to connect with you. Do you want to connect with them?” and it had to be a double opt-in. Then, there’s going to be a social network and people could chat back-and-forth and meet and talk. That was the idea.
I remember we’re building this and I’m like, “Wait, aren’t there privacy concerns? How are you going to get people’s emails from their license plates? What’s the network effect on this?” It’s just layers and layers of questions of like, “How will this ever work?” Again, at least we have a mobile phone or something and take a picture of their car and yours and they could see you. But if you suddenly got an email from this company that’s like, “Someone wants to connect with you. They database on your license plate,” and you’re like, “I don’t know who that person is. I didn’t see them while I was driving on the freeway.” Do you think it’s bizarre? Do you think it’s good? Do you think it’s gold?
Mike: I don’t definitely think it’s gold but I also will say flat out that it is hard to predict what the general population will do or will gravitate towards for certain types of social apps. Snapchat, for example. If you were ask me five years ago, “Oh will Snapchat ever be a thing?” I’ll be like, “No, that’s the dumbest thing I’ve ever heard.”
Rob: It was my idea and I asked you. You told me not to do it and look where that got us, Mike.
Mike: I know. But it’s hard to predict when those things come up, whether or not that’s going to go anywhere. Personally, would I ever use it? Heck, no. There’s no way. That’s like it’s got ‘stalker’ written all over it. I think that you would have a hard time getting traction with it but would nobody use it? I can see people deciding they wanted to use it if they were in a hit-and-run and somebody took off and they’re like, “I think have this license plate.” Although they’ll just give it to the cops. So, what difference does it make?
Rob: Yeah, that’s the thing. Then they’d contact him and be like, “Do you want to hear from this person about your hit-and-run?” and like, “No. Rejected” Its funny.
Last question of the day, Mike. What are the things that no one tells you about starting a startup?
Mike: I think the thing that comes to mind here is that there are there going to be days, possibly weeks and months, where you get up in the morning and you say to yourself, “I didn’t sign up for this.” It’s all going to be related to stuff that you thought you got into the business for one reason and you find out that you’re going over your books line by line because somebody made a mistake or there’s some API that’s coming in and hitting your app and you have to somehow lock it down because it’s like basically DDoSing your systems. There’s going to be things that come up where you’re like, “I didn’t sign up for this.” The reality is you kind of did but it’s too late to do anything about it. Everyone has those days. Those are the two things I would say about that.
Rob: Yeah. Those are good answers, Mike. A lot of people will tell you that it’s hard and a lot of people will tell you it take a long time and such. I’ve said that a lot. The MicroConf and bootstrapper community is both big and small. In terms of the entire world, the startup community is pretty small even though it can have some influence on those folks. But just outside our community, I don’t hear many people saying, “When you’re starting up, try to get to revenue quickly and try to do that in the first whatever, the first six months after launch.”
I think that there is so much importance put on growth of user engagement or growth of numbers and daily actives in this kind of stuff. I even think there’s SaaS founders launching with pure freemium models because they just think that the number of people coming to use their app is important or is what counts or something like that. I think that focusing on revenue early is something that I don’t think is talked about enough.
Mike: Yeah, I would say I agree with that. I think it’s something of a common fallacy. I almost want to blame Steve Jobs for this, but people think that—I’m not immune to this—if you build something great, people are going to find it or you know what the customer wants. That’s really more of a Steve Jobs than anything else. It’s like you know what the customer want and you just need to build it and put it in front of him. Then you find out afterwards that you were way off base and there’s all these other things you need to do or that they want or need, subtle things that you need to now change. Whereas if you had just talk to the customer in the beginning, you had learned that those things weren’t true.
I think that there’s this aura or halo around Steve Jobs just like Saint John saying, “I know what these people want and this is how it should work.” All the stories that go around where he just was very intuitive about it, what should be built, and people kind of think that they can do that too. I think that there’s a big distinction between a multi billionaire who has been in that position than all of the rest of us.
Rob: Right and he eventually did that, I think. I think there’s myth around it. Some of it is exaggerated, but he didn’t do that earlier in his career. When was the last time you heard someone talk about, “The Apple IIe was designed by Wozniak and it was so far ahead of its time that when it did catch on, it was amazing.” But it’s not Jobs, aside from crafting the outside of it or whatever, he didn’t invent the Apple IIe, but he came up with the Lisa, which was a failure. He really pushed the Macintosh forward, which was a failure early on and eventually caught on. Then he launched NeXT and built a computer that was a failure. He had a bunch of failures. He thought he knew what people wanted and then actually didn’t.
If you read the book Becoming Steve Jobs, it talks a lot about his transformation and it touches on all those things. That’s what people forget. It’s like you and me and the person who thinks they’re Steve Jobs, we don’t have the decades and hundreds and millions of dollars to burn through, to learn the lessons that he ultimately did. By the time he did come out and do the iMac, the iPod, the iPhone, all the stuff that he eventually had wild, amazing success with, a lot of people forget that he lost hundreds and millions of dollars of his and other people’s money on the journey there and he spent decades of his life basically learning that stuff that most of us don’t have the luxury of it.
Mike: That’s kind of my point. We forget that piece of it.
Rob: Yup.
Mike: Interesting question for sure. But if you have a question for us, you can call 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 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 to each episode. Thanks for listening and we’ll see you next time.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, where this week, Mike?
Mike: A couple of a personal milestones for January. The first one is that I have averaged over seven hours of sleep per night since I got my CPAP machine. So that is good. I’m glad to see that I’m actually getting sleep these days. The other one for January specifically, I kind of got back on the bandwagon for exercise. I have logged 12 days of exercise for January. It’s one of those small personal wins. It doesn’t really make a difference in the grand scheme of things, but it’s nice to see that things seem to be getting back on track.
Rob: That’s awesome. The seven hours, isn’t that up from—
Mike: Three-and-a-half?
Rob: Like four hours? I mean, that’s a huge difference. Obviously, sleep makes a difference in so much stuff. In fact, I showed an audiobook that I was listening to. The Power of When is what it’s called but a lot of it is about sleep. Just that like not getting enough sleep, it just shapes your whole mindset, you can get sad, depressed, you can be pessimistic. I’m all of those things if I don’t get enough sleep. But is that why? I mean, the 12 days of exercise for you, is it because you’re getting more sleep that your able to do that?
Mike: Yeah, definitely. I do not have the will power to go to the gym if I don’t get enough sleep. I just recognize that, which kind of sucks. It means that if my sleep goes off the rails, then pretty much everything else goes off the rails, too. The sleep is definitely kind of the underlying factor, but obviously the other stuff contributes in other ways. If I’m getting enough sleep but probably not enough exercise, then I could probably get by. But if I’m not getting to sleep then not exercising contributes to other negative things that happened and just completely throws me off the rails.
Rob: Yeah, I can totally imagine that. The same thing happens to me. Glad to hear it and has your mindset shifted as well?
Mike: Yeah, definitely. I’m definitely more optimistic about just about everything, to be honest. In some ways I look back at it and it’s night-and-day difference between now and a couple of months ago. It’s just partly the mindset but partly the ability to actually remember things. I remember conversations that I was in before where I would literally just forget words. I still have something lingering effects of that but I’m hoping that it gets better and eventually goes away.
I don’t know how bad things can get or how long it can affect you, the sleep deprivation. I have read horror stories and stuff about people who don’t get enough sleep for extended periods of time. It’s just like a long-term brain damage and stuff, which was kind of terrifying, but I don’t know how bad that was for me and it’s not something to find out exactly anytime soon. If I don’t remember it that it did ever happened, I don’t know.
Rob: That’s right. Can’t we just blame it on getting old, too?
Mike: You could. I’m young.
Rob: We had a pretty cool comment on episode 423 which is where we talked through our goals for 2019. You essentially looked back on 2018 and you said it was a complete bust. I’ve got ones out of five on all my goals and I was pulling some things out of you like what were some wins. Sarah chimed in on the comments and said, “Hey, Mike. I think you can think about 2018 a bit differently. You actually had a major win, which was finding out that you have sleep apnea. Without that discovery, 2019 would have been the same or even worse than 2018. Now you know the problem is, you can do something about it. As you both discussed, lack of sleep messes up absolutely everything.” I want to throw in here that knowing is half the battle after all, am I right?
Mike: Yeah, I guess.
Rob: So back to Sarah, she said, “So rather than feeling crappy about not meeting any of your 2018 goals, maybe you could reframe 2018 as a transition year or turning point. Best of luck for 2019. Hope it’s everything you want to be.”
Mike: Thanks there. I really appreciate that. Even recently, I’ve started kind of rethinking my thoughts on what last year were. I write it off as kind of more of a learning experience of like, yes this happen and it sucks but at the same time there’s literally nothing I can ever do to get that time back. So, I may as well just kind of buckle down and move on.
Rob: Yup. Sometimes, that’s what you’ve got to do. We also had another comment that I thought was poignant and it was about episode 428 where we answered some listener questions. One of them was about equity split. Rob chimed in. I don’t know his last name, it wasn’t me. He chimed in on the comments and he said, “Regarding the equity split question, you missed mentioning vesting periods and cliffs, which is super important.”
He’s correct and what’s interesting is normally I do when we talk about equity splits. Typically even if two co-founders are starting a company together, you want them to vest their equity over a period of time. The range tends to be to 2-4 years and you often had a cliff at the front, meaning you get zero equity until one year in. Then you vest that whole year at a time and then you vest the rest on a monthly schedule.
It’s not how you have to do it but it is the most common way to do it. I think it’s how Y Combinator is kind of setup and I believe the use are there either a three- or four-year festing with a one-year cliff upfront. I appreciate Rob for calling that out. What you’re trying to save yourself from is someone working on your business for six months, leaving, and then he or she owns half the company. You’re trying to avoid that so that everyone puts in their time and earns their equity in a sense. Thanks for chiming in with that Rob.
Mike: One other thing that I wanted to mention is that I’ve started adding to the email courses and stuff that I have on the Blue Tech website and based on those, I actually got an email this morning from somebody and invited me to contribute to their online publication, wanted to talk to me a little bit more about it, so I’m going to try and set up a meeting to discuss that with them next week. There’s another one that I have that is in the works as well that’s completely unrelated to the online course that I have. Both of them have publications that are catering to people who are doing email marketing, so it’s kind of exciting to see that those opportunities are starting to show up.
Rob: That is fun. Will you mention them on the show and/or link to them when the time comes?
Mike: I will as soon as at least when they get closer to going live or I know that they’re actually going to go live. I’m sure that you’re no stranger to this, but I’ve been on podcasts before, different places, written articles and stuff, where you write it and submit it or you record the episode and then for whatever reason, it just never sees the light of day. So I’ll wait a little while until I actually do that.
Rob: Yeah and I actually do more vetting now of podcasts or magazines or whatever that want to interview me. I have had enough for those happen where I spend the time I do it and then it never see the light of day. It’s kind of tough.
Today we are answering some listener questions. Our first is a question about business ethics check. I think this is kind of interesting. It’s from Paul McMahon and he says, “Hi guys. I don’t think you’ve ever done a show on business ethics. I’d be interested in hearing about some of the ethical challenges you face when running your businesses and how you’ve approached them.”
“For me personally, my biggest challenge has been deciding how to approach dealing with business I consider to be unethical. For example, as a business, Facebook has shown many times that they’re willing to make moral compromises in exchange for growth and revenue. This makes me not want to support them. At the same time, I have a positive ROI on Facebook ads. How do I balance my disdain for their business with growing my own business?”
“Another example is what you do about customers whose businesses or organizations you consider to be unethical. In my case, I run a niche job board tied to my personal identity. It’s a manual process onboard customers. I talk with every company wanting to use it. I’ve had some companies want to use it whose business I think is immoral while still legal. I’ve waffled on whether or not to accept them as customers. I wonder if you’ve ever faced similar challenge.”
“As bootstrappers, we normally don’t have a board or shareholders to answer to. This makes it hard to hide behind the idea that we should just do whatever is best for the company. The company is a direct reflection of our own goals and beliefs. Ultimately the specific ethical challenges we face depend on us personally. So, rather than looking for advice with challenges I faced, I’d be more interested in hearing about yours and how you’ve dealt with them.”
Mike: I think that’s a great question but it’s also extremely involved and nuanced based on who you are what you value. I’ve seen people commenting specifically on Facebook, for example. Paul specifically called Facebook out as one of those companies where he’s kind of making this moral compromise to exchange it for growth and revenue because it does bring business by spending money on Facebook ads, but how do you go about doing that and how do you justify that?
I can’t say that there’s one go to answer for is because it really depends on your level of comfortability with that, what it is you’re offering, and the types of people that you’re serving. Personally, I look at it as like, if you’re not getting in front of your customers, then are you doing them a disservice by not trying to help them? Obviously, you can go back-and-forth on that all day long. I think for me it depends a lot on the advertiser’s platform themselves, whether it’s something that I use or would use. If it’s something that I’m not going to use or have absolute qualms about using, then I probably wouldn’t do advertising on there.
At the same time, I have a Facebook account. So, would I do Facebook advertising? Yes. Do I have kind of a personal moral dilemma over them making money from that? Yes, to some extent, but there’s also not a lot of other options. I think that’s kind of a big deal to think about, like do you have other options? Are there ways that you can not support them and other financial ways but still get what you need out of them? They’re a big company. They don’t care.
Rob: I think that’s a good point I want to hop in here. Look at Amazon, Apple, Google, Facebook, GE, and Procter & Gamble. In all these companies, I don’t love everything they do. They all make missteps and they all do some things that either are unethical or immoral or whatever, however you want to frame it, and your point of it being nuanced and having to weigh these things, it’s interesting.
I like how you said, “From now I’m not going to do Facebook ads.” Really should delete your Facebook account, too. Some people do that, but if you haven’t done that, I don’t know that it matters to you enough if you’re still engaging with the platform.
Mike: That’s kind of what I was thinking. If you’re not so opposed to Facebook that you haven’t deleted your Facebook account yet, then you’re probably not that violently opposed to them such that supporting them through advertising on their platform really makes that much of a difference. But if you have deleted it, then you’re probably not going to create a new one just do you can do that.
I know there are some people who have deleted their Facebook accounts and then created one specifically so that they could do advertising. That’s because Facebook will not allow you to advertise unless you have a Facebook account linked to it, which kind of sucks but if your going to go down that route, then what you do about it? Your options are to not do the ads or to do them.
Rob: Yeah. What’s interesting is he’s asking basically about ethics and these terms, ethics and morals, they do relate to right or wrong conduct. But if I look up a definition of them, I always think of this is like they can be used interchangeably but ethics refer to rules provided by an external source and morals are individuals on principles. Ethics can be laws, or it can be workplace code of conduct, or can be religious principles, whereas morals are something that comes from inside you.
I do think here that they can overlap but they’re not always the same. Sometimes your morals can conflict with the ethics with laws. You don’t agree with a law that’s passed and you wholeheartedly don’t think that’s ethical. I’m not trying to muddy the water or get philosophical here, but I do think that with bigger businesses it is easier to make this ethical argument that it’s a larger body and there’s legal requirement that you do what’s best for the shareholders, whereas with smaller companies it’s not.
Have I faced moral dilemmas over the years? Yeah, I have. There was a time when I was unemployed. It was right after the dot com bust. Someone who’s going to give me a contract for $15,000, I would have kept this. This was when we were young and living pretty svelte. It was good. Then it keep us going for a couple months, probably three months or so. I went through, talked the guy through my hourly rate, did all the stuff, and he’s like, “This sounds great, let’s get started right away.” I was going to work from home, there was all this thing, and then when he started walking me through the site I was like, “This isn’t something I can support,” like, “I’m sorry but this isn’t something I can show to my kids.”
While I don’t have an issue with it and it’s not illegal, it’s just not something that I can do. It was a very hard decision for me but I’ve never looked back and thought, “Boy, I really should have sacrificed…” There was just something in me that didn’t agree with it. I’m not sure I can count any of the times where I’ve followed my moral compass, that I regret doing that.
So, if I were onboarding customers and I had an issue with what they’re up to, I guess you can piss people off by saying, “Hey, you know what? I’m sorry, we just can’t accept you.” They could get angry. Could they sue you? I suppose, but is it really worth their time and if you have something in your terms of service to cover you there, that you can cover that legal thing?
In my opinion, if you run your own business and you bootstrap, you’re doing it for a lot of reasons. One of those is so really you control your own destiny. I feel like I want to be able to get up everyday, look myself in the mirror, and believe in what I’m doing. Each of us might have a slightly different definition of that because our morals are different from person-to-person.
One part of that for me is I want to be able to tell my kids about any investment I make in any company and any company that I fund, that I advise, that I work on, I never want to have to say, “Oh yeah. Don’t tell the kids about that company.” There are certain businesses that are legal, that I am going to personally not invest in or be associated with because of that. That happens to be my moral compass but it doesn’t necessarily need to be yours as a listener.
Mike: Yeah. I think there’s a good distinction there between ethical, moral, and illegal. I definitely don’t want to be on the side of doing things that are illegal, but at the same time, I think if you take a step back from that and look at the United States, for example, there is marijuana legalization all over the place but it’s still not legal at a federal level. It becomes a very much gray area at that point. Is it legal? Is it not? It depends on which laws you’re looking at.
There are some people who are like, “I don’t care,” or, “I don’t agree with the law and I’m not going to follow it.” That’s totally your choice and maybe you’re doing something illegal at that point, but is it moral or ethical? I think that your points about the difference between those are head on. I agree with you in terms of what I would be willing to do and what I would want to be able to show to my kids. I wouldn’t want to be involved in stuff that I will have to hide from them. I’m not in the hiding things.
Rob: This is an interesting one and I think that Paul asked specifically about the ethics, but I think what he’s talking about is morals. He talked business ethics but he said, “I had some companies want to use it whose business I think is immoral,” and that is subtle, it’s nuanced, but it actually is a different thing because ethics would be, again, an external kind of force on you.
Mike: And honestly, this is something that I’ve struggled with to some extent because with Blue Tech, specifically, people can use Blue Tech for cold email outreach. I’m not a huge fan of it. I don’t do a lot of cold email outreach mainly. I will pinpoint, email certain people but I’m not going to throw them into an automated sequence if I don’t think that it’s a good chance that they’re going to be interested in. Quite frankly, I will find ways to make it a warm introduction instead of a cold email. I’m just not going to drop somebody a completely cold email because (1) I don’t think that it works very well, and (2) I think there’s better ways to provide value and get in front of people than just drop in a completely cold email out of the blue.
There are people who do feel that that’s a viable strategy and they want to do that. I do struggle to some extent with what do I do with those people and how should they be treated. I don’t treat them any different than any other customer, but at the same time I do struggle to some extent with what should I do with the business itself, how do I turn these people away, or say, “Hey, maybe there’s another piece of software the you should be going to use,” because some of them will come to me and say, “Hey, I have my own mail server and I am able to send…” I forget what it was. Some customer came to me, a prospective customer and they said they got their own mail server and they bumped it up for 32 processors and could send thousands of emails per second. This is not something I really want to be involved in. I kind of know in the back of my mind without being told what is probably going to happen there.
Rob: Right. Some of that is kind of a morality thing or kind of moral compass. The other part of it is risk mitigation of like, “This is going to end poorly and I don’t want to be associated with that,” and I think these two can overlap at times.
Mike: Oh yeah, definitely. There is that aspect of it. We talked about this at MicroConf to some extent, too. There’s certain marketing strategies that people will use and it’s not illegal, it’s not something that you can’t do, it’s just you’re not necessarily entirely comfortable with it, so you won’t do that. It’s a hard decision making and every single situation is a little bit different. It’s just hard and I don’t have a great advice for that.
Rob: I hope our thoughts are helpful, Paul. Thanks for writing in. Our next question is perhaps an easier one. It’s about converting free users to paid. Someone has a freemium product, his name is Mark, and he actually asked this question openly on Twitter about a week ago. I think it was Adrian Peter, he kind of pinged you and I and Reuben on Twitter. I said I have some quick thoughts but frankly, this deserves more than 280 characters of thought.
I ask Mark, the original poster, to write in with more details. He didn’t. I’m assuming he either got busy, just wasn’t that interested in hearing our thoughts or whatever. I still think it’s an interesting question to talk about because I think this is something that folks struggle with. He said, “I’ve just found out that my freemium product has on average 9000 users a day, access it with only 140 people paying for the advanced features. I’m looking for someone who can mentor me on how to migrate those free users to happy paying users without pissing them off.” While we’re not going to mentor him, I have some thoughts on how to think about doing this. But why don’t you kick us off with some ideas?
Mike: I think to start with is that 140 people out of 9000 is about a little over one-and-a-half percent. It’s like 1.55%. If my memory serves me, that’s actually not a terrible freemiun rate.
Rob: Yup. I believe Dropbox, in the early days, the numbers they published was like 3% from free to paid over 12 months. When they did that, they had such a high funnel volume, that that was their business model. Who knows what it is now. I agree, 1.5% is in the order of magnitude or what Dropbox had.
Mike: Right. To start off, that’s not terrible. Did he say what this product was? I don’t see that here.
Rob: No, he didn’t. That’s, again, why I asked him. I don’t know if it’s B2C. I don’t know.
Mike: My guess is that it would be B2C. It doesn’t seem like it would be anything else.
Rob: Yeah, I would think so. I’m not sure why you would do freemium with deep B2B. I shouldn’t say that because there’s MailChimp and Drip and they have free plans. There’s whole reasons for that. But flippantly on the service, if you have 9000 free users and 140 paid, I’m guessing it’s the B2C product.
Mike: Right. I think there’s a few different ways you could go about this. It looks to me he’s going down the path of analyzing who is using the product. That’s a great place to start. If he know that 9000 users a day are accessing it, something that brings that to mind, though, is that the users per day is not necessarily reflective of the total number. That 1.5% that you and I just talked about is probably substantially lower than that because he’s saying users per day are actively logging in versus how many is it over a month, or three months, or over the course of the year? How many total accounts are there versus the number of people who are using it? I’m not saying that you’re going to be able to charge all those people. It’s kind of like a benchmark for how many people have started using it and decided to keep using it versus how many people decided that it was worth it enough to pay.
That aside, take a look at seeing what features people are using. Compare them between the paid users and the free users. See if there are places where they are using certain features or using a certain amount of it. Let’s say Buffer, as an example. If you have a certain number of social profiles connected, I think it’s three or four, you’re still qualified for the freemium plan. But then, once you get above that, then you have to pay for it. See what those metrics look like and see if there are places where you can see that there are people who would probably pay for it if there was a barrier there or there was a paywall to go over that limit.
In order to convert them over from free to paid, you’re going to have to be really, really careful because if you simply take something away, let’s say that the limit was, you decided that it should be 5 and a lot of people have 10, those people who are not paying for it now are going to be really, really upset that you made them start paying for it, even though you’re providing value. You can kind of segment your list a little bit, see who signed up with a work account versus a free account.
There’s places on GitHub where you can go in and you can find a list of mail servers. They include things like Gmail, Yahoo!, AOL, and all those things, basically free email accounts. Those providers, match that up against your list, see who’s probably using a work account versus a free account, and target those people who are using a work account first as the people to try and get them to upgrade. Offer them some sort of special discount or incentives, Maybe something above and beyond what the typical package would be.
You can also do kind of a Netflix model where you grandfather them in for a certain time period, let’s say six months or a year, and say, “Look, we’re going to start charging for this but we’re not going to do it right now. We’ll do it in that timeframe.” That way, you can kind of gauge the response as opposed to just doing it and then dealing with the fallout. Those are just a bunch of things off the top of my head. Rob, I’m sure you have plenty to add.
Rob: Yup. I totally do. That’s the thing. I think there are different options here that you have to think about. If it’s B2C, the numbers are actually not that bad. The first thing I try to figure out is why are people not upgrading and I probably email or everybody who is not and say, “What are you looking for?” Just start conversations. “What in our paid plans isn’t that enticing? What do you need?” Maybe 8000 of them are just teenagers or are people who live in a country where they just don’t have the money to pay for it. None of this is worth it. It’s trying to get to not that they aren’t upgrading but why aren’t they upgrading. That would be the first thing I’d think about.
If you decide, “Oh, there’s a bunch of businesses using this and they should be paying for it more than 1.5% or whatever,” then I think you kind of have four options. You can email everybody with a one-time upgrade reward like, “Hey, get a free $20 Amazon gift card.” That’s a terrible idea but this free ebook or this free audio series or this free physical book or just some type of reward to upgrade right now to paid. Probably not going to do great but it’s one option. It’s simple. It’s quick.
Another option is to offer maybe a one-time special pricing tier and be like, “This is only available once and it’s the same price as what everyone else is getting but you get twice as much or three times as much if you upgrade now.” That keeps your price the same.
The next level up is to kind of giving a lot of stuff is offer a one-time lifetime discount and be like, “Look, the price will be half of what everyone else is the normal sign-up for the rest of the time that you’re on the product,70%, or whatever you want to do, but you have to pay for a year in advance,” and just see what kind of result you can get there.
The last option is, frankly if free plan is working for you and it is marketing which is really what free plans are supposed to be, then you don’t want to close it down. But if free plan is a lot of cost for you, whether it in support or it’s in hosting, and you want to consider closing it down, then that’s kind of your last option. Yes, you will make a few people mad but there’s always fewer people mad than you think will be.
You could close the free tier with 3-12 months of notice basically offer one of the above options that I’ve already given, and just say, “Look, due to this and that, I’m a single founder, small bootstrap company, we don’t have the resources. I’m sorry, it was an experiment, and sometimes, these things happen.” People understand that. You’ll get two responses from 8000 that will be all huffy about it. Or maybe it’s 10 but still, it will be a tiny fraction.
I have done this before. I acquired HitTail and there was this huge free tier. People were abusing the system, frankly, and I have to shut one down. I did it just like that. I did and I’ve got some emails from people who are mad, and then I’ve got a bunch of people that upgraded. It was enough to kind of co-hosting cost for each month, based on the number of people that upgraded.
Those are the options I think that really come to mind and obviously some of those overlap. […] what you said but I think there are definitely ways to be thinking about this. Free plans are tricky. I think that’s the bottom line. They’re not as clear-cut, not as easy to navigate as just straight ahead trial to paid, but that doesn’t mean you shouldn’t do them.
Mike: Yeah. I think there’s definitely an approach to basically chipping away at that number and increasing it from 140 to as high as you can get it obviously, but there’s ways to do it and it depends a lot on how much time you have or how much time you want it to take. You can just send out an email and say, “Hey, in two weeks we’re going to start charging for this and kind of shut down the free plan.” But that’s a hard line in the sand and it’s difficult to back away from versus the opposite approach which is approach them with a soft hand and try to slowly move people over and not make them too upset. You just take a much longer period of time to do it and over time you kind of ratchet that up and slowly be a little bit more tightfisted about it. I would be a little cautious with that number of people.
Rob: Yup, I agree. I got a couple of other questions. We only got a couple of more minutes but I went to Quora and I went to the startups category. I pulled a few more questions out. We’ll see how many we have to get through. Mike, I’m curious. What is the worst startup business idea that you’ve ever heard?
Mike: I have the perfect one that I’ve heard. I was talking to somebody. It was maybe 2-3 years ago. He has told me how he had this great idea for a startup and they’ve already gotten something like $300,000 worth of funding for it and have basically burned through it all. Somehow, this company is worth $8 million and the basic idea of it—this is kind of his words, I’m paraphrasing this to some extent—he kind of said it’s a combination of Facebook, Pinterest, Twitter, and he named off two or three other major online businesses like that people who listen on this show would recognize. I’m just like, “You have got to be kidding me.” I don’t want to mash them all together and create one giant platform for everybody to use.
Even after burning through $300,000 worth of investment capital, I was like, “How many paid customers do you have?” Of course, getting that out of him was like pulling teeth and he was like, “None.” Then I said, “Okay, so you haven’t made any money. How many users do you have? Like free people? Like people who are just using it?” and the answer was still none. I’m like, “Oh my God, I can’t even believe I’m entertaining this conversation.”
Rob: Yeah, and that’s a tough thing. It’s like I run into some entrepreneurs who wanted to start a startup and they don’t have any connection to the startups space. That’s okay, you don’t have to be part of the community and drink the Kool-Aid of any one person. You don’t have to be part of the MicroConf crowd or be part of the Silicon Valley crowd or the SaaS or whatever, but I do think that there are learnings and general knowledge that we all roll our eyes at, that are so fundamentally known within the circles, that if you want to start a startup, having some of that knowledge is just as helpful as some guard rails.
When you say that Facebook, Pinterest, Google, Apple combination or whatever the guy said, this is one that just breaks so many rules that you know that it’s probably a bad idea, but he didn’t know. He doesn’t know that it breaks the rules because he doesn’t know what kind of “rules” are in terms of trying to get some off the ground.
Mike: Yeah. I think even objectively though, you’re trying to build something that is that broad and it just struck me as odd. Delusional is really the word.
Rob: I don’t know the worst. It’s hard to nail the worst one. Probably some of the worst ever have been ideas that I’ve come up with myself. There is one. I was a contractor-developer years ago. It was during the dot-com boom. Of course, that’s when a lot of the worst ideas came out. One of them was—I won’t say the name of it—they had this system where you could come to the website—remember, there were no mobile phones, it wasn’t a mo-app—you could log into the website on your computer and if you have seen someone on the road that you wanted to get in contact with—I was assuming it was a dating kind of social network thing before social networks—if you’ve got their license plate number, you type it into the startup website, they would notify that person and say, “So and so wants to connect with you. Do you want to connect with them?” and it had to be a double opt-in. Then, there’s going to be a social network and people could chat back-and-forth and meet and talk. That was the idea.
I remember we’re building this and I’m like, “Wait, aren’t there privacy concerns? How are you going to get people’s emails from their license plates? What’s the network effect on this?” It’s just layers and layers of questions of like, “How will this ever work?” Again, at least we have a mobile phone or something and take a picture of their car and yours and they could see you. But if you suddenly got an email from this company that’s like, “Someone wants to connect with you. They database on your license plate,” and you’re like, “I don’t know who that person is. I didn’t see them while I was driving on the freeway.” Do you think it’s bizarre? Do you think it’s good? Do you think it’s gold?
Mike: I don’t definitely think it’s gold but I also will say flat out that it is hard to predict what the general population will do or will gravitate towards for certain types of social apps. Snapchat, for example. If you were ask me five years ago, “Oh will Snapchat ever be a thing?” I’ll be like, “No, that’s the dumbest thing I’ve ever heard.”
Rob: It was my idea and I asked you. You told me not to do it and look where that got us, Mike.
Mike: I know. But it’s hard to predict when those things come up, whether or not that’s going to go anywhere. Personally, would I ever use it? Heck, no. There’s no way. That’s like it’s got ‘stalker’ written all over it. I think that you would have a hard time getting traction with it but would nobody use it? I can see people deciding they wanted to use it if they were in a hit-and-run and somebody took off and they’re like, “I think have this license plate.” Although they’ll just give it to the cops. So, what difference does it make?
Rob: Yeah, that’s the thing. Then they’d contact him and be like, “Do you want to hear from this person about your hit-and-run?” and like, “No. Rejected” Its funny.
Last question of the day, Mike. What are the things that no one tells you about starting a startup?
Mike: I think the thing that comes to mind here is that there are there going to be days, possibly weeks and months, where you get up in the morning and you say to yourself, “I didn’t sign up for this.” It’s all going to be related to stuff that you thought you got into the business for one reason and you find out that you’re going over your books line by line because somebody made a mistake or there’s some API that’s coming in and hitting your app and you have to somehow lock it down because it’s like basically DDoSing your systems. There’s going to be things that come up where you’re like, “I didn’t sign up for this.” The reality is you kind of did but it’s too late to do anything about it. Everyone has those days. Those are the two things I would say about that.
Rob: Yeah. Those are good answers, Mike. A lot of people will tell you that it’s hard and a lot of people will tell you it take a long time and such. I’ve said that a lot. The MicroConf and bootstrapper community is both big and small. In terms of the entire world, the startup community is pretty small even though it can have some influence on those folks. But just outside our community, I don’t hear many people saying, “When you’re starting up, try to get to revenue quickly and try to do that in the first whatever, the first six months after launch.”
I think that there is so much importance put on growth of user engagement or growth of numbers and daily actives in this kind of stuff. I even think there’s SaaS founders launching with pure freemium models because they just think that the number of people coming to use their app is important or is what counts or something like that. I think that focusing on revenue early is something that I don’t think is talked about enough.
Mike: Yeah, I would say I agree with that. I think it’s something of a common fallacy. I almost want to blame Steve Jobs for this, but people think that—I’m not immune to this—if you build something great, people are going to find it or you know what the customer wants. That’s really more of a Steve Jobs than anything else. It’s like you know what the customer want and you just need to build it and put it in front of him. Then you find out afterwards that you were way off base and there’s all these other things you need to do or that they want or need, subtle things that you need to now change. Whereas if you had just talk to the customer in the beginning, you had learned that those things weren’t true.
I think that there’s this aura or halo around Steve Jobs just like Saint John saying, “I know what these people want and this is how it should work.” All the stories that go around where he just was very intuitive about it, what should be built, and people kind of think that they can do that too. I think that there’s a big distinction between a multi billionaire who has been in that position than all of the rest of us.
Rob: Right and he eventually did that, I think. I think there’s myth around it. Some of it is exaggerated, but he didn’t do that earlier in his career. When was the last time you heard someone talk about, “The Apple IIe was designed by Wozniak and it was so far ahead of its time that when it did catch on, it was amazing.” But it’s not Jobs, aside from crafting the outside of it or whatever, he didn’t invent the Apple IIe, but he came up with the Lisa, which was a failure. He really pushed the Macintosh forward, which was a failure early on and eventually caught on. Then he launched NeXT and built a computer that was a failure. He had a bunch of failures. He thought he knew what people wanted and then actually didn’t.
If you read the book Becoming Steve Jobs, it talks a lot about his transformation and it touches on all those things. That’s what people forget. It’s like you and me and the person who thinks they’re Steve Jobs, we don’t have the decades and hundreds and millions of dollars to burn through, to learn the lessons that he ultimately did. By the time he did come out and do the iMac, the iPod, the iPhone, all the stuff that he eventually had wild, amazing success with, a lot of people forget that he lost hundreds and millions of dollars of his and other people’s money on the journey there and he spent decades of his life basically learning that stuff that most of us don’t have the luxury of it.
Mike: That’s kind of my point. We forget that piece of it.
Rob: Yup.
Mike: Interesting question for sure. But if you have a question for us, you can call 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 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 to each episode. Thanks for listening and we’ll see you next time.
Episode 430 | What to Look For In a Co-Founder
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about what to look for in a co-founder. They touch on different aspects of evaluating someone for the role including, honesty/integrity, skill-set vs. future skill-set, fixed mindset vs. growth and more.
Items mentioned in this episode:
- AppSumo MicroConf Giveaway
- MicroConf Starter Edition Scholarship Application
- MicroConf Growth Edition
- MicroConf Starter Edition
- Big Snow Tiny Conf
- TinySeed
- CartHook
Mike: Rob, why was Pavlov’s hair so soft?
Rob: I don’t know, Mike. Why was Pavlov’s hair so soft?
Mike: He conditioned it.
Rob: Damn. Not fair.
Mike: This is Startups For The Rest Of Us Episode 430.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: 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: I got so sick Sunday night. It was a stomach flu. My kids all had the prior week and I thought I had dodged it. I was doing all good and then it was one of the worst nights I can remember. I was up five different times during the night. I was delirious, stumbling around. It was nuts. I got up Monday and the kids are off school for a snow day. I was literally on my phone trying to just respond to email. I would write a sentence and then I would fall asleep.
Mike: Oh geez.
Rob: Yeah, it was crazy. I remember as a kid being sick a lot. I don’t know if that’s true or just my memory. Then as an adult, it’s pretty rare that I get sick now and to be that late out. When I get sick now, though, it knocks me out really good. I got a flu shot, I get one every year, all of our kids had flu shots but this year, it knocks through. I lost a bit of productivity and frankly I was dehydrated for two days after. It was crazy.
Mike: That’s rough. I remember getting sick as a kid, too. I think the difference is that you have less responsibilities as a kid. Your responsibility is just lay in bed, stay off the TV, and stuff like that. But it’s so much harder now because you’ve got all the different responsibilities, we each got businesses to run, and then you’ve got your own kids to deal. Hopefully, both parents don’t get sick at the same time.
As early as this week, my oldest got strep throat and then the past couple days, both my wife and I have been on the verge of getting sick. We’re not quite sure but neither one of us has strep throat yet. So, a little germ farm.
Rob: Yeah, that’s tough, How about you? What’s going on?
Mike: Well, I recently got back from Big Snow Tiny Conf. We can talk about that a little bit. The other thing I wanted to point out to other people is the AppSumo giveaway for MicroConf is still going on. That will end on February 11. You have about one week left from the date that this podcast episode goes live, so apply.
You’ll get a free ticket to each to the conferences, both Growth Edition and to Starter Edition, and the expenses for the trip are going to be paid by AppSumo. We’ll link that up in the show notes. You can go over there and get in on the contest. There’s a bunch of different ways you can get even more entries into it. Definitely check out the website.
You can link up your Twitter account or Facebook account, it’s all the MicroConf Twitter account and things like that. Each of those things will add to the number of entries that you get in there and you can get referrals as well. Check it out and hopefully we’ll see you there.
Rob: On my end, I’ve been working on improving this weakness I have. You know how everyone says I’m so bad with names? I don’t remember names, that’s the cliché thing. I’ve always actually struggled with that in a pretty big way. What’s interesting is that it’s not that my memory is bad. I’ve realized this over and over but it was called out to me again.
It was a couple weeks ago at a startup gathering here in Minneapolis. I talked to someone and I’m like, “Hey, I know we’ve met before,” and we’ve started talking, and I was like, “You know? I don’t remember your name name. I apologize but I remember that your startup is named X and I remembered that it launched on this date. I remember that your churn-up until this point was 2% and then I went to 1.8%.” I just rattled all the stuff and their eyes were huge. I was like, “No, this is my superpower.” I remember not just numbers but it’s the context around the concept, like in this case a startup. It all stuck in my head but I didn’t remember their first name.
It’s such an interesting model on how memory works differently in different people because my wife, Sherry, would have remembered the person’s name, their spouse’s name, and their kids names, and none of that locked-in for me. It’s such about relating to people versus relating to some other thing, concepts, or whenever.
So, I’m working on that because no matter how much, it’s an interesting parlor trick to be able to rattle off all the details of someone’s business. We had a conversation six months prior. It’s an interesting parlor trick but it still is not a good thing. I’ve been looking at […] ways to help me remember people’s names and/or to only go to events where there are name tags. I’m just kidding about the last thing.
Mike: Its funny you’ve mentioned that because I’m exactly the same way. I can remember lots of details and pinpoint exactly where we were standing at a particular event when we were talking about it, but I will just have a hard time with a person’s name. Maybe it’s just a matter of focusing on remembering the person’s name and just avoiding overemphasis of remembering all the details of the conversation. Maybe it’s just they stick in my head because those are pieces that are really interesting to me and I know that I can just look down at their name tag and see their name at any time.
Rob: Yes, probably.
Mike: I should have mentioned this a little bit earlier but the other announcement that I have is that MicroConf scholarship applications are going to start opening this week. We’ll open them up today, haven’t decided on exactly how long they will open but I’ll make sure that we put that on the application itself and we’ll link up the application in the show notes. We have a bunch of sponsors who have graciously offered to help fund these scholarships. The scholarships are all for MicroConf Starter Edition. We have at least 20 of them to give away. Last year, I think we had 14 or so and this year we have to least 20. I’m still working on a couple of different sponsors on that, so that number may go up but that’s what we have currently.
Rob: Love it. For me last update, you can back from Big Snow Tiny Conf East, which we’ll chat about in a second. I am heading to Big Snow Tiny Conf West out in Colorado. I think I’ll be there when is episode airs, actually, so this is my inaugural Big Snow Tiny Conf. Looking forward to hanging out with the people. This was your fourth or fifth, is that right?
Mike: Yes, it’s my fifth.
Rob: That’s cool. Any takeaways or thoughts having gone back that many times?
Mike: If it’s raining severely on the second day, just skip it. Just don’t even go out there. We went out on Thursday and it was just pouring. It was above freezing all the way up the mountain, it was raining, and we said, “You know what? We’re here. We’re just going to go skiing anyway.” By the third round were done and we’re just not going to ski anymore.
We’re probably about halfway down and I kind of pushed off to go down the hill. The front of my ski turned like it was supposed to and the back didn’t. Because I pushed off, my arms were basically kind of behind me because I was pushing myself forward. Of course, I just fall flat on my face and rolled down the hill little bit. I did a faceplant right into the slush. Not fun.
I hurt my shoulder a little bit, […] it about a few days later, jar right into the slush and twisted my neck a little bit. But both of those things is nothing major. A few days later I was still sore but at this point, I’m fine. Do you ski at all or do you snowboard?
Rob: I don’t, nope. Here’s the thing. I grew up 90 minutes from Tahoe in California but as kids we are always playing sports pretty intently. I played eight years of soccer and then track for nine years. Played football kind of cross country so we’re always super busy in the winter. Our coaches were like, “Do not go skiing,” because people would tear their knees up, they’d hurt their backs, they did all kinds of stuff, and we didn’t have enough money. We just didn’t have the money for ski gear and the rental and all the stuff. We’re a family of six growing up. I’m the youngest of four kids. People moved out and it just was never a thing even though it was obviously an option geographically. It’s just not something that my family prioritize.
I am going up there. Everyone else go skiing. I’m going to hang out. I’ll probably do a little bit work, I’ll probably do retreat stuff during the day. I have some things I want to get some pretty deep thought, too. I want to do that. I also like drinking hot cocoa and catching up on my reading. I’m looking forward to being up on the mountain hanging out with folks in the afternoons. I guess that’s how it plays out and then having some alone time during the day.
Mike: Yeah. The evening talks are really interesting because you get to hear in-depth details about people’s businesses. Some people come with questions and some people just come with a story. Some people just say, “Hey, this is a problem that I’m working on. Any help with it? What are your thoughts on it?” It’s pretty cool. You get a really good mix of things based on what the people’s businesses are. Some people to B2C, some people do B2B, and it’s just interesting.
Rob: Sounds good. What are we chatting about today?
Mike: Today, we’re going to be talking about what to look for in a co-founder. This came to mind because I’m specifically kind of looking around at my personal network and trying to figure out, is taking a co-founder on for BlueTech a path that I want to go down? If so, what would I be looking for in that type of person? What are the traits or capabilities? What’s their situation? How would that work for me and how will it work for them?
But I thought that it be interesting for the listeners to step back from that a little bit and more of an abstract fashion, think about what sorts of things you should look for in a co-founder and then from there, you can little down the list of potential options and how that would work. Obviously, there’s a little bit of putting the cart before the horse there because you have to decide, “Do I want one?” This is a qualification of, if you do then what would you look for?
Rob: And we recorded an episode about whether you should look for a co-founder, haven’t we?
Mike: I don’t recall. I looked back and I think that we talked about it in general. But I know as we went through and said like, “These are the things that you should actually look,” as opposed to, “Should I get one?”
Rob: There’s going to come a day when we record an episode that’s basically the exact same episode or at least the same topic as what we recorded years ago.
Mike: I know.
Rob: We’ve done that in real life. We’ve gone back and said, “Here are new thoughts on this topic,” but we’re going to do it unintentionally at some point. 430 episodes in, I don’t believe we’ve done that today, but this may be the day.
Mike: Possibly, but we’ll see. I’m sure somebody will remember it.
Rob: Let’s dive in.
Mike: The first one that came up on my list was honesty and integrity. For the person that you’re looking to bring on as a co-founder, what you want to do is be in a position where you know that the other person will always “try” to do the right thing, whatever that happens to be. What that happens to be has to boil down to what your goals in life are and generally how you address different situations or problems. Are they going to have your interest at heart or are they a little bit more selfish? I think you obviously want them to have your interests at heart whenever they’re making different decisions and then balance that against everything else.
You don’t want to sacrifice the entire business, probably, but at the same time there’s going to be certain situations where someone needs to make a decision that may not necessarily be you, and do you trust the other person to make those decisions? What you don’t want is a co-founder that essentially turns into someone you’re micro managing. You really want somebody who is on, equal footing is not quite the right way to put it, but somebody who you can at least respect enough to have a conversation about something, even if you disagree with them on it.
What I found is with contractors, for example, contractors are very loath to bring up stuff that is detrimental to the business or criticize work that you have done. They just don’t tend to give you an objective opinion about things in a way that is any way confrontational because I feel a lot of them are like, “Oh, I don’t want to rock the boat because this is my job at stake.” But at the same time, you need somebody to challenge you in different situations where you could be wrong or they perceive you to be wrong, so that you can talk through those things and say, “Is this the right decision for us and for the business?”
Rob: Yeah. I think this is a big one, being able to have the trust that your co-founder will do two things. One, that they will have your back in a way that, I think you brought up, the kind of the selfish or the self-centered, and I guess honesty and integrity is part of that. But it’s almost like they’re not always going to be thinking about themselves. We all know people who do that and people who don’t come across that way in the first meeting, can later you find out that they just really have an issue. Maybe it’s from childhood or maybe it’s part of the personality, but they really have an issue when talking about money or they have an issue when talking about time. There’s certain triggers that you need to pick up and be aware of because each of us has our own things that sets us off. I feel that’s something that is hard to evaluate in one or two conversations. It really needs to be done over an extended period of time, I think.
Then there is this integrity piece, kind of honesty, ethics, morals that your compasses align. Obviously, there are different ways of viewing the world and you don’t, as you said, want to have to manage this person’s every decision that they make and be like, “Oh, I feel like you kind of screwed that vendor with that decision,” or, “I feel like that was a disingenuous offer you made to that employee,” or, “You certainly didn’t do anything illegal and probably not unethical, but was that really morally the right thing to do?”
Those are hard conversations to have because that’s such a fundamental value that if you don’t share with someone, it’s going to be a constant conflict. Again, not something as super easy to evaluate upfront but it is nice to kind of a must-have, I think, that you do find someone where, in general and 80%-90% of the things, the two of you are going to rely in these hard decisions.
Mike: I think the point that you just brought up about this being something that you may not learn right away and I may take time to get there. I think that’s one of the things that doesn’t bug me but it strikes me as odd when I see people looking around and saying, “Oh, I’m trying to build this business and I want to get a co-founder. Does anyone know where I can find a co-founder?” It almost feels like people are looking for a co-founder in a very, very short period of time. But because of this exact thing that we’re talking about, honesty, integrity, and trust, it takes time to get there.
In some ways you can look at it and say, “Well, are there proxies that I can use for this? Are there people that I know that trust that person?” You trust their experience and then by proxy, trust this new person that you’re looking at as a co-founder. I think that’s a good way to approach it. It’s not perfect but I don’t think that there’s any perfect way to analyze that. It’s not as if you’re cloning yourself and you can’t always know what the other person is thinking.
Rob: Yeah and I think evaluating this in the short term is to know yourself and know how kind of trusting or suspicious you are of new people that you meet. You and I talked about this a little bit but that there’s this test called the Enneagram. It takes about 15 minutes to take. It gives you a number from one to nine. It’s like a Myers-Briggs personality thing. My personality is like creative, introverted, I forget like visionary or something. There’s typically two or three things that are good and two or three things that can be detriments. One of mine is just naturally suspicious of new things and new people.
I know that as a rule, I tend to say I’m a good judge of character. What I actually mean is I really don’t trust people upfront and they tend to have a really good character to get through my defenses early on. I am a very discerning person, which is both good and bad. Sometimes, it’s to my detriment and I write people off too soon. I know that about myself and I will be having internal kind of self-talk or conversations about, are they really coming off the way that I think they are or is that just in my head?
I have known people, my relatives and friends who are on the opposite side. They are too trusting, they get in friendships really quickly, and get pretty deep with people who, it’s pretty obvious that person is not going to be a good friend. That person is going to treat them poorly. Maybe this co-founder relationship is a romantic relationship or maybe it’s a friendship. It is hard for me to watch that because it might end poorly and frequently it does. Those people, I think, are too far on the other side of the spectrum. They are not suspicious enough. I think it’s knowing where you lie and just trying to do your best, frankly, to figure out what you think of someone after few meetings.
Mike: The next trait that I kind of came up with was more or less a current skill set versus ability to learn new skills. You’ve talk about this in the past that comes from like a fixed mindset versus a growth mindset. I look at it in terms of what does somebody bring to the table now versus what could they learn in the future to bring to the table later.
I think that there’s the short-term aspect and then the long-term aspect. The short-term aspect, you’re really looking for somebody who can complement your current skill set. In the long-term, you’re looking for somebody you know what it is that they want to do and it’s not necessarily or directly overlapping with the things that you want to do long-term, because you probably don’t want to have two people who both want to do sales, for example. Long-term, you probably don’t want both to be doing sales. You probably need somebody to be doing technical stuff and the person to be doing more of the business, marketing, and the sales side of things. But if you both want to be doing development long-term, that may not necessarily be a great fit because then, who’s going to be doing the sales and marketing stuff long-term?
Rob: Yeah. This is a mistake I made in the early days. I think a lot of people make this mistake when hiring and finding a co-founder is similar. It’s not the same but it’s similar to evaluating a potential hire. The thing is not to look at their skill set because things are going to change. In startup, they just change so fast.
If I were to look back at myself 10 years ago, I didn’t know 80% of what I know now. You could have looked at me and said, “Wow, this person knows how to write, and he knows SEO, and he knows how to write code. That’s an interesting skill set. What is his potential someday?” You know what? I don’t do much SEO anymore and I don’t write any code anymore. I write a lot less that I used to, actually. Everything that made me who I was 10 years ago, really has have to adapt. I’ve had to learn to build relationships better. Even just speak in public which was something that terrified me early on, and to speak on the microphone which is something that terrified me early on, all the things that you just have to get over.
I have watched other people do the same thing. You look at Derrick Reimer, my co-founder with Drip, you look at Ben Orenstein and you see how they’ve adjusted and adapted over time. And you know when you look at people who are really sharp and who are getting […] done, something you’ll notice about them is they don’t stand still for long. They don’t have the same skill set for very long. They are constantly adapting to new things.
If I’m hiring a team member, if I’m looking for a co-founder, if I’m evaluating a startup founder as I’ve been doing for the past several years but more intensely over the past 11 days since TinySeed applications have been open, a lot of this is not what do you know. It’s what can you learn, how quickly, and it’s trying to be able to evaluate how they can do that. So my question to you is, how can you evaluate that?
Mike: I think if you look at the history of what people have done, whether it’s launching small apps or working for different businesses, I feel like if you’re looking at somebody’s experience and they’ve done consulting at a bunch of different companies, that right there says that they have the ability to adapt, change, work in different environments, and presumably be productive. Otherwise you’re probably not going to get a lot of consulting gigs that way.
I have mixed feelings on somebody who’s doing consulting work for the same business for like five years or ten years or something like that. I would question how much adaptation there is there because you’re not adapting to different business environments and changing conditions. Going from one company or customer to another, it’s a very, very different experience between those two and there’s a lot of different things you have to manage. Whereas, if you stay in the same company or within that, the sandbox there, it’s not going to change a lot or dramatically.
I think in those cases, it’s a little less clear cut as to how to measure that. But I would definitely say, if somebody’s hopped around a little bit, then you can give them the benefit of a doubt in terms of their ability to learn new skills. The thing you have to be a little careful of though is, is it like entrepreneurial ADD where they just can’t focus on something and that’s why they switch so often? I think that many people suffer, I myself included, suffer from the shiny object syndrome where you hop from one project with other because something interest you and you’re not necessarily finishing things. That’s something that kind of comes into this. That’s something you have to balance that against.
Rob: I agree. That’s what you have to dig into. You touched on it exactly is was the person running away from something? Like, “Oh, this got too hard,” or, “Oh, that boss was dumb,” or, “They didn’t value me there,” or, “Oh, I got bored of that.” Or is it ambition? Ambition is not the right word because it’s this weird thing. I’m not that ambitious but I love creating new things. But I also finish what I started. I think that’s something to look at when your evaluating.
I agree that hopping from one thing to the next can actually be a good and a bad trait and it’s determining what their reasoning, logic, and motivations for doing that are, then I agree. If someone’s been working the same job or the same contract for years on end, it can be hard to gauge. You almost have to like, “I don’t know what else I would look at to figure out.” It just makes it harder to evaluate if someone hasn’t been tackling new challenges. I think that that’s kind of the thing that I’d be looking for.
I think the four axis that I look for when I think about someone as a startup founder, like skill set, I think of technology skill set, like are they developer or do they speak developer? Marketing, can I actually get stuff done, drive traffic, optimize a funnel, convert people, trial to paid? SaaS experience which is pretty unique. Most people don’t have it but do they know all the metrics and the numbers that churn the LTVs? Do they think in terms of SaaS numbers? This is one thing you can certainly learn but if someone already has that experience, whether they worked in-depth for one or whether they start at one. The fourth is kind of hiring, managing, and delegating of people.
There are certainly more more axis but those are honestly the four that, when I’m evaluating a startup founder, do I think they’re going to succeed? I look along those axis and they don’t need all four of them. Again, if they can learn stuff, you can start with one of them and branch off into the other three. But if you have two co-founders, I really don’t want two co-founders who both have a ton of tech experience and both want to write code. You want one of them who’s willing to know the marketing or to learn the marketing. Or one who’s willing to do the hiring and managing because assuming that you are going to scale up at least a little bit, you need to learn all these skill sets.
Mike: And that kind of leads directly into the next one which is difficult to measure resources. There’s certain types of resources like time and money which I think are directly measurable. But when you come into things like your personal network or your experience and your skill set, I feel like those are a little bit more difficult to measure in terms of what it brings to the table and what it means for the future. I think every situation is different. Those things are going to mean different things for different businesses.
Let’s say somebody brings a lot of domain knowledge and expertise to a particular problem that you’re working on and you want to involve them. The stuff that they know and that they have experience is going to be valuable. Is it stuff that you could learn on your own? Yes. The other side of that is perhaps and perhaps not. You have to take those things into account some way because they do make that relationship a little bit more valuable.
It also depends a lot on how long it’s going to take you to acquire that knowledge, like have they already tried to do a startup in that space and they either succeeded or failed? Those things can make a huge difference in terms of whether or not want to add that your team.
Rob: And then there are the measurable resources that each co-founder might bring. How much time does a person have? Obviously, a lot of us start by our products by working on them part time. What I’ve found in my experience is that people have a lot less time on the side than they think they do. A lot of times I have hired contractors—this probably happened six or seven times to me—where I’ve gone through a full interview process, done video interviews with 6-7 people, narrow, narrow, narrow, get somebody it’s like, “You’re sharp. Cool. You have a day job as a marketer and you want to run Facebook ads for me on the side. Love it. How many hours a week? Okay, you’ve got 15 hours, 20 hours. That’s great.” Then we’ll start and they’ll work four or five in a week. I’m going to, “Hey, what happened?” “Yeah, I just have a lot less time that I thought I did.”
This is something that I think you really need to dig into. If someone tells you they have 20 hours a week to work, I honestly think you should try to get a schedule and say, “Carve that time out because if you have kids, you probably put them to bed at seven or eight or whatever. So you’re working three hours a night during the week and then some on the weekend. If you don’t have kids, what does that look like?” Again, everybody seems to overestimate the amount of time that they have. I think it’s kind of human nature.
The other thing to think about in terms of a measurable resource is money. Does having some money help you get to escape velocity quicker? How much money does each person have to contribute? If you have an even amount, then cool. You can be 50/50 partners. If one person has more, that probably should buy them more equity, I think, unless time is out of whack. There is a bunch of things to think about but certainly someone bringing money to the table can be a bonus. I would say with caution, money is a very short-term thing.
In the early days of a startup you can think, “Oh my gosh. This person is bringing $20,000 to the table but they don’t have much time so they should get this huge chunk of it.” That makes sense for about six months. It makes sense until you get to the point where you launch and suddenly you start growing and $20,000 just isn’t that much money anymore. There’s the balance here because money in the early days is more risky. It is a big deal for someone to bring $20,000, $30,000, $40,000 into a startup that may never work. I would say consider all of these other factors. I would probably put above the value of just pure dollars invested.
Mike: Yeah. I think time and money tied together to some extent as well because if somebody has money set aside and the business isn’t quite making enough to pay the founders of reasonable income, can somebody extend the runway to some extent by living off of less? You may be able to command a salary $150,000 a year but do you have to? If the business can’t support that, then obviously you can’t pay yourselves that. How is that going to work? Is somebody essentially taking a massive pay cut in order to be able to contribute time? Do they have other sources of income?
That’s kind of really what I was getting at in terms of the measurable resources. Not so much can they dump a bunch of money on it but are they able to be somewhat self-sustaining and still contribute to the business while it’s getting further along? Nights and weekend project is a very different story. I think you brought up a lot of great examples and points about the fact that people have probably a lot less time available to them than they think they do. Some of that comes into motivation and as you commented earlier, whether they’re running towards something or away from something.
Rob: I think another big thing to think about is, talking about long-term goals a big deal because startup had a lot of connotations. Startup may mean you just want to start a really nice lifestyle business. It’s going to get you collectively $200,000-$300,000 that you guys split and that’s a good goal to have as long as you both agree on it. But if one person wants to raise venture funding or they want to go seven or eight figures and stay bootstrap, these are all different paths and it’s going to impact a lot of things along the way.
This is something that I would at least have a conversation. You may not need 100% everything ironed-out upfront, but to say, “What really is your goal here? Is your goal to work as little as possible and for both of us to make six figures? Okay, let me think if that’s what I want to do.” If you don’t, there’s going to be this constant tension as you’re growing your product.
Mike: And sometimes, these things don’t always work out and you may think upfront that your goals overlap. Those goals may change over time. I read an article from the guys over at Buffer where there’s three co-founders and initially, everybody was kind of on the same page. They all wanted to do the same things. Over the past couple years—I forget the exact timeline of that—they ended up kind of going in different ways. Two of the co-founders left the company and there’s one still there that’s running everything.
It was interesting to see that they laid out the different types of conversations they had and how it took a long time for them to get there. There are ways out of the situation if long-term you find out that your goals have diverged. But I think it’s important to keep in mind that if you have that conversation early and they don’t overlap right then, it’s possible they could kind of come in alignment but it’s probably not a good place to be starting from.
I think one of the last important things that you should be looking in a co-founder is, do they work well with others? Specifically, by others I mean you. But in general, are they easy to work with? Are they, not necessarily focused and driven, but can you hold a conversation with them and not get angry with them about how they’re doing things? Or vice-versa. Are they going to critique your work all the time and if so, is that something you can deal with?
There’s only so many ways that you can figure this stuff out. I think probably the best way to do it is just work together for a little while. I think you’ll very quickly see whether or not you’re going to be able to work with them long-term or not. There’s soon going to be some things that jump out of you very quickly and then some things that you’re going to learn six months, two years down the road that you didn’t necessarily pick up on right away.
It’s not necessarily good or bad but I think that hammering out what those things are that really irk you or the things that you do that irk them, if you know those upfront you can at least have the conversations and talk about it, and figure out whether it’s something that you can both live with or not. If you don’t do that then you could head for trouble.
I haven’t found any other good ways of doing that other than actually working with somebody. You can ask friends or colleagues or people who have worked both with you and that other person but sometimes those recommendations are: (1) hard to come by, and (2) people don’t really want to throw other people under the bus. It’s difficult to get that information from a third party.
Rob: That’s right and when I’ve done these reference checks, I tend to say, “Tell me about the hardest part about them. Tell me their biggest weakness. Tell me where did their plans […] are like.” I try to dig into this stuff. I try to just prove my theory that they are someone that I should work with. Or even not even just prove it but just to know. I can work with blind spots as long as I know what they are, like this person tends to give a very direct feedback, so be prepared for blunt feedback. It’s like, “Okay, that’s not a deal-breaker for me,” but when this person says something that shocks or offends me, it just be like, “Cool. That how they roll.” That’s also a big plus for a number of other other reasons.
I think a good story of this is like Jordan Gal with Ben Fisher and the founding of CartHook. They say they dated as founders and they really tried it out for quite a while. A couple months, I believe. They went and co-worked in one location and then another because they lived across country from each other. But they really got to know each other. I’ll even say with Einar Vollset and I, co-founders of TinySeed. I asked some folks who knew him better than I did. I know him through MicroConf but he and I never worked together. I asked a few folks, “Hey, you know him better than I do. Tell me about him.”
Then we started just working on a deck and that’s all it was. He said, “I don’t know. What you think? Should we do a deck?” “Cool.” Then I get to see not very much skin in the game. He and I are both saying, “Well, we’re not sure we’re going to do this.” I knew we’re going to do it but it was both of us kind of sizing each other up and saying, “Is this person going to be fun and complement my skills and are they going to work well with others?”
That was the big thing to just sit and hammer something out, to agree on certain things, disagree on other things, be convinced by the other person because you’re like, “Wow, this guy’s smart.” That’s the thing that I think you want to get to. So, even doing one or two smaller projects together before you do a full commit, I think can really be helpful.
Mike: In the beginning of this episode, you and I have chatted briefly about whether or not we’ve actually covered this particular topic before. I went back and looked in episode 408, evaluating whether or not you should take on a co-founder. That’s where we talked about that. This is more about what to look for in a co-founder.
Rob: And that was only 22 episodes ago and we had already forgotten? That is like six months.
Mike: We we were pretty sure. We knew we’ve talked something about it. We just didn’t remember the specifics.
Rob: I total did. It was vaguely. I knew we’ve talked about co-founders a number times. I just don’t know what the specific episodes have been.
Mike: That’s okay. We’ll let it go this time.
Rob: All right. If you feel like you’d like to add something to this list of what to look for in a co-founder, including how to evaluate that, you can either post at Startups For The Rest Of Us episode 430. You can post a comment there, or you can email us at questions@startupsfortherestofus.com, or call into our voicemail number and 888-801-9690. Our theme music is an excerpt from We’re Outta Control by MoOt. It’s 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.
Rob: I don’t know, Mike. Why was Pavlov’s hair so soft?
Mike: He conditioned it.
Rob: Damn. Not fair.
Mike: This is Startups For The Rest Of Us Episode 430.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: 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: I got so sick Sunday night. It was a stomach flu. My kids all had the prior week and I thought I had dodged it. I was doing all good and then it was one of the worst nights I can remember. I was up five different times during the night. I was delirious, stumbling around. It was nuts. I got up Monday and the kids are off school for a snow day. I was literally on my phone trying to just respond to email. I would write a sentence and then I would fall asleep.
Mike: Oh geez.
Rob: Yeah, it was crazy. I remember as a kid being sick a lot. I don’t know if that’s true or just my memory. Then as an adult, it’s pretty rare that I get sick now and to be that late out. When I get sick now, though, it knocks me out really good. I got a flu shot, I get one every year, all of our kids had flu shots but this year, it knocks through. I lost a bit of productivity and frankly I was dehydrated for two days after. It was crazy.
Mike: That’s rough. I remember getting sick as a kid, too. I think the difference is that you have less responsibilities as a kid. Your responsibility is just lay in bed, stay off the TV, and stuff like that. But it’s so much harder now because you’ve got all the different responsibilities, we each got businesses to run, and then you’ve got your own kids to deal. Hopefully, both parents don’t get sick at the same time.
As early as this week, my oldest got strep throat and then the past couple days, both my wife and I have been on the verge of getting sick. We’re not quite sure but neither one of us has strep throat yet. So, a little germ farm.
Rob: Yeah, that’s tough, How about you? What’s going on?
Mike: Well, I recently got back from Big Snow Tiny Conf. We can talk about that a little bit. The other thing I wanted to point out to other people is the AppSumo giveaway for MicroConf is still going on. That will end on February 11. You have about one week left from the date that this podcast episode goes live, so apply.
You’ll get a free ticket to each to the conferences, both Growth Edition and to Starter Edition, and the expenses for the trip are going to be paid by AppSumo. We’ll link that up in the show notes. You can go over there and get in on the contest. There’s a bunch of different ways you can get even more entries into it. Definitely check out the website.
You can link up your Twitter account or Facebook account, it’s all the MicroConf Twitter account and things like that. Each of those things will add to the number of entries that you get in there and you can get referrals as well. Check it out and hopefully we’ll see you there.
Rob: On my end, I’ve been working on improving this weakness I have. You know how everyone says I’m so bad with names? I don’t remember names, that’s the cliché thing. I’ve always actually struggled with that in a pretty big way. What’s interesting is that it’s not that my memory is bad. I’ve realized this over and over but it was called out to me again.
It was a couple weeks ago at a startup gathering here in Minneapolis. I talked to someone and I’m like, “Hey, I know we’ve met before,” and we’ve started talking, and I was like, “You know? I don’t remember your name name. I apologize but I remember that your startup is named X and I remembered that it launched on this date. I remember that your churn-up until this point was 2% and then I went to 1.8%.” I just rattled all the stuff and their eyes were huge. I was like, “No, this is my superpower.” I remember not just numbers but it’s the context around the concept, like in this case a startup. It all stuck in my head but I didn’t remember their first name.
It’s such an interesting model on how memory works differently in different people because my wife, Sherry, would have remembered the person’s name, their spouse’s name, and their kids names, and none of that locked-in for me. It’s such about relating to people versus relating to some other thing, concepts, or whenever.
So, I’m working on that because no matter how much, it’s an interesting parlor trick to be able to rattle off all the details of someone’s business. We had a conversation six months prior. It’s an interesting parlor trick but it still is not a good thing. I’ve been looking at […] ways to help me remember people’s names and/or to only go to events where there are name tags. I’m just kidding about the last thing.
Mike: Its funny you’ve mentioned that because I’m exactly the same way. I can remember lots of details and pinpoint exactly where we were standing at a particular event when we were talking about it, but I will just have a hard time with a person’s name. Maybe it’s just a matter of focusing on remembering the person’s name and just avoiding overemphasis of remembering all the details of the conversation. Maybe it’s just they stick in my head because those are pieces that are really interesting to me and I know that I can just look down at their name tag and see their name at any time.
Rob: Yes, probably.
Mike: I should have mentioned this a little bit earlier but the other announcement that I have is that MicroConf scholarship applications are going to start opening this week. We’ll open them up today, haven’t decided on exactly how long they will open but I’ll make sure that we put that on the application itself and we’ll link up the application in the show notes. We have a bunch of sponsors who have graciously offered to help fund these scholarships. The scholarships are all for MicroConf Starter Edition. We have at least 20 of them to give away. Last year, I think we had 14 or so and this year we have to least 20. I’m still working on a couple of different sponsors on that, so that number may go up but that’s what we have currently.
Rob: Love it. For me last update, you can back from Big Snow Tiny Conf East, which we’ll chat about in a second. I am heading to Big Snow Tiny Conf West out in Colorado. I think I’ll be there when is episode airs, actually, so this is my inaugural Big Snow Tiny Conf. Looking forward to hanging out with the people. This was your fourth or fifth, is that right?
Mike: Yes, it’s my fifth.
Rob: That’s cool. Any takeaways or thoughts having gone back that many times?
Mike: If it’s raining severely on the second day, just skip it. Just don’t even go out there. We went out on Thursday and it was just pouring. It was above freezing all the way up the mountain, it was raining, and we said, “You know what? We’re here. We’re just going to go skiing anyway.” By the third round were done and we’re just not going to ski anymore.
We’re probably about halfway down and I kind of pushed off to go down the hill. The front of my ski turned like it was supposed to and the back didn’t. Because I pushed off, my arms were basically kind of behind me because I was pushing myself forward. Of course, I just fall flat on my face and rolled down the hill little bit. I did a faceplant right into the slush. Not fun.
I hurt my shoulder a little bit, […] it about a few days later, jar right into the slush and twisted my neck a little bit. But both of those things is nothing major. A few days later I was still sore but at this point, I’m fine. Do you ski at all or do you snowboard?
Rob: I don’t, nope. Here’s the thing. I grew up 90 minutes from Tahoe in California but as kids we are always playing sports pretty intently. I played eight years of soccer and then track for nine years. Played football kind of cross country so we’re always super busy in the winter. Our coaches were like, “Do not go skiing,” because people would tear their knees up, they’d hurt their backs, they did all kinds of stuff, and we didn’t have enough money. We just didn’t have the money for ski gear and the rental and all the stuff. We’re a family of six growing up. I’m the youngest of four kids. People moved out and it just was never a thing even though it was obviously an option geographically. It’s just not something that my family prioritize.
I am going up there. Everyone else go skiing. I’m going to hang out. I’ll probably do a little bit work, I’ll probably do retreat stuff during the day. I have some things I want to get some pretty deep thought, too. I want to do that. I also like drinking hot cocoa and catching up on my reading. I’m looking forward to being up on the mountain hanging out with folks in the afternoons. I guess that’s how it plays out and then having some alone time during the day.
Mike: Yeah. The evening talks are really interesting because you get to hear in-depth details about people’s businesses. Some people come with questions and some people just come with a story. Some people just say, “Hey, this is a problem that I’m working on. Any help with it? What are your thoughts on it?” It’s pretty cool. You get a really good mix of things based on what the people’s businesses are. Some people to B2C, some people do B2B, and it’s just interesting.
Rob: Sounds good. What are we chatting about today?
Mike: Today, we’re going to be talking about what to look for in a co-founder. This came to mind because I’m specifically kind of looking around at my personal network and trying to figure out, is taking a co-founder on for BlueTech a path that I want to go down? If so, what would I be looking for in that type of person? What are the traits or capabilities? What’s their situation? How would that work for me and how will it work for them?
But I thought that it be interesting for the listeners to step back from that a little bit and more of an abstract fashion, think about what sorts of things you should look for in a co-founder and then from there, you can little down the list of potential options and how that would work. Obviously, there’s a little bit of putting the cart before the horse there because you have to decide, “Do I want one?” This is a qualification of, if you do then what would you look for?
Rob: And we recorded an episode about whether you should look for a co-founder, haven’t we?
Mike: I don’t recall. I looked back and I think that we talked about it in general. But I know as we went through and said like, “These are the things that you should actually look,” as opposed to, “Should I get one?”
Rob: There’s going to come a day when we record an episode that’s basically the exact same episode or at least the same topic as what we recorded years ago.
Mike: I know.
Rob: We’ve done that in real life. We’ve gone back and said, “Here are new thoughts on this topic,” but we’re going to do it unintentionally at some point. 430 episodes in, I don’t believe we’ve done that today, but this may be the day.
Mike: Possibly, but we’ll see. I’m sure somebody will remember it.
Rob: Let’s dive in.
Mike: The first one that came up on my list was honesty and integrity. For the person that you’re looking to bring on as a co-founder, what you want to do is be in a position where you know that the other person will always “try” to do the right thing, whatever that happens to be. What that happens to be has to boil down to what your goals in life are and generally how you address different situations or problems. Are they going to have your interest at heart or are they a little bit more selfish? I think you obviously want them to have your interests at heart whenever they’re making different decisions and then balance that against everything else.
You don’t want to sacrifice the entire business, probably, but at the same time there’s going to be certain situations where someone needs to make a decision that may not necessarily be you, and do you trust the other person to make those decisions? What you don’t want is a co-founder that essentially turns into someone you’re micro managing. You really want somebody who is on, equal footing is not quite the right way to put it, but somebody who you can at least respect enough to have a conversation about something, even if you disagree with them on it.
What I found is with contractors, for example, contractors are very loath to bring up stuff that is detrimental to the business or criticize work that you have done. They just don’t tend to give you an objective opinion about things in a way that is any way confrontational because I feel a lot of them are like, “Oh, I don’t want to rock the boat because this is my job at stake.” But at the same time, you need somebody to challenge you in different situations where you could be wrong or they perceive you to be wrong, so that you can talk through those things and say, “Is this the right decision for us and for the business?”
Rob: Yeah. I think this is a big one, being able to have the trust that your co-founder will do two things. One, that they will have your back in a way that, I think you brought up, the kind of the selfish or the self-centered, and I guess honesty and integrity is part of that. But it’s almost like they’re not always going to be thinking about themselves. We all know people who do that and people who don’t come across that way in the first meeting, can later you find out that they just really have an issue. Maybe it’s from childhood or maybe it’s part of the personality, but they really have an issue when talking about money or they have an issue when talking about time. There’s certain triggers that you need to pick up and be aware of because each of us has our own things that sets us off. I feel that’s something that is hard to evaluate in one or two conversations. It really needs to be done over an extended period of time, I think.
Then there is this integrity piece, kind of honesty, ethics, morals that your compasses align. Obviously, there are different ways of viewing the world and you don’t, as you said, want to have to manage this person’s every decision that they make and be like, “Oh, I feel like you kind of screwed that vendor with that decision,” or, “I feel like that was a disingenuous offer you made to that employee,” or, “You certainly didn’t do anything illegal and probably not unethical, but was that really morally the right thing to do?”
Those are hard conversations to have because that’s such a fundamental value that if you don’t share with someone, it’s going to be a constant conflict. Again, not something as super easy to evaluate upfront but it is nice to kind of a must-have, I think, that you do find someone where, in general and 80%-90% of the things, the two of you are going to rely in these hard decisions.
Mike: I think the point that you just brought up about this being something that you may not learn right away and I may take time to get there. I think that’s one of the things that doesn’t bug me but it strikes me as odd when I see people looking around and saying, “Oh, I’m trying to build this business and I want to get a co-founder. Does anyone know where I can find a co-founder?” It almost feels like people are looking for a co-founder in a very, very short period of time. But because of this exact thing that we’re talking about, honesty, integrity, and trust, it takes time to get there.
In some ways you can look at it and say, “Well, are there proxies that I can use for this? Are there people that I know that trust that person?” You trust their experience and then by proxy, trust this new person that you’re looking at as a co-founder. I think that’s a good way to approach it. It’s not perfect but I don’t think that there’s any perfect way to analyze that. It’s not as if you’re cloning yourself and you can’t always know what the other person is thinking.
Rob: Yeah and I think evaluating this in the short term is to know yourself and know how kind of trusting or suspicious you are of new people that you meet. You and I talked about this a little bit but that there’s this test called the Enneagram. It takes about 15 minutes to take. It gives you a number from one to nine. It’s like a Myers-Briggs personality thing. My personality is like creative, introverted, I forget like visionary or something. There’s typically two or three things that are good and two or three things that can be detriments. One of mine is just naturally suspicious of new things and new people.
I know that as a rule, I tend to say I’m a good judge of character. What I actually mean is I really don’t trust people upfront and they tend to have a really good character to get through my defenses early on. I am a very discerning person, which is both good and bad. Sometimes, it’s to my detriment and I write people off too soon. I know that about myself and I will be having internal kind of self-talk or conversations about, are they really coming off the way that I think they are or is that just in my head?
I have known people, my relatives and friends who are on the opposite side. They are too trusting, they get in friendships really quickly, and get pretty deep with people who, it’s pretty obvious that person is not going to be a good friend. That person is going to treat them poorly. Maybe this co-founder relationship is a romantic relationship or maybe it’s a friendship. It is hard for me to watch that because it might end poorly and frequently it does. Those people, I think, are too far on the other side of the spectrum. They are not suspicious enough. I think it’s knowing where you lie and just trying to do your best, frankly, to figure out what you think of someone after few meetings.
Mike: The next trait that I kind of came up with was more or less a current skill set versus ability to learn new skills. You’ve talk about this in the past that comes from like a fixed mindset versus a growth mindset. I look at it in terms of what does somebody bring to the table now versus what could they learn in the future to bring to the table later.
I think that there’s the short-term aspect and then the long-term aspect. The short-term aspect, you’re really looking for somebody who can complement your current skill set. In the long-term, you’re looking for somebody you know what it is that they want to do and it’s not necessarily or directly overlapping with the things that you want to do long-term, because you probably don’t want to have two people who both want to do sales, for example. Long-term, you probably don’t want both to be doing sales. You probably need somebody to be doing technical stuff and the person to be doing more of the business, marketing, and the sales side of things. But if you both want to be doing development long-term, that may not necessarily be a great fit because then, who’s going to be doing the sales and marketing stuff long-term?
Rob: Yeah. This is a mistake I made in the early days. I think a lot of people make this mistake when hiring and finding a co-founder is similar. It’s not the same but it’s similar to evaluating a potential hire. The thing is not to look at their skill set because things are going to change. In startup, they just change so fast.
If I were to look back at myself 10 years ago, I didn’t know 80% of what I know now. You could have looked at me and said, “Wow, this person knows how to write, and he knows SEO, and he knows how to write code. That’s an interesting skill set. What is his potential someday?” You know what? I don’t do much SEO anymore and I don’t write any code anymore. I write a lot less that I used to, actually. Everything that made me who I was 10 years ago, really has have to adapt. I’ve had to learn to build relationships better. Even just speak in public which was something that terrified me early on, and to speak on the microphone which is something that terrified me early on, all the things that you just have to get over.
I have watched other people do the same thing. You look at Derrick Reimer, my co-founder with Drip, you look at Ben Orenstein and you see how they’ve adjusted and adapted over time. And you know when you look at people who are really sharp and who are getting […] done, something you’ll notice about them is they don’t stand still for long. They don’t have the same skill set for very long. They are constantly adapting to new things.
If I’m hiring a team member, if I’m looking for a co-founder, if I’m evaluating a startup founder as I’ve been doing for the past several years but more intensely over the past 11 days since TinySeed applications have been open, a lot of this is not what do you know. It’s what can you learn, how quickly, and it’s trying to be able to evaluate how they can do that. So my question to you is, how can you evaluate that?
Mike: I think if you look at the history of what people have done, whether it’s launching small apps or working for different businesses, I feel like if you’re looking at somebody’s experience and they’ve done consulting at a bunch of different companies, that right there says that they have the ability to adapt, change, work in different environments, and presumably be productive. Otherwise you’re probably not going to get a lot of consulting gigs that way.
I have mixed feelings on somebody who’s doing consulting work for the same business for like five years or ten years or something like that. I would question how much adaptation there is there because you’re not adapting to different business environments and changing conditions. Going from one company or customer to another, it’s a very, very different experience between those two and there’s a lot of different things you have to manage. Whereas, if you stay in the same company or within that, the sandbox there, it’s not going to change a lot or dramatically.
I think in those cases, it’s a little less clear cut as to how to measure that. But I would definitely say, if somebody’s hopped around a little bit, then you can give them the benefit of a doubt in terms of their ability to learn new skills. The thing you have to be a little careful of though is, is it like entrepreneurial ADD where they just can’t focus on something and that’s why they switch so often? I think that many people suffer, I myself included, suffer from the shiny object syndrome where you hop from one project with other because something interest you and you’re not necessarily finishing things. That’s something that kind of comes into this. That’s something you have to balance that against.
Rob: I agree. That’s what you have to dig into. You touched on it exactly is was the person running away from something? Like, “Oh, this got too hard,” or, “Oh, that boss was dumb,” or, “They didn’t value me there,” or, “Oh, I got bored of that.” Or is it ambition? Ambition is not the right word because it’s this weird thing. I’m not that ambitious but I love creating new things. But I also finish what I started. I think that’s something to look at when your evaluating.
I agree that hopping from one thing to the next can actually be a good and a bad trait and it’s determining what their reasoning, logic, and motivations for doing that are, then I agree. If someone’s been working the same job or the same contract for years on end, it can be hard to gauge. You almost have to like, “I don’t know what else I would look at to figure out.” It just makes it harder to evaluate if someone hasn’t been tackling new challenges. I think that that’s kind of the thing that I’d be looking for.
I think the four axis that I look for when I think about someone as a startup founder, like skill set, I think of technology skill set, like are they developer or do they speak developer? Marketing, can I actually get stuff done, drive traffic, optimize a funnel, convert people, trial to paid? SaaS experience which is pretty unique. Most people don’t have it but do they know all the metrics and the numbers that churn the LTVs? Do they think in terms of SaaS numbers? This is one thing you can certainly learn but if someone already has that experience, whether they worked in-depth for one or whether they start at one. The fourth is kind of hiring, managing, and delegating of people.
There are certainly more more axis but those are honestly the four that, when I’m evaluating a startup founder, do I think they’re going to succeed? I look along those axis and they don’t need all four of them. Again, if they can learn stuff, you can start with one of them and branch off into the other three. But if you have two co-founders, I really don’t want two co-founders who both have a ton of tech experience and both want to write code. You want one of them who’s willing to know the marketing or to learn the marketing. Or one who’s willing to do the hiring and managing because assuming that you are going to scale up at least a little bit, you need to learn all these skill sets.
Mike: And that kind of leads directly into the next one which is difficult to measure resources. There’s certain types of resources like time and money which I think are directly measurable. But when you come into things like your personal network or your experience and your skill set, I feel like those are a little bit more difficult to measure in terms of what it brings to the table and what it means for the future. I think every situation is different. Those things are going to mean different things for different businesses.
Let’s say somebody brings a lot of domain knowledge and expertise to a particular problem that you’re working on and you want to involve them. The stuff that they know and that they have experience is going to be valuable. Is it stuff that you could learn on your own? Yes. The other side of that is perhaps and perhaps not. You have to take those things into account some way because they do make that relationship a little bit more valuable.
It also depends a lot on how long it’s going to take you to acquire that knowledge, like have they already tried to do a startup in that space and they either succeeded or failed? Those things can make a huge difference in terms of whether or not want to add that your team.
Rob: And then there are the measurable resources that each co-founder might bring. How much time does a person have? Obviously, a lot of us start by our products by working on them part time. What I’ve found in my experience is that people have a lot less time on the side than they think they do. A lot of times I have hired contractors—this probably happened six or seven times to me—where I’ve gone through a full interview process, done video interviews with 6-7 people, narrow, narrow, narrow, get somebody it’s like, “You’re sharp. Cool. You have a day job as a marketer and you want to run Facebook ads for me on the side. Love it. How many hours a week? Okay, you’ve got 15 hours, 20 hours. That’s great.” Then we’ll start and they’ll work four or five in a week. I’m going to, “Hey, what happened?” “Yeah, I just have a lot less time that I thought I did.”
This is something that I think you really need to dig into. If someone tells you they have 20 hours a week to work, I honestly think you should try to get a schedule and say, “Carve that time out because if you have kids, you probably put them to bed at seven or eight or whatever. So you’re working three hours a night during the week and then some on the weekend. If you don’t have kids, what does that look like?” Again, everybody seems to overestimate the amount of time that they have. I think it’s kind of human nature.
The other thing to think about in terms of a measurable resource is money. Does having some money help you get to escape velocity quicker? How much money does each person have to contribute? If you have an even amount, then cool. You can be 50/50 partners. If one person has more, that probably should buy them more equity, I think, unless time is out of whack. There is a bunch of things to think about but certainly someone bringing money to the table can be a bonus. I would say with caution, money is a very short-term thing.
In the early days of a startup you can think, “Oh my gosh. This person is bringing $20,000 to the table but they don’t have much time so they should get this huge chunk of it.” That makes sense for about six months. It makes sense until you get to the point where you launch and suddenly you start growing and $20,000 just isn’t that much money anymore. There’s the balance here because money in the early days is more risky. It is a big deal for someone to bring $20,000, $30,000, $40,000 into a startup that may never work. I would say consider all of these other factors. I would probably put above the value of just pure dollars invested.
Mike: Yeah. I think time and money tied together to some extent as well because if somebody has money set aside and the business isn’t quite making enough to pay the founders of reasonable income, can somebody extend the runway to some extent by living off of less? You may be able to command a salary $150,000 a year but do you have to? If the business can’t support that, then obviously you can’t pay yourselves that. How is that going to work? Is somebody essentially taking a massive pay cut in order to be able to contribute time? Do they have other sources of income?
That’s kind of really what I was getting at in terms of the measurable resources. Not so much can they dump a bunch of money on it but are they able to be somewhat self-sustaining and still contribute to the business while it’s getting further along? Nights and weekend project is a very different story. I think you brought up a lot of great examples and points about the fact that people have probably a lot less time available to them than they think they do. Some of that comes into motivation and as you commented earlier, whether they’re running towards something or away from something.
Rob: I think another big thing to think about is, talking about long-term goals a big deal because startup had a lot of connotations. Startup may mean you just want to start a really nice lifestyle business. It’s going to get you collectively $200,000-$300,000 that you guys split and that’s a good goal to have as long as you both agree on it. But if one person wants to raise venture funding or they want to go seven or eight figures and stay bootstrap, these are all different paths and it’s going to impact a lot of things along the way.
This is something that I would at least have a conversation. You may not need 100% everything ironed-out upfront, but to say, “What really is your goal here? Is your goal to work as little as possible and for both of us to make six figures? Okay, let me think if that’s what I want to do.” If you don’t, there’s going to be this constant tension as you’re growing your product.
Mike: And sometimes, these things don’t always work out and you may think upfront that your goals overlap. Those goals may change over time. I read an article from the guys over at Buffer where there’s three co-founders and initially, everybody was kind of on the same page. They all wanted to do the same things. Over the past couple years—I forget the exact timeline of that—they ended up kind of going in different ways. Two of the co-founders left the company and there’s one still there that’s running everything.
It was interesting to see that they laid out the different types of conversations they had and how it took a long time for them to get there. There are ways out of the situation if long-term you find out that your goals have diverged. But I think it’s important to keep in mind that if you have that conversation early and they don’t overlap right then, it’s possible they could kind of come in alignment but it’s probably not a good place to be starting from.
I think one of the last important things that you should be looking in a co-founder is, do they work well with others? Specifically, by others I mean you. But in general, are they easy to work with? Are they, not necessarily focused and driven, but can you hold a conversation with them and not get angry with them about how they’re doing things? Or vice-versa. Are they going to critique your work all the time and if so, is that something you can deal with?
There’s only so many ways that you can figure this stuff out. I think probably the best way to do it is just work together for a little while. I think you’ll very quickly see whether or not you’re going to be able to work with them long-term or not. There’s soon going to be some things that jump out of you very quickly and then some things that you’re going to learn six months, two years down the road that you didn’t necessarily pick up on right away.
It’s not necessarily good or bad but I think that hammering out what those things are that really irk you or the things that you do that irk them, if you know those upfront you can at least have the conversations and talk about it, and figure out whether it’s something that you can both live with or not. If you don’t do that then you could head for trouble.
I haven’t found any other good ways of doing that other than actually working with somebody. You can ask friends or colleagues or people who have worked both with you and that other person but sometimes those recommendations are: (1) hard to come by, and (2) people don’t really want to throw other people under the bus. It’s difficult to get that information from a third party.
Rob: That’s right and when I’ve done these reference checks, I tend to say, “Tell me about the hardest part about them. Tell me their biggest weakness. Tell me where did their plans […] are like.” I try to dig into this stuff. I try to just prove my theory that they are someone that I should work with. Or even not even just prove it but just to know. I can work with blind spots as long as I know what they are, like this person tends to give a very direct feedback, so be prepared for blunt feedback. It’s like, “Okay, that’s not a deal-breaker for me,” but when this person says something that shocks or offends me, it just be like, “Cool. That how they roll.” That’s also a big plus for a number of other other reasons.
I think a good story of this is like Jordan Gal with Ben Fisher and the founding of CartHook. They say they dated as founders and they really tried it out for quite a while. A couple months, I believe. They went and co-worked in one location and then another because they lived across country from each other. But they really got to know each other. I’ll even say with Einar Vollset and I, co-founders of TinySeed. I asked some folks who knew him better than I did. I know him through MicroConf but he and I never worked together. I asked a few folks, “Hey, you know him better than I do. Tell me about him.”
Then we started just working on a deck and that’s all it was. He said, “I don’t know. What you think? Should we do a deck?” “Cool.” Then I get to see not very much skin in the game. He and I are both saying, “Well, we’re not sure we’re going to do this.” I knew we’re going to do it but it was both of us kind of sizing each other up and saying, “Is this person going to be fun and complement my skills and are they going to work well with others?”
That was the big thing to just sit and hammer something out, to agree on certain things, disagree on other things, be convinced by the other person because you’re like, “Wow, this guy’s smart.” That’s the thing that I think you want to get to. So, even doing one or two smaller projects together before you do a full commit, I think can really be helpful.
Mike: In the beginning of this episode, you and I have chatted briefly about whether or not we’ve actually covered this particular topic before. I went back and looked in episode 408, evaluating whether or not you should take on a co-founder. That’s where we talked about that. This is more about what to look for in a co-founder.
Rob: And that was only 22 episodes ago and we had already forgotten? That is like six months.
Mike: We we were pretty sure. We knew we’ve talked something about it. We just didn’t remember the specifics.
Rob: I total did. It was vaguely. I knew we’ve talked about co-founders a number times. I just don’t know what the specific episodes have been.
Mike: That’s okay. We’ll let it go this time.
Rob: All right. If you feel like you’d like to add something to this list of what to look for in a co-founder, including how to evaluate that, you can either post at Startups For The Rest Of Us episode 430. You can post a comment there, or you can email us at questions@startupsfortherestofus.com, or call into our voicemail number and 888-801-9690. Our theme music is an excerpt from We’re Outta Control by MoOt. It’s 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 429 | Building a Launch List of 5,900 and Grinding Out Customer Development
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob talks with Derrick Reimer about his new product Level. They go through the development timeline as Derrick gives insights on the early access phase, alpha testing, taking pre-orders, and going live with the MVP.
Items mentioned in this episode:
- AppSumo MicroConf Giveaway
- MicroConf Growth Edition
- MicroConf Starter Edition
- Level.app
- The Art of Product
Rob: In this episode of Startups for the Rest of Us, Derrick Reimer and I talk about how we built a launch list of 5900 people and how he’s been grinding out customer development on his new effort Level. This is Startups for the Rest of Us episode 429.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Derrick: And I’m Derrick.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So where this week, Derrick?
Derrick: Just in the startup trenches doing some customer onboarding calls.
Rob: How many calls have you done this week?
Derrick: So far, I’ve done seven. I have 11 or 12 booked right now.
Rob: Very nice.
Derrick: I reached a milestone this week. It feels good to finally be in the realm of getting the product into the hands of potential customers and having those awkward conversations about, “When do you want to start paying for this thing?” but it feels good to be in this realm.
Rob: Yeah, it’s cool. You’ve been working on Level now for 9 or 10 months. It’s a long road to get to this place even for those like yourself who’ve done it a few times before.
Derrick: Yeah, it’s kind of unbelievable when I look back at the timeline. Depending on how you look at it, some would say that’s a really short amount of time to just go from nothing to a product that is potentially viable, but on the same token I’m ever impatient and feel like, “Man, it’s been an eternity.”
Rob: Right, and you’ve been able to work full time on it which is a luxury a lot of people don’t have. I can imagine doing this nights and weekends trying get here. I know you’ve been there, so you remember how it was.
Derrick: Totally.
Rob: We’re going to dive in today to your story. We’re actually going to catch folks up because last time you were on the show was in July, it was episode 399. We talked about how you were validating the idea of Level and how you started having people reserve their handles to build your pre launch list. Today, we’re going to continue that story. We’re going to talk about where you’ve been since then, tell the story of the major milestones you’ve hit through the rest of 2018, and pull out the learnings from those. Folks listening can see how an experienced founder like yourself has taken on this challenge of building essentially a competitor to Slack, which is an app that has a lot of momentum, and trying to thread a usability needle and have a different use case that works better for your development teams.
But before we dive in, I want to talk about an AppSumo contest that’s happening, where AppSumo is going to pay for an all-expense paid trip to both MicroConf Starter Edition and Growth in late March. We’ll link that up in the show notes, but they’ve graciously sponsored this podcast and are going to be giving somebody a trip to both of those. You could be a lucky winner Derrick.
Derrick: Yeah, I know, because it’s open to anyone even if people have purchased a ticket, right?
Rob: Exactly. We’ll refund your ticket if you win. I don’t think it’s open to me, but I’m tempted to apply.
Derrick: I was going to say I’d definitely jump on that. If there was a call to action in that email, I’m sure I clicked it. I’m not sure how that would look if I won it, but here’s to hoping.
Rob: I know. I just know that I am totally not involved in the selection process. I have no idea what’s going on. That giveaway ends on February 11th, which is another week or two after this goes live. Check it out if you haven’t.
You were here in July. You and I were talking before the show, kind of laying out some milestones that happened since then. I know you were heads down, you’re in pretty hardcore design mode of trying to figure out what are the screens going to look like, how am I going to architect the inbox, how do you compete with Slack in a way that is less invasive, less interruptive. I mean, that’s the promise of Level. For folks who want to a good explanation of it, go to level.app and it’s your headline there, ‘Team communication optimized for deep work.’
In September, you were telling me you came to a fork in the road in terms of this. You’re writing some code I believe, but you were trying to decide the hardest part of this app to design really is probably the inbox. From a usability perspective, you just have to get it right. Talk to us about where you were in September.
Derrick: Up until that point, it’s funny now looking back like why did it take me so long to get to where I am today? I think a big part of that was, I spent a few months at the frontend just focusing mostly on getting familiar, comfortable with the Tech Stack, this is an application that has a lot of real time stuff. It will eventually need offline support, web sockets, just a very different type of application from the ones I’ve built before.
I spent a lot of time getting familiar with Tech Stack, and also I had a general vision in my head of how the product should work, like just kind of picture how it would feel. It’s interesting how once you get from the phase of, I have the vision for this thing, and how it should function, and how it should not interrupt people like Slack does, to actually getting down to the implementation.
There’s a big gap there. In theory I know how it should work, but it’s actually a really hard problem to solve to strike just the right balance. I think we were sitting on your rooftop, September, I was sipping some scotch and I was like, “Rob, what am I going to do?” What should I do? Should I spend time doing another round of calls with potential customers, try to put together some wireframes and some mockups, show it to them, cast a vision for how it’s going to work, and potentially get responses like, “Yeah, looks cool”? Or do I take the route of just spending some time writing some code, and implementing what I feel is my best guess at how it should function according to my own experience, and what I’ve heard from others?
To me, at the time it felt risky because I know that that big trap that a lot of people fall into is going to the basement, code for months, emerge, and potentially be missing the mark. I’ve been very careful and almost a little bit paranoid not to fall into that trap, even though it’s still really hard even after having a few apps under your belt. That’s kind of the crossroads.
Rob: Yeah and it’s never clear cut. You and I sat and tried to look at what are the options here and what are the drawbacks because you don’t want to fall into exactly that trap. Like the conventional wisdom says, “Do more customer development upfront, have a lot of conversations, don’t waste time writing a bunch of code, get it all settled out of front.” But it seems like your gut feel and mind in essence, too, was by the time we get to the end of the conversation it’s like your intuition of what it should be, since you’re trying to invent something new or at least innovate enough in a medium that’s chat, but you’re trying to do it differently, and it’s like, “I’m not sure that having conversations with people about mockups is going to get you there.” It wasn’t like you should absolutely do A or B. We both by the end leaned towards, “Go build something,” because until someone touches it and clicks a button, and even if it’s a fake simulated chat with an invisible person, with a bot, or whatever, at least they’ll get an idea of like, “Oh, that doesn’t make sense at all,” or, “Oh, it does,” in a way that I don’t know, you can’t get your hands on mockups the way that you can with some code.
Derrick: Yeah. If Steve Jobs would have taken some wireframes of the iPhone and showed it to people, would people have caught the magic? I don’t think so. It would look like an interesting concept, “Oh, it’s a phone that you can web browse on, and have all these apps, and these games. Interesting.” It’s hard to represent the user experience aspect of it, which I think for Level is a really big thing. It just has to feel right to people. As opposed to some other apps where it has this very specific utilitarian purpose, and as long as it can deliver on this purpose, then it will be good. Level is not necessarily good even if it delivers on the purpose, it also has to feel right.
Rob: I want to touch on the thing you said about Steve Jobs. I feel like some people will throw that around. He’s also an exception. Henry Ford talks about the model T being a faster horse or whatever, which I think is actually apocryphal. I’m not sure that he ever said that, but the idea is that I’m an innovator and I know better, I’m never going to show such to customers, and that’s what has gotten people into the two years of coding in your basement thing.
One I think is knowing your strengths. You happen to have really solid strength in app usability and design. I think both you and I were like, “You’re probably going to do a better job of this than most people would know, so take a flyer on it,” and two, I think it’s a gut feel. It’s like how strongly do you feel that you know what’s better in this space? Are you like, “I don’t really know the solution and I truly do need the input of 10 or 20 potential customers,” then think I’ll do that. It didn’t seem like you needed that. That’s what we were pulling out. You had enough of an image in your head of what you wanted to do that we thought it was worth the gamble. That’s how it felt, right?
Derrick: Yeah. I think that this is also one of the other things that complicates getting that type of feedback from wireframes for Level. It’s the type of product where if someone came and asked me, “Here’s what I’m thinking for a new tool that solves this problem, what do you think?” I would be like, “I don’t know if I could answer that very accurately either,” because I’d be like, “Well, it just depends on if I use it for two weeks, go through my day, and a bunch of stuff isn’t falling through the cracks, or do I truly feel like I am able to retain focus better, or am I constantly drawn to go check it?” There’s a whole story that has to come together. I don’t know if I’m imaginative enough to be able to answer with confidence like, “Yeah, I think you nailed it.”
Rob: All startups have some type of risk, whether it’s a market risk or technology risk. It’s almost [UX 00:10:14] risk, or threading the needle of being that’s the riskiest thing. We know you can build the app and you’re probably going to market it pretty well. I think there is some market risk in terms of, is the market of people who don’t like being interrupted by Slack, how large is that market? That’s an open question, but that’s one that’s very hard to answer until you build something cool right now. At that point, you made the decision to not have more conversations, and not build mockups, and you got to code in September.
Derrick: Yeah.
Rob: And then October, you did your early access phase. It was like pre-early access or something, right?
Derrick: Yeah. I’ve already been building foundations leading up to that point. So then it was just locking in some decisions around how the inbox works and some of the other elements in the product. I was only a few weeks away from being able to show it to people. At that phase, now looking back, it was very early and it would have been a pretty big ask to have any teams really switch off of their existing tooling and use this. There are just elements that people had come to expect in a communication tool that were just not present in Level.
I got good feedback, a good amount of like, “Hey, this feels a little bit off. This kind of thing works junky when I use it. It might be a bug.” It was valuable in a lot of ways, but it didn’t provide all the value that I hoped it would. I kind of, at one point, hoped that some people would actually switch off their existing tools and then it became clear that it just wasn’t there yet. There was still more that needed to be built.
Rob: That’s interesting. You showed it to customers, you got some feedback, but you felt like it maybe wasn’t worth it. You didn’t get enough feedback to warrant all the time at that point.
Derrick: Yeah. It goes back to that analogy of what is an MVP? Is it up a half-built product or is it just a simplified version of a product that will eventually grow into a more full-featured thing? I think at that phase, it was a bicycle missing a wheel.
Rob: Rather than a scooter or something, right?
Derrick: Yeah.
Rob: That’s interesting. We jumped ahead in November and that was when you decided to set a public launch date. It was a public launch date but it was essentially of a minimum viable product that you thought teams could use. You set that date for January 21st which is a few days ago now. What made you decide to put a stake in the ground in November and set a date?
Derrick: There were a few things leading to that. One is I was becoming really impatient with it not moving to that next phase. Part of it was for my own psychology. I wanted to have this date set. I actually was kind of inspired. We were interviewing Paul Jarvis who just released a book in January.
Rob: Company of One.
Derrick: Company of One, really good read. He was doing his press tour for that promotion and stuff. I remember seeing everywhere that he was showing up, he was talking about, “The book is coming on January 15th,” or whatever it was. I’m sure that’s kind of an artifact. They’re just weird publishing schedules, and working with traditional publishers and stuff. But it kind of inspired me like it would be kind of nice if I could be talking about Level and have a date. There’s a date that is coming, and so start building momentum up to that, partially for myself, partially for people who are following the story, and getting excited about it. I was ready to give something a little bit more into the public conversation. That was a big piece of it.
I’ve been toying with the idea of doing presales for the product. Some people are more aggressive with this than others, some people as soon as they have the idea, they’re asking for money right away. I feel like that’s just something you have to take on a case-by-case, founder-by-founder, what you’re comfortable with, what market you’re in, and so on. For me, I felt like to be most comfortable asking for money, I wanted to have a date that I could use and say, “If you put down a deposit today for Level, you will get access guaranteed by the this date,” that was another big piece of motivation.
Rob: I can see that. In retrospect, do you think it was a good decision to set that date?
Derrick: Yeah, I think it was great. No regrets on that. I actually probably could have pushed it earlier. There were definitely things that always happens with launches a few days before. I’m like, “Oh, it would be nice to get that in.” I was working around the clock a few days leading up to Monday, slipping in things that were just like, “I would really love to have this. When I’m demoing the product, I want this part to really shine.” I definitely procrastinated a little bit but I think I could have probably pushed it even a little bit earlier. Being close to the holidays and stuff, I just wasn’t sure how hosed my work schedule would be over that period of time. The value of having a public deadline, there’s many benefits to it. No regrets.
Rob: What did it do for you? Did it just motivate you like, “I have to get this done so I’m going to work more cut scope”?
Derrick: Yeah. I think it’s a really good forcing function for bringing clarity. I fall into this trap all the time. I pay close attention to detail about stuff and I’m very particular about UX. I could easily just keep iterating on small pieces and burn hours on that. I definitely have done my fair share of that. Even still with all these pressures I put on myself to keep focused on the most important things. I think deadline is even more forcing function than just me telling myself to stay focused.
Rob: Yeah, that makes sense. I feel like one of the purposes of deadlines in our space is that, people who build great products almost without exception are perfectionists. They never think it’s good enough because their taste in products is so high. That’s how they know when it’s good, because their taste is good. If your taste is good, you don’t want to put something crappy out. To you, crappy is like things that everyone else looks and says, “Oh, that’s so amazing and gorgeous,” and it’s like, “No, it’s one pixel off of this and that,” at a certain point, you set a date, and you just force yourself to do it.
We’ve done this a couple times already with Tiny Seed where we just go up and decided to announce in October, and we’ve set a forcing function of getting this first batch picked out before MicroConf which is end of March, and that feels incredibly ambitious. I stress about that every day, but it’s good. It’s made me motivated. It hasn’t made me work more hours, but it’s making me be way more focused on the important things. Anything that’s not getting me closer, getting us closer to that objective, I’m just putting on the side. I think it’s good.
Derrick: That’s why I like the concept of healthy stress which has been well studied. There is a certain amount of stress that’s good. I think it’s kind of like that Basecamp mentality. They talk a lot about how they work and how they set these six-week cycles. At first, when I heard Basecamp has deadlines, that seems opposite of how they work. I thought they were calmly, and work at a natural cadence, and not overly stressed, but once you dig into their philosophy around that, it’s like, “No, we set deadlines. No, we cut scope around those deadlines. We don’t burn ourselves out, or make people toxically stressed, and pack in a bunch of work that’s unrealistic. We just pull the other levers to make it happen.” That’s what I found. I’m either going to work around the clock, obsess about every single detail, and try to pack in a bunch of features, or I’m just going to set aside my compulsion to perfect everything, and just focus on the most important stuff.
Rob: Cool. In November also, you mentioned you did a presale in essence. What was the purpose behind that?
Derrick: Yeah. I’ve wanted to do that for awhile and then kind of setting this deadline in my mind, made it kind of feasible to propose this to the public. My rationale was I wanted to figure out, at that point it was probably close to 4,000 people on the launch list who reserved a handle on Level. That’s a lot of people. There’s a lot of people who are supportive. I’m doing a lot of working in public, on Twitter and stuff, sharing my work.
There’s quite a few people who seem to really be following along with the story and glad that it’s happening. That still doesn’t necessarily translate to who’s actually feeling the pain enough to hand over their hard earned dollars for a solution. For me, this was like getting that set of people who are most feeling the pain, most willing to pay, and those are the ones that I want to be getting into the product first, hearing their feedback, and kind of building off of that.
Rob: It’s a good filter in essence is what you’re saying. You just picked out a number out of the air if I recall. It was $48 which is six times your Percy pricing. It’s $8 a seat, right?
Derrick: Yeah, right.
Rob: How many preorders did you get? What was your total preorder amount? I’m curious.
Derrick: I think it was around $2500. I’m not good at mental arithmetic. I think it was 55 or 56 people who went to buying the preorder.
Rob: Were you happy with that? Did you have a number in your head in advance?
Derrick: I didn’t really know how to declare success or failure on that. I felt happy with it. If I got 20 people, I was going to be happy. That felt good to me.
Rob: Cool. Let’s jump forward. It sounds like the holidays, December was a lot of coding. Even early January you were heads down, you’re just trying to get stuff done and meet this deadline. Here we are, we’re recording the week of the 21st, even though it’s going to go live next week. You talked about doing seven calls so far and you have another half dozen or so scheduled. How is it feeling? Do you feel like the product’s at that point where it’s a good time to do it? Are you getting a lot of value out of this or is it still too early to tell?
Derrick: I’m feeling overall positive about it. I think I had to temper my expectations, because the switching costs for a lot of organizations is pretty high. For better or worse, Slack starts out as just a place for humans to talk to each other within their organization. Gradually, some organizations decide to kind of turn it into this place that runs a bunch of their internal workflows, maybe the sales team relies on it for leads to come through into a specific Slack channel which then they can follow up with.
For some people I’ve talked to, it’s proven that this is going to be a longer process. Overall, the response has been positive. Even from those who have more complicated set up, it’s still like, “This product looks really interesting. I’m intrigued.” But the gap between me being intrigued as the champion in my organization, and us actually switching over to it, for some, the gap is pretty big. I think it’s a reminder to me that I need to be patient and just set my expectations properly.
Another artifact of this is that Level is going to be most impactful for teams that are a little bit larger. Really small teams just don’t feel a lot of the pain that teams that are growing start to feel when Slack really becomes unwieldy. That’s another thing that I’m keeping at the back of my mind, set those expectations properly. I’m really feeling positive about this model of staying in the zone of vetting people who come into the funnel, that alternately make it into a demo with me, who ultimately get into the product to try it out, as opposed to doing the big splash public launch, let in a bunch of people, get a big spike of interest, and then a majority of them turn out, and probably send in feedback along the way that I don’t really know if I can trust because I don’t know if they’re a good fit in the first place.
Rob: It’s going more after the super human model, right?
Derrick: Yeah, exactly.
Rob: Derrick, do you remember a day maybe 5-10 years ago where you dreamt of just building a self-service software product that paid your bills. Is that why you got into this?
Derrick: I think so, yeah. My very first product that I remember throwing something together and then I literally Googled, “How do I get customers?” I just thought they would come.
Rob: Yeah. Now here you are, doing heavy hand-holding, onboarding, and conversations It’s good stuff. It’s just crazy how it changes especially as your goals change too, I think. You want to build something great and you want to build something that I’ll say is a decent sized company, whatever that means to people. I just don’t know if you can do that anymore, trying to go no touch. It’s really hard. I shouldn’t say you can’t, but it’s really going to be one in a million or something to just thread that needle and have the Cinderella story. You’re putting in the work. This is what it’s about.
Derrick: Yeah. I feel the no touch phase will come once the product market fit is extremely tight. I feel everything I am doing now—of course I didn’t come up with any of this, these are things that people talk about—going through this phase of intense hand-holding, keeping the filters on really strong, for this round of folks, of the people who put in a preorder, I sent them a questionnaire, asked a bunch of questions about what are the current problems in more detail with chat, what tools are they using, how big is their team, are these for project management, what does email look like in their company. Just a bunch of things I felt like would be good inputs into me understanding their use case, and being able to cater my demo to them, and set my own expectations on what I expect from them. Not everyone has submitted that questionnaire. Not everyone got a Calendly link to get on my calendar to then get into the product yet.
I’ll keep nudging to other people who have preordered and haven’t done that yet. I want to keep the filters really tight because what that does is ensures that I’m getting the best quality feedback that I can possibly get, to then hopefully lead to more of these folks coming through the pipeline, and getting just tighter product market fit.
Rob: You put in the kind of grinding out customer development now so that later on, you have that fit and you know that you can market it and self service it. It’s a good way to think about it. If you think about it, it mirrors very closely what we did in the early days of Drip. You were off coding and I was doing what you’re doing. I was either having calls, or doing videos, so that you could keep moving full speed. In this case, you have to do both because you’re a single founder. I’m pretty proud of what we built with Drip. It had product market fit. Once we nailed that, growth really kicked in. It’s a good kind of analogy or parallel thought there.
One of the things that you’ve done well is, you’ve built up this launch list of almost 5900 email addresses. It’s people who wanted to reserve their handle, and they probably want to follow along, and might want to use Level. There’s all the reasons but I’m curious, for listeners out there who haven’t built a lunch list yet, the first question is what’s the value of that launch list? It’s probably pretty obvious, but I talked through that a little bit and then how did you do that?
I know you have a podcast Art of Product, we should plug it here. Folks want to hear two software founders who were getting it done and building interesting products. They talk every week, you and your co-host Ben that’s artofproductpodcast.com. You have a podcast but that didn’t get your 5900 handles. Talk to us about the value you see in it, and why you spent the time to build it, and then talk through a couple things you’ve done to do that.
Derrick: I think the benefits of having that email list, it talked about a bunch. You’re going to have a certain conversion rate on your list, ultimately. The larger you can grow that list, hopefully the more customers you’ll have come out the other end. When it’s really early, I don’t know how well qualified everyone is on that list, but I know that right now I wanted that to be a very wide top of funnel, just get people onto a list so that they can have a chance of hearing about what I’m up to, and hopefully converting if they’re kind of in the camp of a good, ideal fit.
What really cranked up the number of people submitting the form was adding that scarcity piece, that reserving a handle. When I did that, it obviously has to fit with the kind of application that you have. If you don’t have something where there will be a user name, then it wouldn’t make sense to do that. I think introducing some element of scarcity is just enough to push a lot of people over to, “Well, I don’t really know, but I’ll at least drop my email in this,” they’re getting some kind of perceived value in addition to just getting email updates.
I actually don’t have great historical metrics on conversion rate of hitting the homepage to submitting, but my traffic is not that huge right now. It’s a pretty high percentage of people who land on the homepage will submit that form. It’s not like I have a huge amount of traffic coming to the website, but if I look into my analytics, I think a majority of people are either coming from Twitter, links on Twitter to Level which is where I’m predominantly talking about in the open what I’m working on day-to-day, and just direct. People who either hear about it on the podcast, or hear about it from someone else in person, or whatever, just typing in level.app and coming directly there.
I think I’m kind of playing a long ball with this, but from the get go decided I was going to be as open and transparent with the development process as possible. The thinking behind that is just, people are interested in following a journey. Starting out the Level journey with the manifesto, I think that resonated with a lot of people. It gets people curious about how this is going to all come together, and then in the process of sharing openly what I’m working on, also trying to just be useful to other people. It’s something that Adam Wathan and Steve Schoger are really good at with their newly launched Refactoring UI.
A core part of their strategy was to provide hot tips on Twitter and just be insanely valuable. Giving away a bunch of free knowledge and just stuff that is part of their day-to-day work that they can just package up and share in a way that provides value to other people. That was insanely effective for them. I’m following that same similar strategy of just trying to share a lot. I think it’s built up a decent amount of people who are just genuinely interested in the story. That leads people to when they sign up for a handle, they are more likely to tweet about it and tell it to their friends. That leads to more people signing up. It’s just kind of a nice little flywheel there.
Rob: Yeah, that’s nice. One concern that I have with that approach, especially with SaaS, it’s different than what Adam and Steve are doing, is that SaaS is a tool and people pay for it on a monthly basis, whereas Adam and Steve sell info products. They sell books and courses on the topics that they’re tweeting. There’s a tighter alignment there. I think their conversion rate will be very high and I think yours will be less. It was that way when we were doing Drip as well.
I don’t know if you remember but the first 500 people on our email launch list were mostly for me talking about it on this podcast and a couple other places. The conversion rate on those was far less than the ones that I got from other avenues. It’s not a bad approach, but it might give you a false sense of security. I don’t think you’re kidding yourself in thinking that everyone who wants to follow your story is going to sign up for Level. I want folks at home, if you’re listening to this, realize that there’s difference here.
I still think it’s a viable approach, and it’s something I would be doing the same, but you have to have it in the back of your head that these people are probably not going to convert as well as if you’re running a targeted ad campaign to only the demographic that gets value out of it. If they give you their email and they’re more of a cold lead, they almost might have a better chance if that’s a real pain point for them, versus someone who’s listening and is just like, “I want to follow along and see how Derrick is marketing,” right?
Derrick: Yeah. That’s a really good point. One thing that is in my favor that is not universally in people’s favor when they’re working out in public and sharing their story is that, the people who are potentially good candidates to become Level customers are developers, designers, founders, and that’s the people that are in my tribe on Twitter. The community that I have some degree of access to that are interested in the story, they’re interested in the meta story, they’re interested in the startup journey because there are other startup people, and this just happens to be a tool that is being sold to other startups and founders and stuff like that. If you’re building countertop installer software, sharing your story to other developers on Twitter isn’t necessarily going to move the needle at all.
Rob: Exactly. I’m curious, you had to buckle down at some point, put a stake in the ground, and make some hard choices, and decisions about the inbox. This is as you said, it’s the most critical part of the app because if it works, it’s magical, and angels sing down from the heavens. If it doesn’t, then it’s just a big point of your app that really needs to go well. How did you finally decide to buckle down and just say, “I got to make a call on this,” because I know that you’ve thought about it a lot and it was a long process there.
Derrick: I think I don’t have any other choice. I have to do this. I have to just follow my gut instinct and know that I may have to change this. It may not be a perfect implementation and it’s something that I have to fight against because now that I’ve been through Drip, Codetree, and all these experiences, I am very aware of the cost of legacy code and technical debt. Part of me was like, I don’t want to write any code unless I’m sure that it’s going to not have to change in a significant way.
I had to get past that a little bit and know that there’s always going to be a tension between writing well-crafted, well-tested code that you’re going to invest a lot of time into making it really rock solid and know that you’re potentially going to have to change a bunch of that, and rework data models, and rip out database tables, and do launch data migration, or whatever it may be. I ultimately just had to make the call that I’ve got to do this, I’ve got to get it in the hands of people, and then hopefully the mutations are relatively small, and I can just dial it in with smaller refinements, but also know that maybe it is larger shifts that need to happen.
Rob: How about the experience this time around? In essence it’s your third app, but you had two or three before that. It’s like the fifth or sixth project. You’ve had a lot of experience doing this, so reflecting on it as someone who has launched and grown things in the past. The last nine or ten months when you look back, did it take longer than you thought? Less time than you thought?
Derrick: Yeah, I think my big takeaway is this stuff, regardless of your experience, never gets easy. It gets easier in some ways, but there are fundamental truths about custom software development that still hold regardless of how experienced you are and knowing that there are some of those pitfalls that arise once you have some battle scars. The first time around in earlier apps, I was probably less concerned about scaling challenges for example, because figuring that rightly so that will tackle those problems when we get there.
Now, coming out of an experience with Drip where there were a ton of scaling challenges, I think it’s been a difficult thing that I’ve tried to stay aware of not prematurely optimizing things, or planning to much in advance for scale that I don’t really know what scaling challenges will look like, so try not to invest too much into over-architecting stuff. It gets easier in some ways but then also gets harder in other ways once you have more experience under your belt.
Rob: Yeah. I made a mistake or just a judgment error after HitTail as we started Drip. I thought that it would go faster because I knew more, I had more experience, and more knowledge, and it didn’t. I remember being very frustrated by that for a year. Your mindset and your expectations can really negatively impact your experience of an event.
Derrick: Yeah.
Rob: That’s what you’re saying, don’t get overconfident. Parts of it get easier and you do get better at it, but I don’t think you get faster at it. There is a difference. Look at David Cancel, who’s on his fifth or sixth, all have been successful and exited. Right out of the gate he raised $5 million, or $10 million, or $15 million, it was a huge number, right out of the gate as they were starting. He’s been grinding on Drip for years now, and yes they have traction now, but the first one or two years, it was not getting the traction that I would have expected from a founder of his experience and caliber. Even Jason Cohen with WP Engine. WP Engine is huge now. Remember him bootstrapping and toiling away for a year-and-a-half or two years before anyone had heard of it? It’s crazy.
Derrick: Yeah. When I look at the product, I’m trying to keep Level very simple and elegant. I looked at the product today and I’ve been spending a lot of time in it obviously using it myself. The mechanics of this feels very simple. On the one hand I think, why did it take me so long to arrive at something that feels so simple? It feels like given all this time and all this effort, it should be something that has thousands of dials and tweaks to it, and just like this very complicated system. Just looking at a product that looks simple on the surface doesn’t mean that there weren’t thousands of hours of thinking, and laying on the floor, staring at the ceiling, trying to figure out the most elegant way to execute this. It’s even hard for me sometimes looking at my own product to say, “Why did this take so long?” but it just does, because these are hard problems to solve.
Rob: For sure. Well sir, I think we’re at time. Thanks so much for coming back on the show.
Derrick: Cool. Thanks for having me.
Rob: If folks want to keep up with Level, that’s at level.app, and if they want to hear you talk about it every week, it’s artofproductpodcast.com, or they can head to iTunes, Stitcher, wherever fine podcasts are sold. Have you gotten into Spotify yet?
Derrick: We are in Spotify. Actually, that just happened. We use Fireside for hosting our podcast and they just did it one day. I just went in and I’m like, “Oh, I guess we’re in Spotify.”
Rob: Yeah, that’s cool. Good for you. Folks have been requesting that we get in Spotify and I was like, “How do we do that?” [00:37:57] research [00:37:58] and appear that because we self host on a shared hosting thing with a CDN over it, we don’t use any of the fancy big hosts that kind of do it all for you. It looked like we were going to have to move hosting, copy all the files, and do 301s, and I was like, “I’m not sure this is worth it,” but as it turns out, we missed a link to the first look around. So when I submit our RSS feed 15 minutes later, we were in Spotify. I was like, “Yes. [00:38:22]. It’s great.” Well, thanks again sir for coming on the show.
Derrick: Thanks for having me Rob.
If you have a question for us call our voicemail number at 1-888-801-9690 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 in 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.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Derrick: And I’m Derrick.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So where this week, Derrick?
Derrick: Just in the startup trenches doing some customer onboarding calls.
Rob: How many calls have you done this week?
Derrick: So far, I’ve done seven. I have 11 or 12 booked right now.
Rob: Very nice.
Derrick: I reached a milestone this week. It feels good to finally be in the realm of getting the product into the hands of potential customers and having those awkward conversations about, “When do you want to start paying for this thing?” but it feels good to be in this realm.
Rob: Yeah, it’s cool. You’ve been working on Level now for 9 or 10 months. It’s a long road to get to this place even for those like yourself who’ve done it a few times before.
Derrick: Yeah, it’s kind of unbelievable when I look back at the timeline. Depending on how you look at it, some would say that’s a really short amount of time to just go from nothing to a product that is potentially viable, but on the same token I’m ever impatient and feel like, “Man, it’s been an eternity.”
Rob: Right, and you’ve been able to work full time on it which is a luxury a lot of people don’t have. I can imagine doing this nights and weekends trying get here. I know you’ve been there, so you remember how it was.
Derrick: Totally.
Rob: We’re going to dive in today to your story. We’re actually going to catch folks up because last time you were on the show was in July, it was episode 399. We talked about how you were validating the idea of Level and how you started having people reserve their handles to build your pre launch list. Today, we’re going to continue that story. We’re going to talk about where you’ve been since then, tell the story of the major milestones you’ve hit through the rest of 2018, and pull out the learnings from those. Folks listening can see how an experienced founder like yourself has taken on this challenge of building essentially a competitor to Slack, which is an app that has a lot of momentum, and trying to thread a usability needle and have a different use case that works better for your development teams.
But before we dive in, I want to talk about an AppSumo contest that’s happening, where AppSumo is going to pay for an all-expense paid trip to both MicroConf Starter Edition and Growth in late March. We’ll link that up in the show notes, but they’ve graciously sponsored this podcast and are going to be giving somebody a trip to both of those. You could be a lucky winner Derrick.
Derrick: Yeah, I know, because it’s open to anyone even if people have purchased a ticket, right?
Rob: Exactly. We’ll refund your ticket if you win. I don’t think it’s open to me, but I’m tempted to apply.
Derrick: I was going to say I’d definitely jump on that. If there was a call to action in that email, I’m sure I clicked it. I’m not sure how that would look if I won it, but here’s to hoping.
Rob: I know. I just know that I am totally not involved in the selection process. I have no idea what’s going on. That giveaway ends on February 11th, which is another week or two after this goes live. Check it out if you haven’t.
You were here in July. You and I were talking before the show, kind of laying out some milestones that happened since then. I know you were heads down, you’re in pretty hardcore design mode of trying to figure out what are the screens going to look like, how am I going to architect the inbox, how do you compete with Slack in a way that is less invasive, less interruptive. I mean, that’s the promise of Level. For folks who want to a good explanation of it, go to level.app and it’s your headline there, ‘Team communication optimized for deep work.’
In September, you were telling me you came to a fork in the road in terms of this. You’re writing some code I believe, but you were trying to decide the hardest part of this app to design really is probably the inbox. From a usability perspective, you just have to get it right. Talk to us about where you were in September.
Derrick: Up until that point, it’s funny now looking back like why did it take me so long to get to where I am today? I think a big part of that was, I spent a few months at the frontend just focusing mostly on getting familiar, comfortable with the Tech Stack, this is an application that has a lot of real time stuff. It will eventually need offline support, web sockets, just a very different type of application from the ones I’ve built before.
I spent a lot of time getting familiar with Tech Stack, and also I had a general vision in my head of how the product should work, like just kind of picture how it would feel. It’s interesting how once you get from the phase of, I have the vision for this thing, and how it should function, and how it should not interrupt people like Slack does, to actually getting down to the implementation.
There’s a big gap there. In theory I know how it should work, but it’s actually a really hard problem to solve to strike just the right balance. I think we were sitting on your rooftop, September, I was sipping some scotch and I was like, “Rob, what am I going to do?” What should I do? Should I spend time doing another round of calls with potential customers, try to put together some wireframes and some mockups, show it to them, cast a vision for how it’s going to work, and potentially get responses like, “Yeah, looks cool”? Or do I take the route of just spending some time writing some code, and implementing what I feel is my best guess at how it should function according to my own experience, and what I’ve heard from others?
To me, at the time it felt risky because I know that that big trap that a lot of people fall into is going to the basement, code for months, emerge, and potentially be missing the mark. I’ve been very careful and almost a little bit paranoid not to fall into that trap, even though it’s still really hard even after having a few apps under your belt. That’s kind of the crossroads.
Rob: Yeah and it’s never clear cut. You and I sat and tried to look at what are the options here and what are the drawbacks because you don’t want to fall into exactly that trap. Like the conventional wisdom says, “Do more customer development upfront, have a lot of conversations, don’t waste time writing a bunch of code, get it all settled out of front.” But it seems like your gut feel and mind in essence, too, was by the time we get to the end of the conversation it’s like your intuition of what it should be, since you’re trying to invent something new or at least innovate enough in a medium that’s chat, but you’re trying to do it differently, and it’s like, “I’m not sure that having conversations with people about mockups is going to get you there.” It wasn’t like you should absolutely do A or B. We both by the end leaned towards, “Go build something,” because until someone touches it and clicks a button, and even if it’s a fake simulated chat with an invisible person, with a bot, or whatever, at least they’ll get an idea of like, “Oh, that doesn’t make sense at all,” or, “Oh, it does,” in a way that I don’t know, you can’t get your hands on mockups the way that you can with some code.
Derrick: Yeah. If Steve Jobs would have taken some wireframes of the iPhone and showed it to people, would people have caught the magic? I don’t think so. It would look like an interesting concept, “Oh, it’s a phone that you can web browse on, and have all these apps, and these games. Interesting.” It’s hard to represent the user experience aspect of it, which I think for Level is a really big thing. It just has to feel right to people. As opposed to some other apps where it has this very specific utilitarian purpose, and as long as it can deliver on this purpose, then it will be good. Level is not necessarily good even if it delivers on the purpose, it also has to feel right.
Rob: I want to touch on the thing you said about Steve Jobs. I feel like some people will throw that around. He’s also an exception. Henry Ford talks about the model T being a faster horse or whatever, which I think is actually apocryphal. I’m not sure that he ever said that, but the idea is that I’m an innovator and I know better, I’m never going to show such to customers, and that’s what has gotten people into the two years of coding in your basement thing.
One I think is knowing your strengths. You happen to have really solid strength in app usability and design. I think both you and I were like, “You’re probably going to do a better job of this than most people would know, so take a flyer on it,” and two, I think it’s a gut feel. It’s like how strongly do you feel that you know what’s better in this space? Are you like, “I don’t really know the solution and I truly do need the input of 10 or 20 potential customers,” then think I’ll do that. It didn’t seem like you needed that. That’s what we were pulling out. You had enough of an image in your head of what you wanted to do that we thought it was worth the gamble. That’s how it felt, right?
Derrick: Yeah. I think that this is also one of the other things that complicates getting that type of feedback from wireframes for Level. It’s the type of product where if someone came and asked me, “Here’s what I’m thinking for a new tool that solves this problem, what do you think?” I would be like, “I don’t know if I could answer that very accurately either,” because I’d be like, “Well, it just depends on if I use it for two weeks, go through my day, and a bunch of stuff isn’t falling through the cracks, or do I truly feel like I am able to retain focus better, or am I constantly drawn to go check it?” There’s a whole story that has to come together. I don’t know if I’m imaginative enough to be able to answer with confidence like, “Yeah, I think you nailed it.”
Rob: All startups have some type of risk, whether it’s a market risk or technology risk. It’s almost [UX 00:10:14] risk, or threading the needle of being that’s the riskiest thing. We know you can build the app and you’re probably going to market it pretty well. I think there is some market risk in terms of, is the market of people who don’t like being interrupted by Slack, how large is that market? That’s an open question, but that’s one that’s very hard to answer until you build something cool right now. At that point, you made the decision to not have more conversations, and not build mockups, and you got to code in September.
Derrick: Yeah.
Rob: And then October, you did your early access phase. It was like pre-early access or something, right?
Derrick: Yeah. I’ve already been building foundations leading up to that point. So then it was just locking in some decisions around how the inbox works and some of the other elements in the product. I was only a few weeks away from being able to show it to people. At that phase, now looking back, it was very early and it would have been a pretty big ask to have any teams really switch off of their existing tooling and use this. There are just elements that people had come to expect in a communication tool that were just not present in Level.
I got good feedback, a good amount of like, “Hey, this feels a little bit off. This kind of thing works junky when I use it. It might be a bug.” It was valuable in a lot of ways, but it didn’t provide all the value that I hoped it would. I kind of, at one point, hoped that some people would actually switch off their existing tools and then it became clear that it just wasn’t there yet. There was still more that needed to be built.
Rob: That’s interesting. You showed it to customers, you got some feedback, but you felt like it maybe wasn’t worth it. You didn’t get enough feedback to warrant all the time at that point.
Derrick: Yeah. It goes back to that analogy of what is an MVP? Is it up a half-built product or is it just a simplified version of a product that will eventually grow into a more full-featured thing? I think at that phase, it was a bicycle missing a wheel.
Rob: Rather than a scooter or something, right?
Derrick: Yeah.
Rob: That’s interesting. We jumped ahead in November and that was when you decided to set a public launch date. It was a public launch date but it was essentially of a minimum viable product that you thought teams could use. You set that date for January 21st which is a few days ago now. What made you decide to put a stake in the ground in November and set a date?
Derrick: There were a few things leading to that. One is I was becoming really impatient with it not moving to that next phase. Part of it was for my own psychology. I wanted to have this date set. I actually was kind of inspired. We were interviewing Paul Jarvis who just released a book in January.
Rob: Company of One.
Derrick: Company of One, really good read. He was doing his press tour for that promotion and stuff. I remember seeing everywhere that he was showing up, he was talking about, “The book is coming on January 15th,” or whatever it was. I’m sure that’s kind of an artifact. They’re just weird publishing schedules, and working with traditional publishers and stuff. But it kind of inspired me like it would be kind of nice if I could be talking about Level and have a date. There’s a date that is coming, and so start building momentum up to that, partially for myself, partially for people who are following the story, and getting excited about it. I was ready to give something a little bit more into the public conversation. That was a big piece of it.
I’ve been toying with the idea of doing presales for the product. Some people are more aggressive with this than others, some people as soon as they have the idea, they’re asking for money right away. I feel like that’s just something you have to take on a case-by-case, founder-by-founder, what you’re comfortable with, what market you’re in, and so on. For me, I felt like to be most comfortable asking for money, I wanted to have a date that I could use and say, “If you put down a deposit today for Level, you will get access guaranteed by the this date,” that was another big piece of motivation.
Rob: I can see that. In retrospect, do you think it was a good decision to set that date?
Derrick: Yeah, I think it was great. No regrets on that. I actually probably could have pushed it earlier. There were definitely things that always happens with launches a few days before. I’m like, “Oh, it would be nice to get that in.” I was working around the clock a few days leading up to Monday, slipping in things that were just like, “I would really love to have this. When I’m demoing the product, I want this part to really shine.” I definitely procrastinated a little bit but I think I could have probably pushed it even a little bit earlier. Being close to the holidays and stuff, I just wasn’t sure how hosed my work schedule would be over that period of time. The value of having a public deadline, there’s many benefits to it. No regrets.
Rob: What did it do for you? Did it just motivate you like, “I have to get this done so I’m going to work more cut scope”?
Derrick: Yeah. I think it’s a really good forcing function for bringing clarity. I fall into this trap all the time. I pay close attention to detail about stuff and I’m very particular about UX. I could easily just keep iterating on small pieces and burn hours on that. I definitely have done my fair share of that. Even still with all these pressures I put on myself to keep focused on the most important things. I think deadline is even more forcing function than just me telling myself to stay focused.
Rob: Yeah, that makes sense. I feel like one of the purposes of deadlines in our space is that, people who build great products almost without exception are perfectionists. They never think it’s good enough because their taste in products is so high. That’s how they know when it’s good, because their taste is good. If your taste is good, you don’t want to put something crappy out. To you, crappy is like things that everyone else looks and says, “Oh, that’s so amazing and gorgeous,” and it’s like, “No, it’s one pixel off of this and that,” at a certain point, you set a date, and you just force yourself to do it.
We’ve done this a couple times already with Tiny Seed where we just go up and decided to announce in October, and we’ve set a forcing function of getting this first batch picked out before MicroConf which is end of March, and that feels incredibly ambitious. I stress about that every day, but it’s good. It’s made me motivated. It hasn’t made me work more hours, but it’s making me be way more focused on the important things. Anything that’s not getting me closer, getting us closer to that objective, I’m just putting on the side. I think it’s good.
Derrick: That’s why I like the concept of healthy stress which has been well studied. There is a certain amount of stress that’s good. I think it’s kind of like that Basecamp mentality. They talk a lot about how they work and how they set these six-week cycles. At first, when I heard Basecamp has deadlines, that seems opposite of how they work. I thought they were calmly, and work at a natural cadence, and not overly stressed, but once you dig into their philosophy around that, it’s like, “No, we set deadlines. No, we cut scope around those deadlines. We don’t burn ourselves out, or make people toxically stressed, and pack in a bunch of work that’s unrealistic. We just pull the other levers to make it happen.” That’s what I found. I’m either going to work around the clock, obsess about every single detail, and try to pack in a bunch of features, or I’m just going to set aside my compulsion to perfect everything, and just focus on the most important stuff.
Rob: Cool. In November also, you mentioned you did a presale in essence. What was the purpose behind that?
Derrick: Yeah. I’ve wanted to do that for awhile and then kind of setting this deadline in my mind, made it kind of feasible to propose this to the public. My rationale was I wanted to figure out, at that point it was probably close to 4,000 people on the launch list who reserved a handle on Level. That’s a lot of people. There’s a lot of people who are supportive. I’m doing a lot of working in public, on Twitter and stuff, sharing my work.
There’s quite a few people who seem to really be following along with the story and glad that it’s happening. That still doesn’t necessarily translate to who’s actually feeling the pain enough to hand over their hard earned dollars for a solution. For me, this was like getting that set of people who are most feeling the pain, most willing to pay, and those are the ones that I want to be getting into the product first, hearing their feedback, and kind of building off of that.
Rob: It’s a good filter in essence is what you’re saying. You just picked out a number out of the air if I recall. It was $48 which is six times your Percy pricing. It’s $8 a seat, right?
Derrick: Yeah, right.
Rob: How many preorders did you get? What was your total preorder amount? I’m curious.
Derrick: I think it was around $2500. I’m not good at mental arithmetic. I think it was 55 or 56 people who went to buying the preorder.
Rob: Were you happy with that? Did you have a number in your head in advance?
Derrick: I didn’t really know how to declare success or failure on that. I felt happy with it. If I got 20 people, I was going to be happy. That felt good to me.
Rob: Cool. Let’s jump forward. It sounds like the holidays, December was a lot of coding. Even early January you were heads down, you’re just trying to get stuff done and meet this deadline. Here we are, we’re recording the week of the 21st, even though it’s going to go live next week. You talked about doing seven calls so far and you have another half dozen or so scheduled. How is it feeling? Do you feel like the product’s at that point where it’s a good time to do it? Are you getting a lot of value out of this or is it still too early to tell?
Derrick: I’m feeling overall positive about it. I think I had to temper my expectations, because the switching costs for a lot of organizations is pretty high. For better or worse, Slack starts out as just a place for humans to talk to each other within their organization. Gradually, some organizations decide to kind of turn it into this place that runs a bunch of their internal workflows, maybe the sales team relies on it for leads to come through into a specific Slack channel which then they can follow up with.
For some people I’ve talked to, it’s proven that this is going to be a longer process. Overall, the response has been positive. Even from those who have more complicated set up, it’s still like, “This product looks really interesting. I’m intrigued.” But the gap between me being intrigued as the champion in my organization, and us actually switching over to it, for some, the gap is pretty big. I think it’s a reminder to me that I need to be patient and just set my expectations properly.
Another artifact of this is that Level is going to be most impactful for teams that are a little bit larger. Really small teams just don’t feel a lot of the pain that teams that are growing start to feel when Slack really becomes unwieldy. That’s another thing that I’m keeping at the back of my mind, set those expectations properly. I’m really feeling positive about this model of staying in the zone of vetting people who come into the funnel, that alternately make it into a demo with me, who ultimately get into the product to try it out, as opposed to doing the big splash public launch, let in a bunch of people, get a big spike of interest, and then a majority of them turn out, and probably send in feedback along the way that I don’t really know if I can trust because I don’t know if they’re a good fit in the first place.
Rob: It’s going more after the super human model, right?
Derrick: Yeah, exactly.
Rob: Derrick, do you remember a day maybe 5-10 years ago where you dreamt of just building a self-service software product that paid your bills. Is that why you got into this?
Derrick: I think so, yeah. My very first product that I remember throwing something together and then I literally Googled, “How do I get customers?” I just thought they would come.
Rob: Yeah. Now here you are, doing heavy hand-holding, onboarding, and conversations It’s good stuff. It’s just crazy how it changes especially as your goals change too, I think. You want to build something great and you want to build something that I’ll say is a decent sized company, whatever that means to people. I just don’t know if you can do that anymore, trying to go no touch. It’s really hard. I shouldn’t say you can’t, but it’s really going to be one in a million or something to just thread that needle and have the Cinderella story. You’re putting in the work. This is what it’s about.
Derrick: Yeah. I feel the no touch phase will come once the product market fit is extremely tight. I feel everything I am doing now—of course I didn’t come up with any of this, these are things that people talk about—going through this phase of intense hand-holding, keeping the filters on really strong, for this round of folks, of the people who put in a preorder, I sent them a questionnaire, asked a bunch of questions about what are the current problems in more detail with chat, what tools are they using, how big is their team, are these for project management, what does email look like in their company. Just a bunch of things I felt like would be good inputs into me understanding their use case, and being able to cater my demo to them, and set my own expectations on what I expect from them. Not everyone has submitted that questionnaire. Not everyone got a Calendly link to get on my calendar to then get into the product yet.
I’ll keep nudging to other people who have preordered and haven’t done that yet. I want to keep the filters really tight because what that does is ensures that I’m getting the best quality feedback that I can possibly get, to then hopefully lead to more of these folks coming through the pipeline, and getting just tighter product market fit.
Rob: You put in the kind of grinding out customer development now so that later on, you have that fit and you know that you can market it and self service it. It’s a good way to think about it. If you think about it, it mirrors very closely what we did in the early days of Drip. You were off coding and I was doing what you’re doing. I was either having calls, or doing videos, so that you could keep moving full speed. In this case, you have to do both because you’re a single founder. I’m pretty proud of what we built with Drip. It had product market fit. Once we nailed that, growth really kicked in. It’s a good kind of analogy or parallel thought there.
One of the things that you’ve done well is, you’ve built up this launch list of almost 5900 email addresses. It’s people who wanted to reserve their handle, and they probably want to follow along, and might want to use Level. There’s all the reasons but I’m curious, for listeners out there who haven’t built a lunch list yet, the first question is what’s the value of that launch list? It’s probably pretty obvious, but I talked through that a little bit and then how did you do that?
I know you have a podcast Art of Product, we should plug it here. Folks want to hear two software founders who were getting it done and building interesting products. They talk every week, you and your co-host Ben that’s artofproductpodcast.com. You have a podcast but that didn’t get your 5900 handles. Talk to us about the value you see in it, and why you spent the time to build it, and then talk through a couple things you’ve done to do that.
Derrick: I think the benefits of having that email list, it talked about a bunch. You’re going to have a certain conversion rate on your list, ultimately. The larger you can grow that list, hopefully the more customers you’ll have come out the other end. When it’s really early, I don’t know how well qualified everyone is on that list, but I know that right now I wanted that to be a very wide top of funnel, just get people onto a list so that they can have a chance of hearing about what I’m up to, and hopefully converting if they’re kind of in the camp of a good, ideal fit.
What really cranked up the number of people submitting the form was adding that scarcity piece, that reserving a handle. When I did that, it obviously has to fit with the kind of application that you have. If you don’t have something where there will be a user name, then it wouldn’t make sense to do that. I think introducing some element of scarcity is just enough to push a lot of people over to, “Well, I don’t really know, but I’ll at least drop my email in this,” they’re getting some kind of perceived value in addition to just getting email updates.
I actually don’t have great historical metrics on conversion rate of hitting the homepage to submitting, but my traffic is not that huge right now. It’s a pretty high percentage of people who land on the homepage will submit that form. It’s not like I have a huge amount of traffic coming to the website, but if I look into my analytics, I think a majority of people are either coming from Twitter, links on Twitter to Level which is where I’m predominantly talking about in the open what I’m working on day-to-day, and just direct. People who either hear about it on the podcast, or hear about it from someone else in person, or whatever, just typing in level.app and coming directly there.
I think I’m kind of playing a long ball with this, but from the get go decided I was going to be as open and transparent with the development process as possible. The thinking behind that is just, people are interested in following a journey. Starting out the Level journey with the manifesto, I think that resonated with a lot of people. It gets people curious about how this is going to all come together, and then in the process of sharing openly what I’m working on, also trying to just be useful to other people. It’s something that Adam Wathan and Steve Schoger are really good at with their newly launched Refactoring UI.
A core part of their strategy was to provide hot tips on Twitter and just be insanely valuable. Giving away a bunch of free knowledge and just stuff that is part of their day-to-day work that they can just package up and share in a way that provides value to other people. That was insanely effective for them. I’m following that same similar strategy of just trying to share a lot. I think it’s built up a decent amount of people who are just genuinely interested in the story. That leads people to when they sign up for a handle, they are more likely to tweet about it and tell it to their friends. That leads to more people signing up. It’s just kind of a nice little flywheel there.
Rob: Yeah, that’s nice. One concern that I have with that approach, especially with SaaS, it’s different than what Adam and Steve are doing, is that SaaS is a tool and people pay for it on a monthly basis, whereas Adam and Steve sell info products. They sell books and courses on the topics that they’re tweeting. There’s a tighter alignment there. I think their conversion rate will be very high and I think yours will be less. It was that way when we were doing Drip as well.
I don’t know if you remember but the first 500 people on our email launch list were mostly for me talking about it on this podcast and a couple other places. The conversion rate on those was far less than the ones that I got from other avenues. It’s not a bad approach, but it might give you a false sense of security. I don’t think you’re kidding yourself in thinking that everyone who wants to follow your story is going to sign up for Level. I want folks at home, if you’re listening to this, realize that there’s difference here.
I still think it’s a viable approach, and it’s something I would be doing the same, but you have to have it in the back of your head that these people are probably not going to convert as well as if you’re running a targeted ad campaign to only the demographic that gets value out of it. If they give you their email and they’re more of a cold lead, they almost might have a better chance if that’s a real pain point for them, versus someone who’s listening and is just like, “I want to follow along and see how Derrick is marketing,” right?
Derrick: Yeah. That’s a really good point. One thing that is in my favor that is not universally in people’s favor when they’re working out in public and sharing their story is that, the people who are potentially good candidates to become Level customers are developers, designers, founders, and that’s the people that are in my tribe on Twitter. The community that I have some degree of access to that are interested in the story, they’re interested in the meta story, they’re interested in the startup journey because there are other startup people, and this just happens to be a tool that is being sold to other startups and founders and stuff like that. If you’re building countertop installer software, sharing your story to other developers on Twitter isn’t necessarily going to move the needle at all.
Rob: Exactly. I’m curious, you had to buckle down at some point, put a stake in the ground, and make some hard choices, and decisions about the inbox. This is as you said, it’s the most critical part of the app because if it works, it’s magical, and angels sing down from the heavens. If it doesn’t, then it’s just a big point of your app that really needs to go well. How did you finally decide to buckle down and just say, “I got to make a call on this,” because I know that you’ve thought about it a lot and it was a long process there.
Derrick: I think I don’t have any other choice. I have to do this. I have to just follow my gut instinct and know that I may have to change this. It may not be a perfect implementation and it’s something that I have to fight against because now that I’ve been through Drip, Codetree, and all these experiences, I am very aware of the cost of legacy code and technical debt. Part of me was like, I don’t want to write any code unless I’m sure that it’s going to not have to change in a significant way.
I had to get past that a little bit and know that there’s always going to be a tension between writing well-crafted, well-tested code that you’re going to invest a lot of time into making it really rock solid and know that you’re potentially going to have to change a bunch of that, and rework data models, and rip out database tables, and do launch data migration, or whatever it may be. I ultimately just had to make the call that I’ve got to do this, I’ve got to get it in the hands of people, and then hopefully the mutations are relatively small, and I can just dial it in with smaller refinements, but also know that maybe it is larger shifts that need to happen.
Rob: How about the experience this time around? In essence it’s your third app, but you had two or three before that. It’s like the fifth or sixth project. You’ve had a lot of experience doing this, so reflecting on it as someone who has launched and grown things in the past. The last nine or ten months when you look back, did it take longer than you thought? Less time than you thought?
Derrick: Yeah, I think my big takeaway is this stuff, regardless of your experience, never gets easy. It gets easier in some ways, but there are fundamental truths about custom software development that still hold regardless of how experienced you are and knowing that there are some of those pitfalls that arise once you have some battle scars. The first time around in earlier apps, I was probably less concerned about scaling challenges for example, because figuring that rightly so that will tackle those problems when we get there.
Now, coming out of an experience with Drip where there were a ton of scaling challenges, I think it’s been a difficult thing that I’ve tried to stay aware of not prematurely optimizing things, or planning to much in advance for scale that I don’t really know what scaling challenges will look like, so try not to invest too much into over-architecting stuff. It gets easier in some ways but then also gets harder in other ways once you have more experience under your belt.
Rob: Yeah. I made a mistake or just a judgment error after HitTail as we started Drip. I thought that it would go faster because I knew more, I had more experience, and more knowledge, and it didn’t. I remember being very frustrated by that for a year. Your mindset and your expectations can really negatively impact your experience of an event.
Derrick: Yeah.
Rob: That’s what you’re saying, don’t get overconfident. Parts of it get easier and you do get better at it, but I don’t think you get faster at it. There is a difference. Look at David Cancel, who’s on his fifth or sixth, all have been successful and exited. Right out of the gate he raised $5 million, or $10 million, or $15 million, it was a huge number, right out of the gate as they were starting. He’s been grinding on Drip for years now, and yes they have traction now, but the first one or two years, it was not getting the traction that I would have expected from a founder of his experience and caliber. Even Jason Cohen with WP Engine. WP Engine is huge now. Remember him bootstrapping and toiling away for a year-and-a-half or two years before anyone had heard of it? It’s crazy.
Derrick: Yeah. When I look at the product, I’m trying to keep Level very simple and elegant. I looked at the product today and I’ve been spending a lot of time in it obviously using it myself. The mechanics of this feels very simple. On the one hand I think, why did it take me so long to arrive at something that feels so simple? It feels like given all this time and all this effort, it should be something that has thousands of dials and tweaks to it, and just like this very complicated system. Just looking at a product that looks simple on the surface doesn’t mean that there weren’t thousands of hours of thinking, and laying on the floor, staring at the ceiling, trying to figure out the most elegant way to execute this. It’s even hard for me sometimes looking at my own product to say, “Why did this take so long?” but it just does, because these are hard problems to solve.
Rob: For sure. Well sir, I think we’re at time. Thanks so much for coming back on the show.
Derrick: Cool. Thanks for having me.
Rob: If folks want to keep up with Level, that’s at level.app, and if they want to hear you talk about it every week, it’s artofproductpodcast.com, or they can head to iTunes, Stitcher, wherever fine podcasts are sold. Have you gotten into Spotify yet?
Derrick: We are in Spotify. Actually, that just happened. We use Fireside for hosting our podcast and they just did it one day. I just went in and I’m like, “Oh, I guess we’re in Spotify.”
Rob: Yeah, that’s cool. Good for you. Folks have been requesting that we get in Spotify and I was like, “How do we do that?” [00:37:57] research [00:37:58] and appear that because we self host on a shared hosting thing with a CDN over it, we don’t use any of the fancy big hosts that kind of do it all for you. It looked like we were going to have to move hosting, copy all the files, and do 301s, and I was like, “I’m not sure this is worth it,” but as it turns out, we missed a link to the first look around. So when I submit our RSS feed 15 minutes later, we were in Spotify. I was like, “Yes. [00:38:22]. It’s great.” Well, thanks again sir for coming on the show.
Derrick: Thanks for having me Rob.
If you have a question for us call our voicemail number at 1-888-801-9690 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 in 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 428 | Building Relationships with Agency Partners, Determining Equity Splits, and More Listener Questions
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including building relationships with agency partners, selling across different currencies, determining equity splits, and more.
Items mentioned in this episode:
- AppSumo MicroConf Giveaway Contest
- MicroConf Growth Edition
- MicroConf Starter Edition
- OpenCage Geocoder
- FE International
- Quiet Light Brokerage
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about building relationships with agency partners, determining equity splits, and more listener questions. This is Startups For The Rest Of Us Episode 428.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Qué es la palabra este semana, Miguel?
Mike: Uh…
Rob: “What is the word this week, sir?” “What is the word this week, Mike?” actually is what it says. What’s going on with your computer?
Mike: I was trying to fix a random crash that I ran into, and of course as part of doing that, I had to restart the machine in order to debug some of the stuff that was coming up and test some drivers. I think as a result of that, my computer is now blue-screening and I can’t get it back into Windows.
I spent the last couple of hours trying to figure out like, “Okay, well go to the new crash dump, take a look at that and see if I can get access to it.” Then I’m troubleshooting certain things and looking them up from my phone. It’s just awful.
Rob: Right. Well, the good news is you don’t have other work that you should be doing.
Mike: Sure, yeah.
Rob: You don’t have anything else that’s pressing.
Mike: I have nothing else to do.
Rob: Hey, I think I know the solution, actually. Step one, uninstall Windows. Step two, install Linux. Boom, boom. Sorry, I think that’s a MicroConf joke, right?
Mike: That probably is. It’s that bad.
Rob: Yeah, it’s that bad. Don’t you have a Mac laptop? Just go [00:01:46] Mac all the time, baby.
Mike: Uh, I… no.
Rob: You’re still considering it?
Mike: No. I can’t stand the trackpad. That’s the thing that bugs me the most. I can’t stand using it. All my development stuff is all in Windows, anyway.
Rob: That’s the hard part, yup. I use the trackpad. I think it’s fine but I use an external mouse when I’m at my desk. I put the laptop up. You know, Mike, it is 2018. You know you can pair mice with Bluetooth or even USB to a laptop, did you know that?
Mike: I did know that.
Rob: I’m giving you a lot of crap today, huh?
Mike: I know.
Rob: I’m just kicking you while you’re down. Oh man, I’m sorry. I remember those days and I would lose a day or two productivity and it would just kill me. It’s infuriating.
Mike: Yup, and that’s really the point I’m mad at it. I’m just annoyed at this point. The worst part is that I’m still running Windows 7 and I’ve known for a while that I should migrate over to Windows 10 at some point. There’s still some software that I literally can’t use right now because I’m not running a more recent version of Windows but I know that there’s also so much stuff installed and it’s configured in just the right way so that my builds, works, and everything is configured just right. I know I’m going to burn at least a couple of days reformatting my machine and reinstalling everything and I just didn’t want to do it. Now, I’m at the point where it’s like, “You know what? I may just absolutely have to.”
Fortunately a couple of days ago, I had looked and said, “Okay, if I were going to do this, what software would I need?” I made a complete list of it, I took screenshots, and I was smart enough to put it all in a Google Doc rather than on my hard drive.
Rob: Oh nice. Geeze. That’s tough. Again, I don’t miss those days. I’ve never been the Windows basher because I’ve used Windows for 12 years or something and then switched to Mac. I remember being like, “Oh, this is better in some ways and not in others.” To be honest, I never thought that Mac was so far superior to Windows. Now that I’ve been on it for years, though, I haven’t had another one of those days.
I used to have those every few years. Especially when you’re a developer, you’re just doing aggressive things with your machine. You’re not surfing the web, looking at Facebook, and doing Google Docs. You’re in screwing around with registry stuff and you’re installing things you probably shouldn’t. You install and uninstall a lot of things and you run builds. I don’t know.
I just remember screwing my machine up every couple of years. I also remember the upgrade process was hard and cumbersome. I think that’s something that Apple has done a much better job. As an example, I upgraded to Mojave last week, which is the next version of the OS, and it has so many features and stuff but it’s an incremental version. They release those every 60-90 days it seems like and knock on wood, the upgrades always go fine. I’ve not had an issue. I’m sure it’s possible to have an issue but I hadn’t have an issue. Now it has new stuff and I haven’t had another moment like that since I switched to using a Mac, which I believe is probably six years now. Five or six years. I don’t know. It’s hard when that happens and you lose that much productivity.
Mike: Yeah and I’m thankful that it’s just going to be the productivity because I have backup software on my machine, so it’s not like I’m losing data or anything. I’ve got a local NAS device that I store a lot of stuff on and then I’ve got Dropbox where I’ve got all the other important stuff. It’s not like my hard drive is dead and even if it was, I can still get everything back. It’s just the time of reinstalling and reconfiguring everything and then trying to make sure that I still have all the software licenses, the right versions, and everything else.
I forget who it was. I think it was PDF Architect or something like that. They’re like, “Oh, there’s a new update. Click here for the update.” Then I clicked on it, it was like, “Oh, okay,” and then it installed, and then it’s like, “Oh, you don’t have the latest versions or latest license, so we’re not going to let you use it.” Like, “Wait a second, you just gave me this thing. You pushed this upgrade on me.” It’s like, “Come on.”
Rob: Yeah. I had that happened before. Yeah, it’s not cool.
Mike: Ugh. Onward, I guess. For the listeners, again, don’t forget about the AppSumo contest that’s running. We’ll link that up in the show notes so you can go check it out. But as with last week, There’s a contest that’s running right now in partnership with AppSumo. The winner is going to receive an all-expense paid trip to MicroConf, tickets included. As I said, we’ll link it up in the show notes and definitely check it out.
Rob: And if you are interested in having us answer a question, I believe we’re getting towards the bottom of the mail bag. Send us a voicemail if you can. You can call our voice mail number 888-801-9690. We like hearing your voice and frankly the listeners do, too. It makes people feel like it’s not just you and I making up emails, sending emails to ourselves and reading them on the show. No, that’s not really why we’re doing it but it’s just fun to have voicemails. But certainly if you can’t, send us an email at questions@startupsfortherestofus.com. We’re going to be answering several listener questions on the show today.
The first one is about building relationships with agency partners and it’s from PJ. He says, “I love your podcast, especially how you give us a short update at the start about your own businesses. My question is around building a partner circle at the beginning of a business especially when services are a necessary angle for the product.” I’m assuming he means consultant agencies. “What type of engagement model would you recommend thinking about, especially when aligning with a global services company? Especially when they ask for exclusivity. Thanks.”
I’m going to start by saying this is an example of a question that should be more specific. Do you feel like we need more info? Because I’m not exactly sure what he’s asking.
Mike: I’ve been in these types of circles before so I have kind of an idea. But I agree, it does need a little bit more context.
Rob: I think we can answer it in some vague terms quickly but I think we really dig into this. We just need more information about what niche or market you’re in and really, if you’re going to ask a question, please include more information because it helps us understand it. I think we can [00:07:51] more value to you as well as the listeners. But with that in mind, he explained us [00:07:56] in your words what he’s asking so we can talk this through.
Mike: My understanding of what he’s asking is that he wants to create a partnership program where other businesses will bring them in to either deliver services or they will bring their partners and to deliver services. By what he said about, “…when aligning with a global services company,” it seems to me the global services company, think of them as like IBM, or Dell, or HP, or something like that. They have a services organization but they don’t necessarily provide all the services themselves.
I’m kind of thinking back to my consulting days where I did exactly this and work for companies like that. What they will do is they have basically sales reps that are kind of all over the place and working with enterprise companies. When they sell services, it’s on their paper, and then they turn around and then they outsource it to somebody else. Typically, when they have exclusivity at that point, really what they’re doing is they’re saying, “We will subcontract you but you are not allowed to subcontract to somebody else.”
The part about exclusivity throws me a little bit because aside from that situation, I can’t see something where a global company like that would come and say, “We want you exclusively to deliver this,” and they want exclusive access to you. They don’t want anybody else to hire you. That seems odd.
Rob: Yeah, I would agree with that because you’re not just a consultant. You’re not a contractor unless he’s talking about starting a consulting firm because he doesn’t specifically say he’s building a software product. That’s why I think we probably need more info to answer that. But with all that, what type of engagement models would you recommend thinking about? What does he mean by that? Hourly rate or versus weekly retainer versus monthly stipend or per project?
Mike: Engagement models would be like how are you going to structure the contract for the services? Is it going to be on your paper or is it going to be on somebody else’s? Because whoever paper’s on is typically going to be the manager of that relationship and if it’s Dell’s outsourcing to you, it’s going to be on their paper, it’s going to have all their terms and conditions, and at the end of the day, that customer is Dell’s not yours.
If, let’s say, that you reverse it a little bit and you are a large software company and you bring in Dell to perform the services, they’re still going to want on their paper but you could turn that on its head if you have enough leverage to say, “No, it’s going to be on ours. This is our customer because we found them and we sold them the software.”
But at that point, Dell is not going to have a huge number of reps or technical services people on staff that are going to be knowledgeable enough about your software to be able to go and do consulting engagements. It’s possible they may do that but you have to be fairly large in order for that to happen. I’ve seen it with even extremely large pieces of software. They just don’t have the technical staff because they can’t pay them. And they don’t want to pay them, either, because those people are consultants and if every minute of their sitting on the bench, the company is not making money.
Most of those sales types of organizations—Dell, HP, IBM—they have a sales organization to sell services but they don’t have a delivery services organization with the consultants on the bench because they have to keep them at capacity like 100% at least 85% of the time. They have to be booked almost nonstop throughout the course of the year in order to even turn a profit on it.
Rob: That’s business, man. This is why we do products, am I right?
Mike: Yes because products are so much easier.
Rob: Yeah, exactly. Good one, Mike, I like that. Anyway, PJ thanks for the question. Hopefully, that’s some help to you. If you want to write in with more details, we can try to tackle it again in a future episode, but if not, I hope that was helpful.
Mike, interesting coincidence. We’ve got two questions about selling across different currencies. First question is from Paul and he says, “I’m enjoying you podcast a lot. I feel like I’ve got endless insights because your back catalog is huge. I’m a software developer who just started thinking about what it would take to start a SaaS.” He has two questions but I’ll read this one about pressing now. He says, “In a SaaS, the target’s regular, everyday consumers, how do you account for currency exchange differences in your pricing? Charging US$50 per month may seem fine in the US but in a less wealthy country, that could be a significant portion of someone’s income.”
My first piece of advice is, don’t build a SaaS for consumers but aside from that, you have thoughts on this, Mike?
Mike: I think I would probably follow the advice of Ed Freyfogle who spoke at MicroConf a couple of years ago and his general advice for situations like this is ignore the currency exchange piece of it where you’re quibbling over nickels and dimes for the exchange rate as it fluctuates. If you decide on, let’s say, $50 a month but US dollars, what is the equivalent in pounds, for example? What is the equivalent in Euros? And then, on your page, display the pricing using browser location data to figure out where in the world they are and you can display the page in local currency for whatever that is.
As they said, you wouldn’t want to, say, something like if it’s $50 a month and we’ll call the exchange rate, we’ll say that it’s even for Euros, you wouldn’t want to say €40.32, for example, and then fluctuate it as the currency exchange. You probably just want to say €40. Then if it goes up a little bit, that’s fine, just eat it, until they get close enough where it really makes sense for you to start changing those numbers to say €42 or €45. I wouldn’t even worry about that stuff. But you can just display the page in the local currency. That should be enough to get you through for the most part.
Rob: Yeah, and Ed runs opencagedata.com if you want to look at his API for figuring out where in the world folks are. I think that’s good advice. I would also say to focus on a single market to start with. If you haven’t written a line of code then pick a market. If it’s going to be the US, that’s fine. Charge in US dollars and worry later about, “Oh, we’re going to expand into India or we’re going to expand into Eastern Europe or other less wealthy countries.” If you’re going to start in the US, then the next place you would probably expand is to Canada and then to Western Europe. In those places, while you do have different currencies, they’re kind of on par in terms of what you would charge. I would probably just do like you said, just do a conversion and charge that. I would be less concerned about this.
Once you get into less wealthy countries, they can’t afford that. Just start it out in a single country, build up a business, and then by the time you get there, you’ll know what to do. Thinking about it in theory, about something that’s a year or two out, I think is just not helpful at this stage. Thanks for the question.
We have another one about selling across currencies, probably a similar answer. It’s from Scott Barton. He says, “I’m a recent listener on a back of Rob and Einar’s TinySeed announcement a couple of months ago. After being a longtime listener to swing-for-the-fences types of startups podcasts, it’s nice to find a community that I’m more in tune with. I listened to last week’s discussion about pricing. I wondered if you have any thoughts about pricing the same product offering across currencies, particularly to customers in countries where their currency maybe weaker?”
This is a similar question but I think it’s couched a little bit differently. He says, “For example, would you price a B2B product that’s selling for £249 per month in the UK as a US$249 product or would you adjust it for the exchange rate?” Currently, that would be US$309, based on when he wrote this email. So, similar question, similar answer, Mike, or what do you think?
Mike: I would think that it’s in many ways similar but I think there’s also a little flexibility you have here from the marketing standpoint where if you’re going to price it US$249, going to $309, $309’s coming in like an odd number. I might do $299.
Rob: Yeah, I would, too.
Mike: Or $324 or something like that. $309 is just a weird number. I would try to stay away from those.
Rob: Right.
Mike: That was a witty discussion.
Rob: Yeah, I know. All right. Our next question is about how much to have in place before starting to sell. He says, “I’m building a tool/service for myself that other people are willing to pay for. Is there a checklist to follow to take this from a hobby to a real thing? Do I need an LLC, terms of use, privacy policy, a lawyer, et cetera before I accept any payments or can I literally just set up a payment system and go?” Let’s make the assumption that he’s in the US because he has a separate question where he talked about US dollars. What do you think, Mike? Is the answer, “It’s depends”?
Mike: No. I think he can just literally set up a payment system and go. If it’s still brand new, you probably don’t have a whole pack of luck to worry about. If you don’t have a terms of use or privacy policy and stuff like that, until somebody complains and says, “That’s the reason they’re not buying it,” I don’t know if I’d spend a lot of time on it.
Rob: Yeah. I mean, is there a small amount of risk in doing that? Yes, there is. So, consult an attorney, think about it, whatever, but realistically, this is what you and I have both done with. Brand new products that are just starting. I did a sole proprietorship which just goes on your schedule, see on your taxes.
I did not have an LLC for, I believe it was seven years I was operating. I had software products, I had info products, I was consulting, and that was just all without an LLC, without a terms of use. At some point, I think eventually I had put a privacy policy in for some products and stuff but it’s a little bit of risk tolerance but really, the risk is probably really low. I always try to take the simple approach. The simple approach to basically get to selling.
You made an assumption there where you said, “I’m building something that I need but other people are also willing to pay for.” I would ask, “How have you validated that?” Don’t assume that that’s true. Go out and spend more time validating that before you sit in a hypothetical basement and code that out for six months because I think a lot of us had made that mistake. Thanks for the question. I hope that was helpful.
Our next one is about determining an equitable equity split. I’m going to leave him anonymous in case the person he’s talking to also listens to the podcast. He says, “Hey guys. A friend of mine came to me with an idea for an app and I’m considering going ahead with it. I’m a developer and I’ll be doing all the dev work, the support, et cetera. My friend will be doing the outbound sales, marketing, et cetera.”
“Instead of creating another company and all the overhead that entails, because I already have a corporation, I’d like to own the software and pay him a cut of the sales. How would you go about determining the split? On one hand, the development will be a lot of upfront cost for me. But when we get to market, he will be doing the bulk of the work, with mine leveling off a bit with additional development and support.”
“I really think he’ll be integral to the success of this, as I’m not an outgoing person. He’s a radio personality and good at the kind of [00:18:56] skills that I lack. I guess I’m asking if it’s crazy to split 50/50 or should I be asking for a larger cut? Thanks for any help or direction you can provide.” Interesting question.
Mike: And I think the top 10 lies developers tell themselves is that when the product gets to market, my workload is going to drop down quite a bit. I think that that’s an unrealistic assumption. The workload for a software product is absolutely not going to drop off once the product hits the market. You’re not going to have enough features in it that you want to put in it.
The other assumption I think here is that there’s not going to be very much marketing work or sales work that needs to be done until the product is done. I think that that’s a bad assumption to make as well. I feel like there should be a lot of it upfront because it helps to cut down on the risk that you’re building something for six months or a year that nobody’s going to pay for or you can’t get it in front of enough people.
Rob: Yeah, I would agree with you. It’s going to be in a rare, rare, rare case that you don’t have more work to do once the product launch. So, something to think about. The other thing I would say is, in advance, I would not go off and build this for six months while your partner does nothing because he should be starting marketing, starting to generate traffic on the internet, starting to do cold-calling or cold-emailing or getting leads and making pre-sales. Getting people’s screenshots or mock-ups or just customer validation, like, “Has your partner found 10 people or companies willing to pay X dollars for this product?” Then I would stop development.
In almost all cases, I wouldn’t do it until you have 10 or 20 or 30. Whatever the number is that you feel comfortable with. There’s upfront work that can be done to validate this more and reduce risk that has nothing to do with writing software. That’s another thing that I would consider. Even the entire time you’re building the software, he could be pounding the pavement and beating the bush, so to speak.
Let me take another dumb metaphor for this but I just think there’s more work to be done than him kind of hanging out until every bit is in place and then, “Okay, now we start the marketing engine.” I talked about this before but my second book was called Start Marketing The Day You Start Coding and frankly, these days I think you should start doing that actually before you start coding.
And with that, we didn’t actually answer his equity split question. It’s not even equity. It’s revenue share. The whole idea of not actually splitting the ownership is interesting because it seems to me it’s screws his co-founder because he has no ownership in the thing.
Mike: That was my first thought as well. I don’t know whether that’s a mental direction he was going or whether it was just the fact that he’s already got a company and he’s going to be using existing resources, he doesn’t really want to open up a second company to do it. Therefore, it would make sense in that case to have the software owned by something and if he’s not giving up equity in his own company to do that, then it still needs to be owned by somebody.
I would say that I think that you could have an agreement between two people and it could be written down that just says like, “This is going to be under this umbrella for the time being and at some point in the future, we’re going to branch it off into a different company just to make paperwork easier for the time being.” I think that that’s a perfectly reasonable thing to do, especially if you’re just trying to avoid legal cost because the product has no customers yet and no revenue and you’re going to be sinking a sizable chunk of effort into it.
The other thing this particular case that does for him is that it allows him to write off a lot of those cost because he can write it off on his tax and say, “Oh, well we’ve spent X amount of time doing this and we bought this particular product,” or, “We’re writing off a portion of this service that we’re using.”
Rob: Yeah, I agree. I think that’s how I think about it, too. I feel it might be unfair to your co-founder if you have it under the same corporate thing. I would perhaps try not to do that.
Mike: He does say later on, he’s asking if it’s crazy to ask for a 50/50 split or he should be asking for a large… I don’t think that it’s crazy-ass for 50/50 but I would have a hard time if you feel like the contribution of the other person is equal in weight to your own, then I would have a hard time asking for more than 50%.
Rob: That’s how I feel, too. If you would have come to me and say, “Look, I’m the developer and I may do support, and then this other person handles all the other stuff.” It’s typical kind of CEO/CTO role either the sales or marketing and developer role. I think that’s a good split and I think if you’re both all in on it and you’re going to be cranking on it, that’s 50/50. Makes the most sense to me.
It’s the other thing surround this, though, that this is more complicated than most situations I think, which is why we’re kind of digging into his points one by one because it’s just a unique way that he’s approaching and that I think we’ve kind of voiced some concerns or just thoughts on how we might do it differently.
Our last question for the day is about business appraisal services. I’m going to keep him anonymous as well because he’s asking about potentially selling his company and I just want to be mindful and stuff like that. His name’s Paul and he says, “Hey, Rob and Mike. I’ve been a long-time listener to the podcast. Thanks for creating such a great resource. I have a question about business valuation in preparation to selling a company. I’m having discussions with potential acquirers but I want to have some official documentation to defend the valuation I want for my company. I know there are many ways to value a SaaS business like mine but I think I’ll have more credibility if I hired someone to do proper valuation. Can you recommend any resources for this type of appraisal? Do you think it’s even worth it? Thank you and keep up the great podcast.”
What do you think?
Mike: I think there’s a couple of different businesses out there that would do an appraisal for you. FE International, they’re a MicroConf sponsor, they come to pass, as far as I can remember. Rob, I think you said you knew another one off the top of your head that does appraisal?
Rob: Quiet Light Brokerage, yeah.
Mike: You can reach out to either one of those but the thing that I would keep in mind here is that if you do go out and get an independent third party appraisal, just because you’re getting that to try and justify your position does not mean that it’s going to come back the way that you want. I see kind of like selling a house. You may decide that you want more money for it or it’s worth maybe a million dollars or something like that but they may come back and say it’s only worth $800,000. Then you have to decide, are you going to take less, or potentially be disappointed about it, or are you going to hang on to it and think about that in advance of getting that appraisal as to what your inclination is before you go do it? I don’t think you want to be surprised if it comes up and all of a sudden now you have to rethink your position on those things.
Rob: Yeah. I don’t know if it’s worth having an appraisal or not. I actually feel like an appraisal is a theoretical way to value a business typically based on a multiple, either of net profit or of your revenue. If you’re going to sell to a financial buyer, you typically sell over the multiple of net profit. If you’re going to sell to either a strategic or these days if you’re SaaS and you’re selling to private equity, you get a multiple of revenue. You get a much higher price for that.
Paul, I don’t know if you have a SaaS app, I would try to find someone who is willing to talk to you about revenue-based multiples. In that case, if you did get an appraisal from FE or Quiet Light, they’re going to be talking more about the net profit stuff because they deal more with financial buyers. I do think they have connections with some private equity but I’m just not sure about the details of that.
I think an appraisal might be a nice-to-have in the back of your mind just to be like, “Well, that’s what I can get it if I were to sell it through those channels.” I don’t know of someone who will come in and appraise other than that, other than through their buying network because it’s really what you can get for. It’s a market price. The appraisal is what, you get a bunch of bids and you can figure out what you’ll ultimately get for it.
As a side note, I do have a contact who could help you with that. I don’t want to call him out on the podcast without his permission. Paul, if you do want to reach out directly to me, you can frankly email questions@startupsfortherestofus.com and that’ll come to me anyway. I can connect you with him assuming that you have a SaaS app we can kind of talk about. It’s in a certain range and he can get really good multiples for it.
Anyway, I’m kind of rambling at this point. But I feel an appraisal, why not do it? I don’t know how much value I would put on that and I don’t know if I would use it during negotiations unless multiple buyers are trying to pay you under that appraised price. Then, you could always whip it out but then, I guess that’s the price you’re going to get for it. I’m struggling a little bit with this, with the idea of trying to sell it based on an appraised value rather than just running a market kind of an auction type. I think you’ll get a better price there.
Mike: Yeah. I think the way he phrase this question was that, having discussions with potential acquirers and I want to have some official documentation to defend the valuation I want. It’s not that they have come to him and said, “Here’s what we think it’s worth,” or it doesn’t seem like they’ve gotten to that point. It’s just I think you’d feel more comfortable if he had something in hand to be able to help justify his position. I don’t know if you really need that if you’re trying to play multiple acquirers off of one another. You can just say, “I’ve got an offer over here for more.” At that point, it’s really just about how much you can get them to push their offers up.
Rob: Right. It’s like how badly do they want the business. But good luck on that process, Paul. It’s obviously, can be both fun and stressful too to sell your business and do wish you the best of luck as you move forward.
Mike: I think we’re about out of time for today. If you have a question for us, you can call 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 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 to each episode. Thanks for listening and we’ll see you next time.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Qué es la palabra este semana, Miguel?
Mike: Uh…
Rob: “What is the word this week, sir?” “What is the word this week, Mike?” actually is what it says. What’s going on with your computer?
Mike: I was trying to fix a random crash that I ran into, and of course as part of doing that, I had to restart the machine in order to debug some of the stuff that was coming up and test some drivers. I think as a result of that, my computer is now blue-screening and I can’t get it back into Windows.
I spent the last couple of hours trying to figure out like, “Okay, well go to the new crash dump, take a look at that and see if I can get access to it.” Then I’m troubleshooting certain things and looking them up from my phone. It’s just awful.
Rob: Right. Well, the good news is you don’t have other work that you should be doing.
Mike: Sure, yeah.
Rob: You don’t have anything else that’s pressing.
Mike: I have nothing else to do.
Rob: Hey, I think I know the solution, actually. Step one, uninstall Windows. Step two, install Linux. Boom, boom. Sorry, I think that’s a MicroConf joke, right?
Mike: That probably is. It’s that bad.
Rob: Yeah, it’s that bad. Don’t you have a Mac laptop? Just go [00:01:46] Mac all the time, baby.
Mike: Uh, I… no.
Rob: You’re still considering it?
Mike: No. I can’t stand the trackpad. That’s the thing that bugs me the most. I can’t stand using it. All my development stuff is all in Windows, anyway.
Rob: That’s the hard part, yup. I use the trackpad. I think it’s fine but I use an external mouse when I’m at my desk. I put the laptop up. You know, Mike, it is 2018. You know you can pair mice with Bluetooth or even USB to a laptop, did you know that?
Mike: I did know that.
Rob: I’m giving you a lot of crap today, huh?
Mike: I know.
Rob: I’m just kicking you while you’re down. Oh man, I’m sorry. I remember those days and I would lose a day or two productivity and it would just kill me. It’s infuriating.
Mike: Yup, and that’s really the point I’m mad at it. I’m just annoyed at this point. The worst part is that I’m still running Windows 7 and I’ve known for a while that I should migrate over to Windows 10 at some point. There’s still some software that I literally can’t use right now because I’m not running a more recent version of Windows but I know that there’s also so much stuff installed and it’s configured in just the right way so that my builds, works, and everything is configured just right. I know I’m going to burn at least a couple of days reformatting my machine and reinstalling everything and I just didn’t want to do it. Now, I’m at the point where it’s like, “You know what? I may just absolutely have to.”
Fortunately a couple of days ago, I had looked and said, “Okay, if I were going to do this, what software would I need?” I made a complete list of it, I took screenshots, and I was smart enough to put it all in a Google Doc rather than on my hard drive.
Rob: Oh nice. Geeze. That’s tough. Again, I don’t miss those days. I’ve never been the Windows basher because I’ve used Windows for 12 years or something and then switched to Mac. I remember being like, “Oh, this is better in some ways and not in others.” To be honest, I never thought that Mac was so far superior to Windows. Now that I’ve been on it for years, though, I haven’t had another one of those days.
I used to have those every few years. Especially when you’re a developer, you’re just doing aggressive things with your machine. You’re not surfing the web, looking at Facebook, and doing Google Docs. You’re in screwing around with registry stuff and you’re installing things you probably shouldn’t. You install and uninstall a lot of things and you run builds. I don’t know.
I just remember screwing my machine up every couple of years. I also remember the upgrade process was hard and cumbersome. I think that’s something that Apple has done a much better job. As an example, I upgraded to Mojave last week, which is the next version of the OS, and it has so many features and stuff but it’s an incremental version. They release those every 60-90 days it seems like and knock on wood, the upgrades always go fine. I’ve not had an issue. I’m sure it’s possible to have an issue but I hadn’t have an issue. Now it has new stuff and I haven’t had another moment like that since I switched to using a Mac, which I believe is probably six years now. Five or six years. I don’t know. It’s hard when that happens and you lose that much productivity.
Mike: Yeah and I’m thankful that it’s just going to be the productivity because I have backup software on my machine, so it’s not like I’m losing data or anything. I’ve got a local NAS device that I store a lot of stuff on and then I’ve got Dropbox where I’ve got all the other important stuff. It’s not like my hard drive is dead and even if it was, I can still get everything back. It’s just the time of reinstalling and reconfiguring everything and then trying to make sure that I still have all the software licenses, the right versions, and everything else.
I forget who it was. I think it was PDF Architect or something like that. They’re like, “Oh, there’s a new update. Click here for the update.” Then I clicked on it, it was like, “Oh, okay,” and then it installed, and then it’s like, “Oh, you don’t have the latest versions or latest license, so we’re not going to let you use it.” Like, “Wait a second, you just gave me this thing. You pushed this upgrade on me.” It’s like, “Come on.”
Rob: Yeah. I had that happened before. Yeah, it’s not cool.
Mike: Ugh. Onward, I guess. For the listeners, again, don’t forget about the AppSumo contest that’s running. We’ll link that up in the show notes so you can go check it out. But as with last week, There’s a contest that’s running right now in partnership with AppSumo. The winner is going to receive an all-expense paid trip to MicroConf, tickets included. As I said, we’ll link it up in the show notes and definitely check it out.
Rob: And if you are interested in having us answer a question, I believe we’re getting towards the bottom of the mail bag. Send us a voicemail if you can. You can call our voice mail number 888-801-9690. We like hearing your voice and frankly the listeners do, too. It makes people feel like it’s not just you and I making up emails, sending emails to ourselves and reading them on the show. No, that’s not really why we’re doing it but it’s just fun to have voicemails. But certainly if you can’t, send us an email at questions@startupsfortherestofus.com. We’re going to be answering several listener questions on the show today.
The first one is about building relationships with agency partners and it’s from PJ. He says, “I love your podcast, especially how you give us a short update at the start about your own businesses. My question is around building a partner circle at the beginning of a business especially when services are a necessary angle for the product.” I’m assuming he means consultant agencies. “What type of engagement model would you recommend thinking about, especially when aligning with a global services company? Especially when they ask for exclusivity. Thanks.”
I’m going to start by saying this is an example of a question that should be more specific. Do you feel like we need more info? Because I’m not exactly sure what he’s asking.
Mike: I’ve been in these types of circles before so I have kind of an idea. But I agree, it does need a little bit more context.
Rob: I think we can answer it in some vague terms quickly but I think we really dig into this. We just need more information about what niche or market you’re in and really, if you’re going to ask a question, please include more information because it helps us understand it. I think we can [00:07:51] more value to you as well as the listeners. But with that in mind, he explained us [00:07:56] in your words what he’s asking so we can talk this through.
Mike: My understanding of what he’s asking is that he wants to create a partnership program where other businesses will bring them in to either deliver services or they will bring their partners and to deliver services. By what he said about, “…when aligning with a global services company,” it seems to me the global services company, think of them as like IBM, or Dell, or HP, or something like that. They have a services organization but they don’t necessarily provide all the services themselves.
I’m kind of thinking back to my consulting days where I did exactly this and work for companies like that. What they will do is they have basically sales reps that are kind of all over the place and working with enterprise companies. When they sell services, it’s on their paper, and then they turn around and then they outsource it to somebody else. Typically, when they have exclusivity at that point, really what they’re doing is they’re saying, “We will subcontract you but you are not allowed to subcontract to somebody else.”
The part about exclusivity throws me a little bit because aside from that situation, I can’t see something where a global company like that would come and say, “We want you exclusively to deliver this,” and they want exclusive access to you. They don’t want anybody else to hire you. That seems odd.
Rob: Yeah, I would agree with that because you’re not just a consultant. You’re not a contractor unless he’s talking about starting a consulting firm because he doesn’t specifically say he’s building a software product. That’s why I think we probably need more info to answer that. But with all that, what type of engagement models would you recommend thinking about? What does he mean by that? Hourly rate or versus weekly retainer versus monthly stipend or per project?
Mike: Engagement models would be like how are you going to structure the contract for the services? Is it going to be on your paper or is it going to be on somebody else’s? Because whoever paper’s on is typically going to be the manager of that relationship and if it’s Dell’s outsourcing to you, it’s going to be on their paper, it’s going to have all their terms and conditions, and at the end of the day, that customer is Dell’s not yours.
If, let’s say, that you reverse it a little bit and you are a large software company and you bring in Dell to perform the services, they’re still going to want on their paper but you could turn that on its head if you have enough leverage to say, “No, it’s going to be on ours. This is our customer because we found them and we sold them the software.”
But at that point, Dell is not going to have a huge number of reps or technical services people on staff that are going to be knowledgeable enough about your software to be able to go and do consulting engagements. It’s possible they may do that but you have to be fairly large in order for that to happen. I’ve seen it with even extremely large pieces of software. They just don’t have the technical staff because they can’t pay them. And they don’t want to pay them, either, because those people are consultants and if every minute of their sitting on the bench, the company is not making money.
Most of those sales types of organizations—Dell, HP, IBM—they have a sales organization to sell services but they don’t have a delivery services organization with the consultants on the bench because they have to keep them at capacity like 100% at least 85% of the time. They have to be booked almost nonstop throughout the course of the year in order to even turn a profit on it.
Rob: That’s business, man. This is why we do products, am I right?
Mike: Yes because products are so much easier.
Rob: Yeah, exactly. Good one, Mike, I like that. Anyway, PJ thanks for the question. Hopefully, that’s some help to you. If you want to write in with more details, we can try to tackle it again in a future episode, but if not, I hope that was helpful.
Mike, interesting coincidence. We’ve got two questions about selling across different currencies. First question is from Paul and he says, “I’m enjoying you podcast a lot. I feel like I’ve got endless insights because your back catalog is huge. I’m a software developer who just started thinking about what it would take to start a SaaS.” He has two questions but I’ll read this one about pressing now. He says, “In a SaaS, the target’s regular, everyday consumers, how do you account for currency exchange differences in your pricing? Charging US$50 per month may seem fine in the US but in a less wealthy country, that could be a significant portion of someone’s income.”
My first piece of advice is, don’t build a SaaS for consumers but aside from that, you have thoughts on this, Mike?
Mike: I think I would probably follow the advice of Ed Freyfogle who spoke at MicroConf a couple of years ago and his general advice for situations like this is ignore the currency exchange piece of it where you’re quibbling over nickels and dimes for the exchange rate as it fluctuates. If you decide on, let’s say, $50 a month but US dollars, what is the equivalent in pounds, for example? What is the equivalent in Euros? And then, on your page, display the pricing using browser location data to figure out where in the world they are and you can display the page in local currency for whatever that is.
As they said, you wouldn’t want to, say, something like if it’s $50 a month and we’ll call the exchange rate, we’ll say that it’s even for Euros, you wouldn’t want to say €40.32, for example, and then fluctuate it as the currency exchange. You probably just want to say €40. Then if it goes up a little bit, that’s fine, just eat it, until they get close enough where it really makes sense for you to start changing those numbers to say €42 or €45. I wouldn’t even worry about that stuff. But you can just display the page in the local currency. That should be enough to get you through for the most part.
Rob: Yeah, and Ed runs opencagedata.com if you want to look at his API for figuring out where in the world folks are. I think that’s good advice. I would also say to focus on a single market to start with. If you haven’t written a line of code then pick a market. If it’s going to be the US, that’s fine. Charge in US dollars and worry later about, “Oh, we’re going to expand into India or we’re going to expand into Eastern Europe or other less wealthy countries.” If you’re going to start in the US, then the next place you would probably expand is to Canada and then to Western Europe. In those places, while you do have different currencies, they’re kind of on par in terms of what you would charge. I would probably just do like you said, just do a conversion and charge that. I would be less concerned about this.
Once you get into less wealthy countries, they can’t afford that. Just start it out in a single country, build up a business, and then by the time you get there, you’ll know what to do. Thinking about it in theory, about something that’s a year or two out, I think is just not helpful at this stage. Thanks for the question.
We have another one about selling across currencies, probably a similar answer. It’s from Scott Barton. He says, “I’m a recent listener on a back of Rob and Einar’s TinySeed announcement a couple of months ago. After being a longtime listener to swing-for-the-fences types of startups podcasts, it’s nice to find a community that I’m more in tune with. I listened to last week’s discussion about pricing. I wondered if you have any thoughts about pricing the same product offering across currencies, particularly to customers in countries where their currency maybe weaker?”
This is a similar question but I think it’s couched a little bit differently. He says, “For example, would you price a B2B product that’s selling for £249 per month in the UK as a US$249 product or would you adjust it for the exchange rate?” Currently, that would be US$309, based on when he wrote this email. So, similar question, similar answer, Mike, or what do you think?
Mike: I would think that it’s in many ways similar but I think there’s also a little flexibility you have here from the marketing standpoint where if you’re going to price it US$249, going to $309, $309’s coming in like an odd number. I might do $299.
Rob: Yeah, I would, too.
Mike: Or $324 or something like that. $309 is just a weird number. I would try to stay away from those.
Rob: Right.
Mike: That was a witty discussion.
Rob: Yeah, I know. All right. Our next question is about how much to have in place before starting to sell. He says, “I’m building a tool/service for myself that other people are willing to pay for. Is there a checklist to follow to take this from a hobby to a real thing? Do I need an LLC, terms of use, privacy policy, a lawyer, et cetera before I accept any payments or can I literally just set up a payment system and go?” Let’s make the assumption that he’s in the US because he has a separate question where he talked about US dollars. What do you think, Mike? Is the answer, “It’s depends”?
Mike: No. I think he can just literally set up a payment system and go. If it’s still brand new, you probably don’t have a whole pack of luck to worry about. If you don’t have a terms of use or privacy policy and stuff like that, until somebody complains and says, “That’s the reason they’re not buying it,” I don’t know if I’d spend a lot of time on it.
Rob: Yeah. I mean, is there a small amount of risk in doing that? Yes, there is. So, consult an attorney, think about it, whatever, but realistically, this is what you and I have both done with. Brand new products that are just starting. I did a sole proprietorship which just goes on your schedule, see on your taxes.
I did not have an LLC for, I believe it was seven years I was operating. I had software products, I had info products, I was consulting, and that was just all without an LLC, without a terms of use. At some point, I think eventually I had put a privacy policy in for some products and stuff but it’s a little bit of risk tolerance but really, the risk is probably really low. I always try to take the simple approach. The simple approach to basically get to selling.
You made an assumption there where you said, “I’m building something that I need but other people are also willing to pay for.” I would ask, “How have you validated that?” Don’t assume that that’s true. Go out and spend more time validating that before you sit in a hypothetical basement and code that out for six months because I think a lot of us had made that mistake. Thanks for the question. I hope that was helpful.
Our next one is about determining an equitable equity split. I’m going to leave him anonymous in case the person he’s talking to also listens to the podcast. He says, “Hey guys. A friend of mine came to me with an idea for an app and I’m considering going ahead with it. I’m a developer and I’ll be doing all the dev work, the support, et cetera. My friend will be doing the outbound sales, marketing, et cetera.”
“Instead of creating another company and all the overhead that entails, because I already have a corporation, I’d like to own the software and pay him a cut of the sales. How would you go about determining the split? On one hand, the development will be a lot of upfront cost for me. But when we get to market, he will be doing the bulk of the work, with mine leveling off a bit with additional development and support.”
“I really think he’ll be integral to the success of this, as I’m not an outgoing person. He’s a radio personality and good at the kind of [00:18:56] skills that I lack. I guess I’m asking if it’s crazy to split 50/50 or should I be asking for a larger cut? Thanks for any help or direction you can provide.” Interesting question.
Mike: And I think the top 10 lies developers tell themselves is that when the product gets to market, my workload is going to drop down quite a bit. I think that that’s an unrealistic assumption. The workload for a software product is absolutely not going to drop off once the product hits the market. You’re not going to have enough features in it that you want to put in it.
The other assumption I think here is that there’s not going to be very much marketing work or sales work that needs to be done until the product is done. I think that that’s a bad assumption to make as well. I feel like there should be a lot of it upfront because it helps to cut down on the risk that you’re building something for six months or a year that nobody’s going to pay for or you can’t get it in front of enough people.
Rob: Yeah, I would agree with you. It’s going to be in a rare, rare, rare case that you don’t have more work to do once the product launch. So, something to think about. The other thing I would say is, in advance, I would not go off and build this for six months while your partner does nothing because he should be starting marketing, starting to generate traffic on the internet, starting to do cold-calling or cold-emailing or getting leads and making pre-sales. Getting people’s screenshots or mock-ups or just customer validation, like, “Has your partner found 10 people or companies willing to pay X dollars for this product?” Then I would stop development.
In almost all cases, I wouldn’t do it until you have 10 or 20 or 30. Whatever the number is that you feel comfortable with. There’s upfront work that can be done to validate this more and reduce risk that has nothing to do with writing software. That’s another thing that I would consider. Even the entire time you’re building the software, he could be pounding the pavement and beating the bush, so to speak.
Let me take another dumb metaphor for this but I just think there’s more work to be done than him kind of hanging out until every bit is in place and then, “Okay, now we start the marketing engine.” I talked about this before but my second book was called Start Marketing The Day You Start Coding and frankly, these days I think you should start doing that actually before you start coding.
And with that, we didn’t actually answer his equity split question. It’s not even equity. It’s revenue share. The whole idea of not actually splitting the ownership is interesting because it seems to me it’s screws his co-founder because he has no ownership in the thing.
Mike: That was my first thought as well. I don’t know whether that’s a mental direction he was going or whether it was just the fact that he’s already got a company and he’s going to be using existing resources, he doesn’t really want to open up a second company to do it. Therefore, it would make sense in that case to have the software owned by something and if he’s not giving up equity in his own company to do that, then it still needs to be owned by somebody.
I would say that I think that you could have an agreement between two people and it could be written down that just says like, “This is going to be under this umbrella for the time being and at some point in the future, we’re going to branch it off into a different company just to make paperwork easier for the time being.” I think that that’s a perfectly reasonable thing to do, especially if you’re just trying to avoid legal cost because the product has no customers yet and no revenue and you’re going to be sinking a sizable chunk of effort into it.
The other thing this particular case that does for him is that it allows him to write off a lot of those cost because he can write it off on his tax and say, “Oh, well we’ve spent X amount of time doing this and we bought this particular product,” or, “We’re writing off a portion of this service that we’re using.”
Rob: Yeah, I agree. I think that’s how I think about it, too. I feel it might be unfair to your co-founder if you have it under the same corporate thing. I would perhaps try not to do that.
Mike: He does say later on, he’s asking if it’s crazy to ask for a 50/50 split or he should be asking for a large… I don’t think that it’s crazy-ass for 50/50 but I would have a hard time if you feel like the contribution of the other person is equal in weight to your own, then I would have a hard time asking for more than 50%.
Rob: That’s how I feel, too. If you would have come to me and say, “Look, I’m the developer and I may do support, and then this other person handles all the other stuff.” It’s typical kind of CEO/CTO role either the sales or marketing and developer role. I think that’s a good split and I think if you’re both all in on it and you’re going to be cranking on it, that’s 50/50. Makes the most sense to me.
It’s the other thing surround this, though, that this is more complicated than most situations I think, which is why we’re kind of digging into his points one by one because it’s just a unique way that he’s approaching and that I think we’ve kind of voiced some concerns or just thoughts on how we might do it differently.
Our last question for the day is about business appraisal services. I’m going to keep him anonymous as well because he’s asking about potentially selling his company and I just want to be mindful and stuff like that. His name’s Paul and he says, “Hey, Rob and Mike. I’ve been a long-time listener to the podcast. Thanks for creating such a great resource. I have a question about business valuation in preparation to selling a company. I’m having discussions with potential acquirers but I want to have some official documentation to defend the valuation I want for my company. I know there are many ways to value a SaaS business like mine but I think I’ll have more credibility if I hired someone to do proper valuation. Can you recommend any resources for this type of appraisal? Do you think it’s even worth it? Thank you and keep up the great podcast.”
What do you think?
Mike: I think there’s a couple of different businesses out there that would do an appraisal for you. FE International, they’re a MicroConf sponsor, they come to pass, as far as I can remember. Rob, I think you said you knew another one off the top of your head that does appraisal?
Rob: Quiet Light Brokerage, yeah.
Mike: You can reach out to either one of those but the thing that I would keep in mind here is that if you do go out and get an independent third party appraisal, just because you’re getting that to try and justify your position does not mean that it’s going to come back the way that you want. I see kind of like selling a house. You may decide that you want more money for it or it’s worth maybe a million dollars or something like that but they may come back and say it’s only worth $800,000. Then you have to decide, are you going to take less, or potentially be disappointed about it, or are you going to hang on to it and think about that in advance of getting that appraisal as to what your inclination is before you go do it? I don’t think you want to be surprised if it comes up and all of a sudden now you have to rethink your position on those things.
Rob: Yeah. I don’t know if it’s worth having an appraisal or not. I actually feel like an appraisal is a theoretical way to value a business typically based on a multiple, either of net profit or of your revenue. If you’re going to sell to a financial buyer, you typically sell over the multiple of net profit. If you’re going to sell to either a strategic or these days if you’re SaaS and you’re selling to private equity, you get a multiple of revenue. You get a much higher price for that.
Paul, I don’t know if you have a SaaS app, I would try to find someone who is willing to talk to you about revenue-based multiples. In that case, if you did get an appraisal from FE or Quiet Light, they’re going to be talking more about the net profit stuff because they deal more with financial buyers. I do think they have connections with some private equity but I’m just not sure about the details of that.
I think an appraisal might be a nice-to-have in the back of your mind just to be like, “Well, that’s what I can get it if I were to sell it through those channels.” I don’t know of someone who will come in and appraise other than that, other than through their buying network because it’s really what you can get for. It’s a market price. The appraisal is what, you get a bunch of bids and you can figure out what you’ll ultimately get for it.
As a side note, I do have a contact who could help you with that. I don’t want to call him out on the podcast without his permission. Paul, if you do want to reach out directly to me, you can frankly email questions@startupsfortherestofus.com and that’ll come to me anyway. I can connect you with him assuming that you have a SaaS app we can kind of talk about. It’s in a certain range and he can get really good multiples for it.
Anyway, I’m kind of rambling at this point. But I feel an appraisal, why not do it? I don’t know how much value I would put on that and I don’t know if I would use it during negotiations unless multiple buyers are trying to pay you under that appraised price. Then, you could always whip it out but then, I guess that’s the price you’re going to get for it. I’m struggling a little bit with this, with the idea of trying to sell it based on an appraised value rather than just running a market kind of an auction type. I think you’ll get a better price there.
Mike: Yeah. I think the way he phrase this question was that, having discussions with potential acquirers and I want to have some official documentation to defend the valuation I want. It’s not that they have come to him and said, “Here’s what we think it’s worth,” or it doesn’t seem like they’ve gotten to that point. It’s just I think you’d feel more comfortable if he had something in hand to be able to help justify his position. I don’t know if you really need that if you’re trying to play multiple acquirers off of one another. You can just say, “I’ve got an offer over here for more.” At that point, it’s really just about how much you can get them to push their offers up.
Rob: Right. It’s like how badly do they want the business. But good luck on that process, Paul. It’s obviously, can be both fun and stressful too to sell your business and do wish you the best of luck as you move forward.
Mike: I think we’re about out of time for today. If you have a question for us, you can call 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 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 to each episode. Thanks for listening and we’ll see you next time.
Episode 427 | Scaling a Software Product, Raising Prices, When to Consider CRM, and More Listener Questions
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions, the topics include scaling a software product, raising prices, and when to use a CRM.
Items mentioned in this episode:
- AppSumo-MicroConf Giveaway
- MicroConf Growth Edition
- MicroConf Starter Edition
- AppSumo
- Segment
- Stripe
- Zendesk
Rob:In this episode of Startups for the Rest of Us, Mike and I talk about scaling a software product, raising prices, when to consider CRM and more listener questions. This is Startups for the Rest of Us Episode 427.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Rob. We’re here to share our experiences to help you avoid the same mistakes we made. What’s the word this week, sir?
Mike: I’m going to need some Advil for that one. I’ve got some exciting news to share with the listeners this week. In the past, we’ve talked about having some podcast sponsors on and I wanted to talk about one that I arranged with AppSumo very recently. AppSumo is offering an all-expense paid trip to MicroConf this year, and it’s not just one or the other; it’s to both. We’re in a contest in cooperation with them. It’s going to be starting as the date of this podcast episode comes out.
You can apply to that. We’ll link to it up in the show notes. You go over the webpage, enter in your email address and you’ll be entered into that contest. There’s ways you can get additional entries into the contest by sharing on social media and getting other people to submit their email addresses. For each person who enters based on your promo code that you give them, then you will get an additional entry into the contest. As I said, we’ll link that up in the show notes, but I think it’s a really awesome way for AppSumo to help support the community and the podcast but also to just help bootstrapped entrepreneurs get to MicroConf and network with other entrepreneurs.
Rob:Is it one person that wins tickets to both or is it two separate giveaways?
Mike: It’s one person who’s going to win tickets to both and then they have some money that they’re setting aside to also help cover the travel costs for it.
Rob:They’ll cover airfare and hotel then, for folks, within reason? There’s some cap on it. You can’t fly first-class from Australia or something.
Mike: No, as nice as that might be.
Rob:That’s super cool, man. I’d imagine someone listening might think, “I already bought my ticket to MicroConf,” or, “I might buy my ticket in the next week but I’m going to hold off for this giveaway.” What would you say to those folks?
Mike: That actually is covered, so if you have already purchased your ticket or you purchased one between now and the other contest, the contest is going to until, I think, February 11th. That’s basically four weeks from today’s episode. If you are selected as the winner, then you will be refunded whatever you’ve paid for your ticket so far. If you’ve bought one ticket or you’ve bought a ticket to both of them, then both of them get refunded. I would assume that if you’ve already booked your airfare and stuff, there’d just be a reimbursement that goes along with that.
Rob:Sure. Super cool. This is our first podcast sponsorship.
Mike: Yeah, definitely. I just want to say thanks to the people who are at AppSumo, and we’ll link it up in the show notes. You can go up there and enter into the contest. Hopefully, we’ll see you in Vegas.
Rob:Sounds good. On my end, Tiny Seed Applications open on January 18th. We announced that this week. Tiny Seed is, of course, the first startup accelerator designed for people who would traditionally bootstrap, and it’s my next act after Drip. I’ve already been talking to some founders, either who I know personally or who introduced themselves to me, but we’re definitely going to open the floodgates for about six weeks, starting January 18th. That should be an interesting process. tinyseed.com, if you have questions about that, if you have an idea or an app that’s already launched. We’d love to hear from you.
Mike: That’s cool. You’re going to do applications for six weeks, and then how long do you think it’s going to take to go through those applications? Do you think it’s going to be a week or five weeks?
Rob:We’ll start right away. This is my full-time thing that I’m diving into. The moment we start getting applications, I will start sifting through them. It won’t be a full six weeks of applications that we’ll have to go through at the end because I’m not the sole person making decisions. I don’t know. I think I probably need to think more about an exact timeframe, but it’s not as if we have to announce or we don’t have to offer everyone a spot the same day.
This is not Y Combinator where they have classes of 150 or something. It’ll be a small class of 10 to 15, and I envision it as, “Hey, if you’re fit, we want to invite you to be part of it,” and then people accept or don’t, and then we move onto the next one. I think we’ll be doing onesie-twosies throughout that time, but I’d love to have everybody nailed down certainly before MicroConf, which is ambitious, because that’s only two and a half months away now, but it would just be a nice milestone to hit.
Mike: That’s awesome. Anything else?
Rob:Have you updated your Mac OS to whatever the latest one is called but it has dark mode?
Mike: I have not. I’ve heard of that. Isn’t there something like a Mac app called f.lux or something like that, but it also darkens your screen? Is it similar to that?
Rob:It’s different than that. I just looked and it’s Mojave. It’s 10.14.2. It’s different than f.lux. F.lux would detect your time zone and then, as it got later into the evening, it would remove the blue light from your screen so that it would try not to affect your sleep. That actually sounds–that would be a great name for a great function of dark mode, but dark mode is just a dark theme for the entire OS, like the messages, the iOS messenger thing, the text message app. It’s all dark. It’s all greys and blacks, and the sidebars, and the top and the background are all dark.
It’s interesting. I’m using it, and I think that I like it better. I grew up programming on an Apple IIe, which is black background and green text. When I used to code all the time, I would flip my background of my editor. Sometimes, I’d go white, but, more often than not, probably 70% to 80% of the time, I would just have a black background all the time. That’s like Adam. The default background is black with white text on it because it’s just easier on your eyes.
It’s so far so good. I’m only two days into dark mode, but if you haven’t checked it out, I’d recommend giving it a whirl. I also imagine it would help folks with migraines. I know that some folks, the light from the screen, if you have a lot of white, it can give you migraines. Drip Workflows has night mode, and that was because one of our designers gets migraines, and he just decided to have this. It’s a dark mode for the Workflow Builder.
Mike: Interesting. Yeah, I’ve never really been a fan of those inverted dark modes or inverted theme colors and things like that, but I’ve never really tried it a whole lot either. Maybe if I give it a couple of days to settle in, I could get used to it, but I don’t know.
Rob:That’s the thing, yeah. It definitely takes getting used to because if you’ve used a computer with a white background for 40 to 50 years like you have…
Mike: Hey, you are older than me.
Rob:I know I am.
Mike: I’m just going to point that out.
Rob:Cool. Are you ready to dive into some questions?
Mike: Yeah, absolutely.
Rob:All right. Our first question is a voice mail. Voice mails always rise to the top of the stack. I think, actually, our first two questions are voice mails today, but let’s roll into this one.
Beckham: Hi, Rob and Mike. My name’s Beckham. I’m contacting you from Sligo in the northwest of Ireland. I’m from a company called Campus Connect. We’re avid listeners. We really enjoy the podcast, and you have an uncanny ability to cover stuff that’s happening at the time so keep up the good work. Campus Connect is a mobile app service for universities. What we do is we create an instance of the service for the university recruitment team that pushes it out to their incoming students.
It’s an onboarding service so the students can register. They can connect with their peers and they can connect with somebody on campus. We’re three years trading and we’ve grown to approximately 12,000 MRR, and things have been going reasonably well. A question that we’ve had–I guess an issue that we’ve been having is really around scale although we’ve managed to get at this point to struggle to really build on this.
Creating a new instance feed to university, obviously, is quite resource-intensive, and when we create each instances, often, in customization, they’re looking for different fields, different branding, different upselling and so on, and other few managing services. The universities we work with, they’re also using it for their students that are going out, going abroad, so it’s really for incoming and outgoing students at the moment. We feel there’s an opportunity to develop that into a universal platform and to move all our existing clients onto one central platform where we can connect them up.
At the moment, it’s quite siloed and it’s obviously difficult to scale. We have management. We’ve spoken to our clients about it. They’re interested in the idea but, obviously, the next steps are quite challenging. I’d love to get your guys’ thoughts on this. What do you think, how you would approach it? That’d be great. Keep up the good work. Thanks.
Rob:That’s a tough question, huh, Mike? They’ve made it to 12K MRR, which is nothing to sneeze at, but certainly a big challenge ahead of them. What are your thoughts on this? Do you get what he’s saying, like they do almost on-premise for each instance and then they even do some customizations to some of them, it sounds like, and they want to centralize and basically go with a more true SaaS model or a centralized cloud-based solution, it sounds like.
Mike: Yeah, that was actually a part that I missed. I didn’t realize that they do on-premise for them. I thought that they hosted each individual version of it, and that was mainly because they do customizations to each of them and the platform itself doesn’t really support customizations or a multi-tenant model, so to speak. I wasn’t sure whether that was the direction that they wanted to go or maybe you have a little insight on specifics there. Did I miss something?
Rob:I just listened back to his piece, and all he said is they create new instance for each one. I think you’re right in that it’s not on-premise; it is hosted on Campus Connect’s servers–let’s go with that assumption–but that they copy a new whole instance of it, make some customizations, probably has independent databases, I’d imagine, for each one. There’s the multi-tenancy thing that they’ll have to solve if they haven’t built that in already, which is just the ability to host multiple customers in a single database.
That’s a solved problem. That’s pretty much plug-and-chug. There’s not much risk with that, I’ll say, in terms of implementation, but there obviously are some other things that I think are going to be more difficult than just making multi-tenant.
Mike: Yeah. Taking an application from single-tenant to multi-tenant in and of itself is kind of a pain in the neck. It’s a hard problem, but I would say it’s generally solved, like there’s a lot of guidance out there that you could find fairly easily that would tell you the things to look out for and the things to do in that case. I think that, from a scalability standpoint, I don’t know if you’d want to go towards a model where it is completely multi-tenant with everybody all in one instance.
Part of that is just, one, for scalability because there’s going to be times where certain schools are repping up and directing a lot of people to the site, and then there’s other times where it’s going to be slow and, hopefully, they won’t all overlap. If they did, you wouldn’t want everybody all on one instance of it so that you could slice it across. Let’s say maybe you have 10 instances of it and 10 customers on each, for example. That’s a lot easier to manage than 100 different instances of it, and that’s probably the way that I would go in that particular case just to at least allow you a little bit more flexibility in terms of the redundancy of the whole system.
Rob:I want to break in right there just because I think this is an interesting topic. See, I wouldn’t do that because, to me, that’s pretty mature sharding. Sharding is where you can shard across single tables or database instances. There’s a bunch of different ways to do it, but what you’re talking about is basically putting Customers #1 through #10 on this database and Customers #11 through #20 on this database.
Long, long, long-term if you’re Facebook or if you scale–there was a certain point where we were considering sharding Drip because we hit scale, but that was way, way down the line. I think the added complexity of trying to manage that infrastructure, unless these are really high-intensity, a lot of computing power where you do think you’re going to need to separate them, unless you think that’s going to be that case and that you’re going to need to do that, I would consider that a premature optimization.
Mike: I see what you’re saying in terms of the performance aspect of it. I’m looking at it more from a durability standpoint, like you don’t want having to reboot one server, for example. I don’t know anything about the backend infrastructure and how they do that stuff today, but you don’t want to have to reboot every single customer all at the same time if there’s a problem with one particular customer. That’s more it than anything else. The performance, I think, comes into it to some extent but, from my standpoint, I would be a little concerned about having everything all on one system where if you don’t have an automatic failover or something like that, that would probably be an issue at some point just because of the number of people that could be hitting that site.
Rob:Again, I think that that’s solvable in a different way. You basically have your main database where everyone’s on, you have a hot-swap backup that’s sitting there, constantly replicating, and then you have redundancy in every other server up the chain. If you have a queue server, then you have two of them. If you have Redis, you have two of them. Again, this is just architecture we did at Drip to make it redundant so we could reboot any server.
I don’t even remember how many frontend. By the time I left Drip, we had 20 or 30 frontend web servers and 10-15 API servers just accepting requests and then down, and down, and down. Any of them could be recycled at any time and not affect anyone. The only thing that would actually take the system down, so to speak–and even then, I believe we would still queue up incoming requests–was the database because it’s write and it’s not read. We even had a bunch of reads moved to a separate database that would stay up for that. Anyways, that’s just an architecture thing, and sharding is one way to handle that. I just don’t know how relevant that is here.
Mike: What I was thinking about was how would you migrate people to have them on a multi-tenant server? Essentially, what you’re doing is you’re taking the machines. You’re saying, “Okay, well, let’s take Customer #1 and Customer #2 and put them on the same server.” You’re going to have to do some sort of migration probably for both of them because you’re going to want to spin up a new instance in the database, for example, just so that it’s clean and you don’t have to worry about any additional croft that’s in there.
Again, that could be a mistake based on how complex the database is or how easy it is to move that stuff onto a new server because if you’re just adding tables and stuff to help support multi-tenant, then maybe you just start with one of them and you move the second customer’s data onto the first customer’s database, but it depends on what the hardware there is, too. Maybe you just take the first customer’s database and put it onto a brand-new database server and you start with that.
At some point, you may need to start making decisions about how you’re going to manage that and how you’re going to be adding more customer data onto that database server, and is a migration–are you dumping the data out and then doing a full import? How are you going to manage that replication process to get them started and how far do you go with it? As I said, maybe you do shard the database. Maybe you do have several instances. I don’t know that and I don’t think that they’re going to know that either until they get there.
Rob:When I bought HitTail, it had two shards and it had two separate databases. Yeah, I believe it was two completely separate database instances on the same SQL server. I had to merge them, or I didn’t have to, but I wanted to because it was way complex. It was keeping things in-sync. It sucked. I merged them and I had to do some gymnastics because primary keys–some of them had the same primary keys so I had to update primary keys, which then I have to update them all over the place.
Again, that migration itself is just something you need to think through, be meticulous about and do it. There is risk there, but it’s technical risk. If you get someone smart who knows what they’re doing and you plan it out, that will work. The thing that I’m much more concerned about–let me say off the bat. If Declan can make this happen and turn it into more of a centralized multi-tenant SaaS, I absolutely think that that’s the way to go.
I think that’s how they scale this business long term because having these separate instances for each customer is just going to get hard. It’s going to be a lot to manage. It’s a lot of overhead and server costs. There’s a bunch of labor that’s going to with it. Long term, that’s not how I would prefer to do it. I do think that them trying to centralize is a good move. I think the hardest part of this is going to be talking to all of the universities, getting them all on-board with it, and figuring out which customizations that they allow or disallow. The wildcard, I think, is going to be the customers who have potentially extensive customizations that you may or may not import into the centralized version of the app.
Mike: The other thing that I would think could be a huge thing is data protection and privacy and making sure you’re that separating the data between them because I don’t know for sure how much of the stuff is installed at the customer’s site versus how much they’re hosting in their instances. Are there things that the customer really can customize on the frontend or do they give them virtual machines that they install in their environment and then direct people to there with some of the customizations on?
I don’t know how that is really set up, but I know that they’re probably going to be concerned about, “If we’re migrating the data out of our environment into yours, how do we know it’s secure? How do we know that it’s not going to go back and forth between other customers? How do we know that, if you get hacked, we’re not going to suffer some major loss?” or something like that.
Rob:Yeah, I agree. I think the hard part is doing it retroactively because you could screw things up because, again, that is a solved problem. There are a lot of–how many thousands of SaaS apps have exactly the same issue of keeping data separate? They do it.
Mike: I don’t think that having it separate is the issue; I think that convincing them that they’ve already purchased and bought into one model of having it deployed and then changing how that is done is the issue. For the IT department, they may need to go through some infrastructure review through a risk analysis or something like that, and some of them may say no.
Rob:Right, and that makes sense. That’s, I think, going to be the challenge here more than anything. It’s a big undertaking, but I would encourage them to at least evaluate how many person hours and how difficult it will actually be because I feel like–do you agree that this is probably the right choice for them? I guess the better question is–we don’t have all the details, but if you were in their shoes, based on what we know about their business, would you try to centralize to a multi-tenant scenario?
Mike: Assuming that they are deploying a completely new infrastructure for each customer, I would absolutely centralize it.
Rob:Yeah, just because of the management of all that stuff is so challenging and expensive.
Mike: Right, and just having the different instances themselves. You want to centralize it as much as you can with an obvious eye towards the performance, downtime and stuff like that. Again, it’s also something you’re going to want to take slow. You’re not going to want to dump everybody all under a new set of servers all at once or even three or four. You’ll want to start with two and that’s it, and then slowly consolidate them over time.
Rob:Another thing that occurred to me is I think this will be a cost savings for Campus Connect, and so it would be quite cool if they could keep their prices the same and consolidate because I do think that their cost for providing this service will be less, but they will also have the leeway with some of them to offer discounts if needed because I’d imagine, again, that just their cost to provide this service will be cheaper if they have 10 or 20 of these universities on the same infrastructure. I think that’s another added benefit to this. I’m sure Declan’s thought of all this, but it’s just a fun thought experiment to think through. Our next question is another voicemail and it’s about how to raise your prices when you have a lack of control.
Ben: Hey, guys. I’m Ben, the founder of Code 49 from Germany, selling apps in the Atlassian Marketplace. Thanks for your great episode about Charge More. We also love to charge more–and who wouldn’t–but we are not sure how to proceed. We can only raise prices for everyone at once, and our existing customers only get exposed to the new prices after 30 to 60 days. On top of that, we can only change prices every 30 days and rarely get any feedback when a customer cancels our subscription. The question is how would you raise prices in this scenario? Which metrics would you measure to determine if the raised prices lead to more value? Thanks for your help.
Mike: I feel like this is a really tough spot because if you can only raise prices for everyone all at once and you’re not going to get any sort of results for 30 days, that sucks. If you don’t have direct access to the customers, that makes it harder to do something like this. I wonder if there’s a way to publish it as a new app inside of the Atlassian Marketplace and see if there’s a way that you could test with new customers instead of your existing ones, and then you grandfather the existing customers into your existing pricing.
I don’t know how amenable Atlassian would be to having two apps that are in there that are basically the same kind of thing. The other thing you could do is you can talk to them and say how would they go about this because it would feel to me like you can’t possibly be the only company that has run into this particular program. What does Atlassian have to say about it?
Rob:That’s exactly what I would do, is ask them. This is a crazy limitation. This reminds me of Apple App Store stuff. This is where being in App Store cuts both ways, being in the Envato Marketplace or whatever, the Google Play Store. It gives you distribution. It’s easy distribution. It’s a nice stair step, but I would never build my full-time business on these ecosystems because of these limitations that are just so painful. You can’t split-test. You don’t get your customer’s email addresses. There’s all these limitations.
I don’t know that I have a silver bullet aside from talking to Atlassian. I think his question of, “How would you raise prices in this scenario?” Very, very carefully. I would probably inch them up 10% and just see what happens. The metrics I’d look at is are you getting less new customers in that 7 or 30-day span? Did you churn higher than the previous 7 or 30 days? It’s a very blunt instrument that’s not a true split-test–a poor man’s split-test, I’ve heard this called–but I don’t really see another easy way around it when you just don’t have the control over distribution. Thanks for the question, Ben. I hope our thoughts were helpful.
Our next question is from Rohit Shetty. He asks, “At what stage of a bootstrapped company should one consider using a CRM? I have a desktop app that’s not SaaS. It’s for the data networking industry. It’s cross-platform with binaries for Windows, Mac and various Linux distributions. I use Gumroad for ecommerce, Mailchimp for email, Google Forms for surveys. Email support and follow-up is using Gmail with stars or snoozing to remind to follow up.”
“All this means is that customer data is quite fragmented and spread around. Wondering if having a CRM to bring all of this data together would be useful, or is it the organizational freak in me just wanting to have everything together, and it’s not really going to help me grow my product? If you think CRM is useful in this situation, could you suggest some? My average monthly revenue is around $1200 and has been at that level for more than a year now despite my attempts to grow it. This is a nights-and-weekends project.” Thanks, Rohit. What do you think, Mike? I don’t think CRM is what he needs. Do you?
Mike: No, I don’t think so either. It sounds like if you were having trouble with lots of customers falling through the cracks and support issues because people feel like they’re not being paid attention to, or their needs aren’t met, or you’re losing sales opportunities because you forget to follow up with them or check in with them or send them invoices and stuff like that, then I would say yes, but it doesn’t sound to me like that’s the case. It sounds to me like the data is just in a bunch of different places, and it’s kind of annoying that you don’t have a centralized location for it because it doesn’t seem to me like the MRR really justifies that as the top problem that you have.
Rob:I would agree to that. Also, CRM is really more for moving people through a process. It’s like sales-based. I don’t think of it as a repository for a software company like you. To be honest, we either use our own database. If I was running a SaaS app, it would be the multi-tenant database houses the data that you need. That’s aside from automation and Google Forms and stuff, but it would house all the financial stuff, or I used to do and still do use Drip as a central repository for a lot of data.
I would think about whether or not you want to pipe everything into Mailchimp as custom fields since you use Mailchimp for that purpose or if you want to try to get everything into segment. You could pipe data via Zapier and stuff, but, all that said, I don’t see what having this all in one place is really going to do for you. I just don’t know how that grows your business. I’m with Mike at $1200 monthly revenue, I think you have a lot of bigger fish to fry in terms of either keeping more customers, finding new ones, growing your top-of-the-funnel, whatever. I would the time into that instead of trying to consolidate what data you have.
Every business is like this. I’ll give an example. We used to use Stripe for charging for Drip, and we use Drip for the email automation, and we did use Google Forms or Typeform for some surveys, and we used Help Scout and, later, Zendesk for support. Stuff was fragmented, I’ll say, but it’s just the nature of the beast. Take a deep breath, and just do the best you can, and focus on growing your top one.
Mike: I think that’s about all the time we have for 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 Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Rob. We’re here to share our experiences to help you avoid the same mistakes we made. What’s the word this week, sir?
Mike: I’m going to need some Advil for that one. I’ve got some exciting news to share with the listeners this week. In the past, we’ve talked about having some podcast sponsors on and I wanted to talk about one that I arranged with AppSumo very recently. AppSumo is offering an all-expense paid trip to MicroConf this year, and it’s not just one or the other; it’s to both. We’re in a contest in cooperation with them. It’s going to be starting as the date of this podcast episode comes out.
You can apply to that. We’ll link to it up in the show notes. You go over the webpage, enter in your email address and you’ll be entered into that contest. There’s ways you can get additional entries into the contest by sharing on social media and getting other people to submit their email addresses. For each person who enters based on your promo code that you give them, then you will get an additional entry into the contest. As I said, we’ll link that up in the show notes, but I think it’s a really awesome way for AppSumo to help support the community and the podcast but also to just help bootstrapped entrepreneurs get to MicroConf and network with other entrepreneurs.
Rob:Is it one person that wins tickets to both or is it two separate giveaways?
Mike: It’s one person who’s going to win tickets to both and then they have some money that they’re setting aside to also help cover the travel costs for it.
Rob:They’ll cover airfare and hotel then, for folks, within reason? There’s some cap on it. You can’t fly first-class from Australia or something.
Mike: No, as nice as that might be.
Rob:That’s super cool, man. I’d imagine someone listening might think, “I already bought my ticket to MicroConf,” or, “I might buy my ticket in the next week but I’m going to hold off for this giveaway.” What would you say to those folks?
Mike: That actually is covered, so if you have already purchased your ticket or you purchased one between now and the other contest, the contest is going to until, I think, February 11th. That’s basically four weeks from today’s episode. If you are selected as the winner, then you will be refunded whatever you’ve paid for your ticket so far. If you’ve bought one ticket or you’ve bought a ticket to both of them, then both of them get refunded. I would assume that if you’ve already booked your airfare and stuff, there’d just be a reimbursement that goes along with that.
Rob:Sure. Super cool. This is our first podcast sponsorship.
Mike: Yeah, definitely. I just want to say thanks to the people who are at AppSumo, and we’ll link it up in the show notes. You can go up there and enter into the contest. Hopefully, we’ll see you in Vegas.
Rob:Sounds good. On my end, Tiny Seed Applications open on January 18th. We announced that this week. Tiny Seed is, of course, the first startup accelerator designed for people who would traditionally bootstrap, and it’s my next act after Drip. I’ve already been talking to some founders, either who I know personally or who introduced themselves to me, but we’re definitely going to open the floodgates for about six weeks, starting January 18th. That should be an interesting process. tinyseed.com, if you have questions about that, if you have an idea or an app that’s already launched. We’d love to hear from you.
Mike: That’s cool. You’re going to do applications for six weeks, and then how long do you think it’s going to take to go through those applications? Do you think it’s going to be a week or five weeks?
Rob:We’ll start right away. This is my full-time thing that I’m diving into. The moment we start getting applications, I will start sifting through them. It won’t be a full six weeks of applications that we’ll have to go through at the end because I’m not the sole person making decisions. I don’t know. I think I probably need to think more about an exact timeframe, but it’s not as if we have to announce or we don’t have to offer everyone a spot the same day.
This is not Y Combinator where they have classes of 150 or something. It’ll be a small class of 10 to 15, and I envision it as, “Hey, if you’re fit, we want to invite you to be part of it,” and then people accept or don’t, and then we move onto the next one. I think we’ll be doing onesie-twosies throughout that time, but I’d love to have everybody nailed down certainly before MicroConf, which is ambitious, because that’s only two and a half months away now, but it would just be a nice milestone to hit.
Mike: That’s awesome. Anything else?
Rob:Have you updated your Mac OS to whatever the latest one is called but it has dark mode?
Mike: I have not. I’ve heard of that. Isn’t there something like a Mac app called f.lux or something like that, but it also darkens your screen? Is it similar to that?
Rob:It’s different than that. I just looked and it’s Mojave. It’s 10.14.2. It’s different than f.lux. F.lux would detect your time zone and then, as it got later into the evening, it would remove the blue light from your screen so that it would try not to affect your sleep. That actually sounds–that would be a great name for a great function of dark mode, but dark mode is just a dark theme for the entire OS, like the messages, the iOS messenger thing, the text message app. It’s all dark. It’s all greys and blacks, and the sidebars, and the top and the background are all dark.
It’s interesting. I’m using it, and I think that I like it better. I grew up programming on an Apple IIe, which is black background and green text. When I used to code all the time, I would flip my background of my editor. Sometimes, I’d go white, but, more often than not, probably 70% to 80% of the time, I would just have a black background all the time. That’s like Adam. The default background is black with white text on it because it’s just easier on your eyes.
It’s so far so good. I’m only two days into dark mode, but if you haven’t checked it out, I’d recommend giving it a whirl. I also imagine it would help folks with migraines. I know that some folks, the light from the screen, if you have a lot of white, it can give you migraines. Drip Workflows has night mode, and that was because one of our designers gets migraines, and he just decided to have this. It’s a dark mode for the Workflow Builder.
Mike: Interesting. Yeah, I’ve never really been a fan of those inverted dark modes or inverted theme colors and things like that, but I’ve never really tried it a whole lot either. Maybe if I give it a couple of days to settle in, I could get used to it, but I don’t know.
Rob:That’s the thing, yeah. It definitely takes getting used to because if you’ve used a computer with a white background for 40 to 50 years like you have…
Mike: Hey, you are older than me.
Rob:I know I am.
Mike: I’m just going to point that out.
Rob:Cool. Are you ready to dive into some questions?
Mike: Yeah, absolutely.
Rob:All right. Our first question is a voice mail. Voice mails always rise to the top of the stack. I think, actually, our first two questions are voice mails today, but let’s roll into this one.
Beckham: Hi, Rob and Mike. My name’s Beckham. I’m contacting you from Sligo in the northwest of Ireland. I’m from a company called Campus Connect. We’re avid listeners. We really enjoy the podcast, and you have an uncanny ability to cover stuff that’s happening at the time so keep up the good work. Campus Connect is a mobile app service for universities. What we do is we create an instance of the service for the university recruitment team that pushes it out to their incoming students.
It’s an onboarding service so the students can register. They can connect with their peers and they can connect with somebody on campus. We’re three years trading and we’ve grown to approximately 12,000 MRR, and things have been going reasonably well. A question that we’ve had–I guess an issue that we’ve been having is really around scale although we’ve managed to get at this point to struggle to really build on this.
Creating a new instance feed to university, obviously, is quite resource-intensive, and when we create each instances, often, in customization, they’re looking for different fields, different branding, different upselling and so on, and other few managing services. The universities we work with, they’re also using it for their students that are going out, going abroad, so it’s really for incoming and outgoing students at the moment. We feel there’s an opportunity to develop that into a universal platform and to move all our existing clients onto one central platform where we can connect them up.
At the moment, it’s quite siloed and it’s obviously difficult to scale. We have management. We’ve spoken to our clients about it. They’re interested in the idea but, obviously, the next steps are quite challenging. I’d love to get your guys’ thoughts on this. What do you think, how you would approach it? That’d be great. Keep up the good work. Thanks.
Rob:That’s a tough question, huh, Mike? They’ve made it to 12K MRR, which is nothing to sneeze at, but certainly a big challenge ahead of them. What are your thoughts on this? Do you get what he’s saying, like they do almost on-premise for each instance and then they even do some customizations to some of them, it sounds like, and they want to centralize and basically go with a more true SaaS model or a centralized cloud-based solution, it sounds like.
Mike: Yeah, that was actually a part that I missed. I didn’t realize that they do on-premise for them. I thought that they hosted each individual version of it, and that was mainly because they do customizations to each of them and the platform itself doesn’t really support customizations or a multi-tenant model, so to speak. I wasn’t sure whether that was the direction that they wanted to go or maybe you have a little insight on specifics there. Did I miss something?
Rob:I just listened back to his piece, and all he said is they create new instance for each one. I think you’re right in that it’s not on-premise; it is hosted on Campus Connect’s servers–let’s go with that assumption–but that they copy a new whole instance of it, make some customizations, probably has independent databases, I’d imagine, for each one. There’s the multi-tenancy thing that they’ll have to solve if they haven’t built that in already, which is just the ability to host multiple customers in a single database.
That’s a solved problem. That’s pretty much plug-and-chug. There’s not much risk with that, I’ll say, in terms of implementation, but there obviously are some other things that I think are going to be more difficult than just making multi-tenant.
Mike: Yeah. Taking an application from single-tenant to multi-tenant in and of itself is kind of a pain in the neck. It’s a hard problem, but I would say it’s generally solved, like there’s a lot of guidance out there that you could find fairly easily that would tell you the things to look out for and the things to do in that case. I think that, from a scalability standpoint, I don’t know if you’d want to go towards a model where it is completely multi-tenant with everybody all in one instance.
Part of that is just, one, for scalability because there’s going to be times where certain schools are repping up and directing a lot of people to the site, and then there’s other times where it’s going to be slow and, hopefully, they won’t all overlap. If they did, you wouldn’t want everybody all on one instance of it so that you could slice it across. Let’s say maybe you have 10 instances of it and 10 customers on each, for example. That’s a lot easier to manage than 100 different instances of it, and that’s probably the way that I would go in that particular case just to at least allow you a little bit more flexibility in terms of the redundancy of the whole system.
Rob:I want to break in right there just because I think this is an interesting topic. See, I wouldn’t do that because, to me, that’s pretty mature sharding. Sharding is where you can shard across single tables or database instances. There’s a bunch of different ways to do it, but what you’re talking about is basically putting Customers #1 through #10 on this database and Customers #11 through #20 on this database.
Long, long, long-term if you’re Facebook or if you scale–there was a certain point where we were considering sharding Drip because we hit scale, but that was way, way down the line. I think the added complexity of trying to manage that infrastructure, unless these are really high-intensity, a lot of computing power where you do think you’re going to need to separate them, unless you think that’s going to be that case and that you’re going to need to do that, I would consider that a premature optimization.
Mike: I see what you’re saying in terms of the performance aspect of it. I’m looking at it more from a durability standpoint, like you don’t want having to reboot one server, for example. I don’t know anything about the backend infrastructure and how they do that stuff today, but you don’t want to have to reboot every single customer all at the same time if there’s a problem with one particular customer. That’s more it than anything else. The performance, I think, comes into it to some extent but, from my standpoint, I would be a little concerned about having everything all on one system where if you don’t have an automatic failover or something like that, that would probably be an issue at some point just because of the number of people that could be hitting that site.
Rob:Again, I think that that’s solvable in a different way. You basically have your main database where everyone’s on, you have a hot-swap backup that’s sitting there, constantly replicating, and then you have redundancy in every other server up the chain. If you have a queue server, then you have two of them. If you have Redis, you have two of them. Again, this is just architecture we did at Drip to make it redundant so we could reboot any server.
I don’t even remember how many frontend. By the time I left Drip, we had 20 or 30 frontend web servers and 10-15 API servers just accepting requests and then down, and down, and down. Any of them could be recycled at any time and not affect anyone. The only thing that would actually take the system down, so to speak–and even then, I believe we would still queue up incoming requests–was the database because it’s write and it’s not read. We even had a bunch of reads moved to a separate database that would stay up for that. Anyways, that’s just an architecture thing, and sharding is one way to handle that. I just don’t know how relevant that is here.
Mike: What I was thinking about was how would you migrate people to have them on a multi-tenant server? Essentially, what you’re doing is you’re taking the machines. You’re saying, “Okay, well, let’s take Customer #1 and Customer #2 and put them on the same server.” You’re going to have to do some sort of migration probably for both of them because you’re going to want to spin up a new instance in the database, for example, just so that it’s clean and you don’t have to worry about any additional croft that’s in there.
Again, that could be a mistake based on how complex the database is or how easy it is to move that stuff onto a new server because if you’re just adding tables and stuff to help support multi-tenant, then maybe you just start with one of them and you move the second customer’s data onto the first customer’s database, but it depends on what the hardware there is, too. Maybe you just take the first customer’s database and put it onto a brand-new database server and you start with that.
At some point, you may need to start making decisions about how you’re going to manage that and how you’re going to be adding more customer data onto that database server, and is a migration–are you dumping the data out and then doing a full import? How are you going to manage that replication process to get them started and how far do you go with it? As I said, maybe you do shard the database. Maybe you do have several instances. I don’t know that and I don’t think that they’re going to know that either until they get there.
Rob:When I bought HitTail, it had two shards and it had two separate databases. Yeah, I believe it was two completely separate database instances on the same SQL server. I had to merge them, or I didn’t have to, but I wanted to because it was way complex. It was keeping things in-sync. It sucked. I merged them and I had to do some gymnastics because primary keys–some of them had the same primary keys so I had to update primary keys, which then I have to update them all over the place.
Again, that migration itself is just something you need to think through, be meticulous about and do it. There is risk there, but it’s technical risk. If you get someone smart who knows what they’re doing and you plan it out, that will work. The thing that I’m much more concerned about–let me say off the bat. If Declan can make this happen and turn it into more of a centralized multi-tenant SaaS, I absolutely think that that’s the way to go.
I think that’s how they scale this business long term because having these separate instances for each customer is just going to get hard. It’s going to be a lot to manage. It’s a lot of overhead and server costs. There’s a bunch of labor that’s going to with it. Long term, that’s not how I would prefer to do it. I do think that them trying to centralize is a good move. I think the hardest part of this is going to be talking to all of the universities, getting them all on-board with it, and figuring out which customizations that they allow or disallow. The wildcard, I think, is going to be the customers who have potentially extensive customizations that you may or may not import into the centralized version of the app.
Mike: The other thing that I would think could be a huge thing is data protection and privacy and making sure you’re that separating the data between them because I don’t know for sure how much of the stuff is installed at the customer’s site versus how much they’re hosting in their instances. Are there things that the customer really can customize on the frontend or do they give them virtual machines that they install in their environment and then direct people to there with some of the customizations on?
I don’t know how that is really set up, but I know that they’re probably going to be concerned about, “If we’re migrating the data out of our environment into yours, how do we know it’s secure? How do we know that it’s not going to go back and forth between other customers? How do we know that, if you get hacked, we’re not going to suffer some major loss?” or something like that.
Rob:Yeah, I agree. I think the hard part is doing it retroactively because you could screw things up because, again, that is a solved problem. There are a lot of–how many thousands of SaaS apps have exactly the same issue of keeping data separate? They do it.
Mike: I don’t think that having it separate is the issue; I think that convincing them that they’ve already purchased and bought into one model of having it deployed and then changing how that is done is the issue. For the IT department, they may need to go through some infrastructure review through a risk analysis or something like that, and some of them may say no.
Rob:Right, and that makes sense. That’s, I think, going to be the challenge here more than anything. It’s a big undertaking, but I would encourage them to at least evaluate how many person hours and how difficult it will actually be because I feel like–do you agree that this is probably the right choice for them? I guess the better question is–we don’t have all the details, but if you were in their shoes, based on what we know about their business, would you try to centralize to a multi-tenant scenario?
Mike: Assuming that they are deploying a completely new infrastructure for each customer, I would absolutely centralize it.
Rob:Yeah, just because of the management of all that stuff is so challenging and expensive.
Mike: Right, and just having the different instances themselves. You want to centralize it as much as you can with an obvious eye towards the performance, downtime and stuff like that. Again, it’s also something you’re going to want to take slow. You’re not going to want to dump everybody all under a new set of servers all at once or even three or four. You’ll want to start with two and that’s it, and then slowly consolidate them over time.
Rob:Another thing that occurred to me is I think this will be a cost savings for Campus Connect, and so it would be quite cool if they could keep their prices the same and consolidate because I do think that their cost for providing this service will be less, but they will also have the leeway with some of them to offer discounts if needed because I’d imagine, again, that just their cost to provide this service will be cheaper if they have 10 or 20 of these universities on the same infrastructure. I think that’s another added benefit to this. I’m sure Declan’s thought of all this, but it’s just a fun thought experiment to think through. Our next question is another voicemail and it’s about how to raise your prices when you have a lack of control.
Ben: Hey, guys. I’m Ben, the founder of Code 49 from Germany, selling apps in the Atlassian Marketplace. Thanks for your great episode about Charge More. We also love to charge more–and who wouldn’t–but we are not sure how to proceed. We can only raise prices for everyone at once, and our existing customers only get exposed to the new prices after 30 to 60 days. On top of that, we can only change prices every 30 days and rarely get any feedback when a customer cancels our subscription. The question is how would you raise prices in this scenario? Which metrics would you measure to determine if the raised prices lead to more value? Thanks for your help.
Mike: I feel like this is a really tough spot because if you can only raise prices for everyone all at once and you’re not going to get any sort of results for 30 days, that sucks. If you don’t have direct access to the customers, that makes it harder to do something like this. I wonder if there’s a way to publish it as a new app inside of the Atlassian Marketplace and see if there’s a way that you could test with new customers instead of your existing ones, and then you grandfather the existing customers into your existing pricing.
I don’t know how amenable Atlassian would be to having two apps that are in there that are basically the same kind of thing. The other thing you could do is you can talk to them and say how would they go about this because it would feel to me like you can’t possibly be the only company that has run into this particular program. What does Atlassian have to say about it?
Rob:That’s exactly what I would do, is ask them. This is a crazy limitation. This reminds me of Apple App Store stuff. This is where being in App Store cuts both ways, being in the Envato Marketplace or whatever, the Google Play Store. It gives you distribution. It’s easy distribution. It’s a nice stair step, but I would never build my full-time business on these ecosystems because of these limitations that are just so painful. You can’t split-test. You don’t get your customer’s email addresses. There’s all these limitations.
I don’t know that I have a silver bullet aside from talking to Atlassian. I think his question of, “How would you raise prices in this scenario?” Very, very carefully. I would probably inch them up 10% and just see what happens. The metrics I’d look at is are you getting less new customers in that 7 or 30-day span? Did you churn higher than the previous 7 or 30 days? It’s a very blunt instrument that’s not a true split-test–a poor man’s split-test, I’ve heard this called–but I don’t really see another easy way around it when you just don’t have the control over distribution. Thanks for the question, Ben. I hope our thoughts were helpful.
Our next question is from Rohit Shetty. He asks, “At what stage of a bootstrapped company should one consider using a CRM? I have a desktop app that’s not SaaS. It’s for the data networking industry. It’s cross-platform with binaries for Windows, Mac and various Linux distributions. I use Gumroad for ecommerce, Mailchimp for email, Google Forms for surveys. Email support and follow-up is using Gmail with stars or snoozing to remind to follow up.”
“All this means is that customer data is quite fragmented and spread around. Wondering if having a CRM to bring all of this data together would be useful, or is it the organizational freak in me just wanting to have everything together, and it’s not really going to help me grow my product? If you think CRM is useful in this situation, could you suggest some? My average monthly revenue is around $1200 and has been at that level for more than a year now despite my attempts to grow it. This is a nights-and-weekends project.” Thanks, Rohit. What do you think, Mike? I don’t think CRM is what he needs. Do you?
Mike: No, I don’t think so either. It sounds like if you were having trouble with lots of customers falling through the cracks and support issues because people feel like they’re not being paid attention to, or their needs aren’t met, or you’re losing sales opportunities because you forget to follow up with them or check in with them or send them invoices and stuff like that, then I would say yes, but it doesn’t sound to me like that’s the case. It sounds to me like the data is just in a bunch of different places, and it’s kind of annoying that you don’t have a centralized location for it because it doesn’t seem to me like the MRR really justifies that as the top problem that you have.
Rob:I would agree to that. Also, CRM is really more for moving people through a process. It’s like sales-based. I don’t think of it as a repository for a software company like you. To be honest, we either use our own database. If I was running a SaaS app, it would be the multi-tenant database houses the data that you need. That’s aside from automation and Google Forms and stuff, but it would house all the financial stuff, or I used to do and still do use Drip as a central repository for a lot of data.
I would think about whether or not you want to pipe everything into Mailchimp as custom fields since you use Mailchimp for that purpose or if you want to try to get everything into segment. You could pipe data via Zapier and stuff, but, all that said, I don’t see what having this all in one place is really going to do for you. I just don’t know how that grows your business. I’m with Mike at $1200 monthly revenue, I think you have a lot of bigger fish to fry in terms of either keeping more customers, finding new ones, growing your top-of-the-funnel, whatever. I would the time into that instead of trying to consolidate what data you have.
Every business is like this. I’ll give an example. We used to use Stripe for charging for Drip, and we use Drip for the email automation, and we did use Google Forms or Typeform for some surveys, and we used Help Scout and, later, Zendesk for support. Stuff was fragmented, I’ll say, but it’s just the nature of the beast. Take a deep breath, and just do the best you can, and focus on growing your top one.
Mike: I think that’s about all the time we have for 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 Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 426 | Getting Started with Event Tracking
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about getting started with event tracking. They share some tips and tricks, 3 Core Lifecycle Events, and the purpose/importance for tracking each event.
Items mentioned in this episode:
Mike: In this episode of Startups for the Rest of Us, Rob and I are going to be talking about getting started with event tracking. This is Startups for the Rest of Us Episode 426.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Mike.
Rob: I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. How’s it going this week, Rob?
Rob: I always struggle getting back to work after taking time off. I was off for about a week over the Christmas break and then obviously New Years was Monday and Tuesday. Getting up Wednesday and getting back in the email. I certainly checked and responded to email over the break, but you don’t dig in and do a lot of the little stuff. I think my Kryptonite is breaks. As much as I love breaks and as much as they make me feel re-energized, I really struggle to reenter the work mindset. Do you feel the same way?
Mike: Yeah, definitely. I’ve actually had that struggle for the past couple of weeks. December is obviously kind of slow just in general. After about the 15th or so, nothing was really happening. I decided to back off of my schedule a little bit and use the time to recuperate a little bit. I try to do some things here and there but I also realized that it was vacation, I’m not going to work my tail off. I just got to a point where I’m like, “I’m just not getting anything done.” I just said, “The heck with it,” at one point and I’m trying to get back into things at this point. It’s been a progression of about a week or so trying to get back into things.
Rob: Yeah, that’s crazy, and you know that it’s best for you to completely unplug, but I almost feel like when I completely unplug it’s even worse to try to get back into it because you come back and you have 500 emails or something. At least when I came back I only had, I don’t know, maybe 80 or 100 emails to respond to but I had taken care of a bunch of short responses in the meantime. I didn’t spend six or eight hours. I’ve had times when I’ve completely unplugged and I’ll come back and basically spent eight hours just in email because it stacks up so quickly.
Mike: Yeah, I’ve done that too. It’s hard especially that first week or so back because you got this backlog of email that you know you should go through. They’re at least semi important, you’ve got to probably do something with them. But at the same time, you don’t want to spend the entire day doing that because it’s kind of depressing to sit down and do email all day.
Rob: I agree, and there’s that struggle of just sitting in email. Sometimes it’s completely unproductive and sometimes it is really productive. Sometime it does push your business forward if that’s the phase that you’re at where you’re connecting with people and making intros and responding to things is moving things forward. There has been a chunk of my career where not being in email is detrimental to whatever I’m doing, and the more I am in email–as long as I’m efficient with it–it does move the business forward.
That’s the struggle. You get a few hundred emails and you’re kind of staring them in the face and it’s like, “How do I get the low priority ones out of here and not deal with them and only look at and respond to and organize the high priority ones?” I actually of course have a system for that. I talked about–a couple episodes ago–on the Zen founder podcast and it involves email and Trello and a label that I have called “This week,” where I dump everything in and then I circle back once a week and I go through all that lower priority stuff.
It works well for me but there’s nothing that can take 500 emails and make it a 60-minute task because it’s not just replying “Yes,” or replying “No,” some of them are like really hard decisions, or some of them takes more research and more thought. You can have an email that might take you 30 or 40 minutes just to put together whatever it is, “I need to run these numbers. I need to put a graph together. I need to put a spreadsheet together,” or whatever. That’s the fun of getting back to it.
I have had some folks I worked with who don’t experience that. It’s not everyone that has a tough time getting back and into work. Some people come back super recharged and excited, they wake up in the morning and they’re like, “Oh, I’m going to hit the ground running because I haven’t worked for two weeks,” and for some reason, I’m the exact opposite. I’m like a momentum player where while I’m working, I don’t want to stop working, and while I’m not working, I don’t want to start. It sounds like you might be the same.
Mike: Yeah, pretty much. I kept a pretty good handle on my email for the most part. I’ve got 60 in my mailbox right there. Some of them, I have to deal with them. It’s not like I can just delete them. One of them was on Google’s […] policies that are changing in a couple of weeks. I have to do something with it. I can’t just let it go. It’s not only time sensitive but it’s also in my mailbox. It’s hard to figure out what to do with some of them because a lot of them I just can’t delegate, at least not yet.
I was printing books and stuff for the Single Founder handbook through CreateSpace and then they changed everything over as of January 1st. It’s just like, “Oh great. Now, I’ve got to go figure out how this happens,” because somebody placed an order for the book and I can’t even print it. I literally can’t do anything.
Rob: I do the same thing for my book and my kid’s books. CreateSpace has existed since 2006, Amazon bought them, didn’t change anything and now they rolled it into the Kindle thing. The KDP which is like the Kindle Direct Publishing. You have to go through a bunch of configuration and then you get it set up, but they remove functionality.
I used to be able to–in CreateSpace–just send one copy to a person. Now in order to do that, you have to enter their email address in your Amazon account. Now, it’s in your Amazon account. You got to go back and delete it if you don’t want it after.
I actually debated between two options there which was to either completely give up fulfillment myself. I used to have a VA that would punch it through CreateSpace and she’s like, “This isn’t working anymore.” I either was going to completely just link off to Amazon and Audible and just walk away with my hands in the air slinked back into the hedge and just be like, “Yeah, I’m just going to let people buy from there,” but I wound up ordering 20 copies, sent them to her and she is now doing one off fulfillment.
Start small, stay small. It might sell 20 physical copies in a month through the site. It sells more than that through Amazon. That’s what I do. I’m kind of thinking to wait and see how it goes and if it works out this way, then fine. But I don’t know, I hate it when software changes like that. Why did they need to update the software, Mike? Why don’t we just use the same version that we’ve been using for 20 years?
Mike: Yeah. I find it interesting that you decided or at least contemplated the idea of just walking away from all the fulfillment that you were going to do on your side and then instead decided to have your VA send out some of the books. I’ve still got a bunch of books here. I’ll probably use those for fulfillment for right now. I’m seriously contemplating going in that direction myself. Throwing my hands up and saying, “I’m done. I’m just not even going to deal with it,” but obviously, there’s lots of other implications and things to think about there.
The only other thing I have on my side is that I got a paint set for Christmas from my wife and I think that it was actually a secret ploy because she wanted to paint some of the D&D mini figures that I ended up buying. On New Year’s Eve, we decided to spend a couple of hours with some of the kids off to an overnight sleepaway camp that was $70 for each camp down in Connecticut. Her and I sat there and painted D&D mini figures for probably two or three hours or something like that and watched a movie and went to bed. That was the extent of our New Year’s festivities.
For the listeners, Rob apparently has a power blackout right now. I’m going to be doing the rest of the episode solo. Today’s episode is going to be on getting started with event tracking. I’m looking at this just because I’m reworking some parts of my sales funnel for Bluetick and wanted to look around and see what other people were doing.
I’ve revisited this a couple times in the past but it seems like I never really do a great job of documenting the entire system. I looked around to see if there were some examples of what other people were doing and came across a couple of articles over on the Segment.com blog and we’ll link those up in the show notes including a Google spreadsheet that they have that they’ve published which is essentially a guide to how they have documented their event tracking; what it is that they track and why they track it.
I’ve been reading that and a bunch of other things and various blog posts on the internet. There’s a couple of different tips and tricks that you have for event tracking. The first thing to keep in mind is that events can happen across multiple tools. For example, when somebody makes a payment, it goes in Stripe, Stripe can trigger an event. If somebody signs up for your app, that’s an event as well and that can happen inside your app; it’s completely disconnected from Stripe. Although you can integrate it into Stripe, both of those systems have their own sets of events.
Within a Segment, obviously you can send all of your events to Segment from all the different tools, but you’re not using Segment, then you still have this problem of having events in multiple systems. If you’re going to try and track those, it makes it very difficult. The idea here is that if you have events in different systems and you’re trying to tie them together, what you want to do is you want to document them.
Before you start implementing events and trying to track them, or trying to implement sort of analytics around them, what you need to do is sit down and document them. What this does is it makes revisiting them in the future a lot easier. It also makes it easier for your new hires or contractors to see at a glance what events already exist and why those different events exist and where they are.
The other thing that I found is that usually what I’ll do is I’ll go look at my events and I will go and take a look at them. I might work with them for a couple of days or a week or two and then I don’t revisit them for several months because there are other things that I need to track. I get into other things and come back to it and I’m kind of lost. I’m like, “Where is everything? What is it that I’m tracking?” and kind of forget all those things.
Documenting these is extremely helpful. The first part of that is to define what your events are. Segment recommends defining three core life cycle events. Anything more than that is probably going to be overwhelming. The idea is: what exactly is a core lifecycle event?
A life cycle event is essentially something that your customer needs to do inside of your app so that it will start providing value to them. We’ll kind of refocus this a little bit to event tracking inside of your app or the ancillary stuff associated with it, explicitly for your app and not necessarily in other tools because you don’t necessarily have a lot of control over what those things are named or how they’re put together but you may still want to document what some of those are.
Some of the things you need to look at is whether or not the app is providing value to them and what are the different events that have to happen before they get there. The first one might be that they signed up for an account. Obviously, that’s one of the first things that you probably want to track. Once they signed up for an account, there may be other things that you have to track. For example in Bluetick, once they’ve signed up for an account, they’ve gotten in there, they need to connect their mailbox. If they don’t connect their mailbox, they can’t get value out of the product.
There’s other things that they need to do as well. They need to set up a sequence. If they haven’t set up a sequence, they’re obviously not going to get any value out of the product because it’s not going to be sending out emails on their behalf. Think about the exact things that the customer needs to do before your app is going to provide value and focus on those as your events.
Next step is to name each of your events. I would highly recommend using some sort of a naming convention. Segment recommends that you use past tense verbs to describe them. Instead of saying, “Signing up,” you say, “Signed up.” If it’s sending data, you say, “Sent project data.” If they started a subscription, you say, “Started subscription.” You don’t say, “Subscription started,” that’s more of a description of what it is as opposed to the past tense description of it. You’re using it as a past tense verb as opposed to nouns.
The next part of your naming convention is make sure you’re using capitalized letters for these. Again, these are just recommendations, they’re not set in stone. If you decide that you’re going to do it differently, that’s totally okay. Just make sure that you’re consistent across all of the events when you do this. If you write these down and you are consistent across, it just makes it easier to eyeball something and say, “That’s an event,” versus, “That’s a property.”
Next thing, obviously that leads into properties. For each event that you have, which properties are going to be supplied as part of that event and what are the property values being supplied? By property values, I don’t necessarily mean is it an integer or is it a string. That kind of goes into it, but you really want to document what the name of that property is and what its purpose is. For example, customer ID, you can describe it and say it is an integer describing the unique customer ID inside of my local database. You might also say that it’s a customer ID that’s a string representation that’s the public facing version of that. You may track both of them. It depends on kind of where you’re tracking those events and seeing them and sending them.
Next one, document exactly why is this data being tracked. Why is it important to you? What is it going to do for you and what are you going to do with that data? If you’re tracking an event just to track it, it’s not very valuable. What you really want to do is focus in on those events that you’re going to take some sort of an action on. In the case of when somebody signs up, the signed up event triggers, at that point then what?
You’re probably analyzing the people who signed up and trying to figure out whether or not they’ve started a subscription. All the different things that go along in the middle, whatever that funnel looks like, you’re going to want to track people along the way to see where the drop off is. That’s why you track signed up because that’s kind of a starting point. You also track the started subscription because that’s the end of their trial period. What you want to do is make sure that you’re only tracking the events for which you’re going to take an action on. If you’re not doing that, you’ve got all these different events that you’re looking at and it’s really just going to be confusing.
The next thing to take a look at and make sure that you document is where is this event coming from? Whether you document this as a URL, or a set of URLs, or wild cards or something like that, there’s a lot of different ways to do it. You may even say that this particular event comes from Stripe or gets fed in from Zapier, or some other tool and then put it into your system. You really want to know where it comes from and what is triggering it. Because otherwise, it’s going to take you awhile to figure out how events lead into one another.
For example, if you have a Stripe event and it happens, it says, “They started a subscription,” because the billing got triggered, how is that done? Is it done natively from a Stripe subscription, or is it something that you initialize inside of your app, you send it over to Stripe, and then it comes back, and then Stripe does it. Depending on which of those two things is true, you’re going to have to document that differently because what you don’t want to have is you don’t want to have this event that says, “Started subscription,” and then not be able to find where that event gets triggered.
Otherwise, you can try and modify what your sales funnel looks like because you’re trying to optimize some things and then suddenly these new events keep popping up. You thought you removed the code for it but you didn’t remove all of it because there were other codes in different locations, either on the app or in some other tool that gets fed in. You want to make sure that you document not just the tool that it comes from, but how it’s triggered and how that data gets back into whatever your essential repository is.
Like I said, whether it’s Segment, or your own app, or your own database, or mixed panels, something along those lines. You need to know the entire path because if you don’t have the entire path, lots of things can go haywire and it’s really hard to deal with those pieces of data. Especially when those events are triggering other things because essentially it’s a cascading system and it’s so hard to remove some of those events or prevent things from happening if they are triggered by things.
Next, you’re going to want to take a look at exactly the code that is in place and document exactly what that is supposed to be inside of whatever your document is. Again, Segment uses a Google sheet to document it. We’ll link that up in the show notes. I really think that it’s a good idea to go take a look at that and see what they do and how they do it because they have the exact snippets of code that are in there. All the stuff that I’m talking about today is all documented in there.
Once you got that code documented in there, just at a glance, you’re going to be able to say, “Well, is this JavaScript, is it going to be sitting on a webpage?” You’ll see that based on all the other information that you’re putting into this Google Sheet. You’ll see is it JavaScript, is it Ruby, is it C Sharp. You’ll get a sense of that when you take a look at that code, or there may even be something in there that says, “This is externally generated and we don’t have anything.” For example, one of their events says that it comes from a Zendesk webhook. Obviously, there’s no code for that. It’s just configured directly inside of Zendesk.
Next is take a look at the status of those events. The status fields are actually pretty important. This isn’t something I had thought about until I took a look at their documentation. They have three different fields for this. They have ready, installed, and tested. They have a yes/no for each of those. It may be installed but it hasn’t been fully tested. They may have put it together and it’s maybe ready to be deployed, but it hasn’t actually been installed on to the website or into the app,, or anything like that. They also may not have tested it.
The other thing that you can keep in mind here is that you could add another field here, or you could even just reuse the install field to keep track of this. You may decide to deprecate certain events because as I said before, once an event is in your system or has been in place somewhere inside of your app or as part of your app’s life cycle and it’s been used to track your customers, it’s impossible to basically rip that out because it’s a historical event. You can’t delete it and say this never happened, because it actually did. You just have to make sure that if you decide that you’re no longer going to be tracking a particular event, that you change the status in there so that if you go start looking at customers that are six months, or a year, or three years old and you start seeing these weird events in there, you can look at the documentation and say, “This used to be used for this at that point and now it’s no longer used which is why all the new customers don’t have that anymore.”
Then the last thing to keep track of–and this is kind of a notes field–it just allows you to put whatever other information you need to put in there to discuss this particular event, maybe you say, “This was deprecated on such and such date,” or, “We created this on such and such date,” those could be their own unique column inside the spreadsheet. But in any case, it allows you to put some notes in there.
Now that we’ve kind of talked about the documentation itself for these particular events, one thing to think about is why use events at all? If you look at a bunch of different marketing platforms, you’ll see things like some of them use tags, some of them use events, some of them have both. The key question here is what’s really the difference? Why would use one versus the other? The thing to keep in mind with a tag versus an event is a tag is essentially a status field, there’s a categorization. Does this need such and such criteria or does it not? Have they achieved this particular goal or have they not? That’s a little different from an event where an event also has a date and time that something happened.
With the tag, it just says is it yes or no. Whereas with an event, it may have that information, but in addition to that, it also has a date and time with it. It could happen more than once. You may decide if this happens twice within a week for example, let’s send out a particular email, or let’s act on that in a certain way.
For example, in one of the things I have in Bluetick is that when somebody’s subscription is canceled and then a new subscription is created, that is essentially an aggregate the says, “Okay, do not trigger an event for this,” because it’s not a cancellation. I treat it that way because inside of Stripe, I can’t just say, “Translate or convert this subscription from this level,” I can’t do that. Instead, what I do is I say, “Well, if this event happens and then this other event happens within a certain timeframe, then treat it in one way. Otherwise, treat it a different way.” If an event comes in and says, “Subscription cancelled,” and then there is not a corresponding subscription created within maybe four to six hours or something like that. If those two things don’t go together, then treat it as a cancellation and it triggers that cancellation event.
That’s in my system, it’s not Stripe’s. Stripe is obviously going to say, “Okay, well this is a cancellation and then here’s a new subscription,” but to me in my own marketing sales funnel, it is not a cancellation. It is, for Stripe, but in my events system, it is not. Those are the types of things that you want to make sure that you differentiate between how you’re tracking your events, versus how other people are.
The nice thing about this is that, when you’re using an event, it’s a lot better than just the fact that something happened in the past. It’s because you’ve got that time and date associated with it. Think of for example if there’s something in your app and somebody runs into a particular error, and you have the error surface back into the backend of your system. Maybe it’s a frontend client side JavaScript error, maybe it’s a backend inside of your Ruby code or something like that. That stuff can bubble up into your event system, and your event system can take a look at that and say, “Well, this particular customer ran into this problem,” and we’ve got all the documentation around that the says, “Here’s the stack trace,” or “Here’s the line of code that they ran into through this particular error,” and you can dig into it and figure out why.
But when you’re trying to prioritize things, you may look at that and say, “Well, do I need to prioritize this higher? Did they run into it 30 times or 50 times in an hour? And then they went over to the help desk or the documentation and started looking there. Then they came back and they ran into it more.” That’s a lot more information that you’d be able to see from an event than if you were to see from a tag. A tag will just tell you, “Well, they ran into an error,” but the events, the series of events, you’re going to be able to see that and see exactly what that person did along the way.
Now, to kind of step a little bit back from that, I’m not saying that you would go in there and you would necessarily create all of those things as events in your system that you would be tracking on a regular basis and trying to use to match up to your KPIs for the system, for your application, and try and move the business forward, or tweak different things to make that possible. What you might do is you might want to say are people running into errors with a particular piece of the application before they reach one of those goals along the way in order to activate them into a customer after they’ve signed up, but before their subscription is created and you have charged them.
That’s the type of thing that you want to think about. How do these events chain together and what do they mean to you? What are you going to do with that information afterwards? Because if you’re just tracking events to track events, it’s not very helpful.
A key example of this I think in most cases is page views. If you are looking at anonymous visitors coming to your website and trying to figure out what is the path that they go through on your website. In some cases, that’s very important. In a lot of cases, it’s not, though. All these events that can be triggered you can say, okay, here’s a page view for example, that’s the event that gets triggered. Then for the properties you may say page name and you send that into your analytics software or whatever it happens to be. As I said, whether it’s Google Analytics, or mixed panel, or Segment or what have you. You’ve got that information, but what does it really do for you? Are you going to tweak the layout of your website? Are you going to make changes to the web pages? Are you going to modify the navigation a little bit?
If those are the types of things that you’re looking to do, then yes, you should absolutely be tracking those. But if you’re just tracking them to track them with no purpose in mind, then they’re worthless. The one caveat I would say with that is that you start tracking those events in order to get a general idea of what’s going on. For example, how do you know how many people visited your about page? That’s one of those key things that a lot of people don’t spend very much time on their about page. It actually is a page the most people’s websites gets a fair amount of traffic and these people want to know about the businesses that they’re buying things from.
If you need to know how many people are coming there, most people will look at their Google Analytics but that’s a situation where you could say, “I’m sending this information into my analytics software and I’m tracking that because I want to get a general idea of how many people are going there.” Once you have that, you can start narrowing it down because you’re associating each of those events with a visitor or with a unique user, that gives you the ability to say how many unique visits is this getting versus the total number of visits.
The same person visiting that 10 or 15 times sends a very different signal than 10 different people who visited that page once. With all that, I think I’m going to wrap up today’s episode. Again, we’ll link up both the article itself to the Segment blog and a link directly to the Google spreadsheet that they have directly in the show notes for this episode.
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 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.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product, or you’re just thinking about it, I’m Mike.
Rob: I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. How’s it going this week, Rob?
Rob: I always struggle getting back to work after taking time off. I was off for about a week over the Christmas break and then obviously New Years was Monday and Tuesday. Getting up Wednesday and getting back in the email. I certainly checked and responded to email over the break, but you don’t dig in and do a lot of the little stuff. I think my Kryptonite is breaks. As much as I love breaks and as much as they make me feel re-energized, I really struggle to reenter the work mindset. Do you feel the same way?
Mike: Yeah, definitely. I’ve actually had that struggle for the past couple of weeks. December is obviously kind of slow just in general. After about the 15th or so, nothing was really happening. I decided to back off of my schedule a little bit and use the time to recuperate a little bit. I try to do some things here and there but I also realized that it was vacation, I’m not going to work my tail off. I just got to a point where I’m like, “I’m just not getting anything done.” I just said, “The heck with it,” at one point and I’m trying to get back into things at this point. It’s been a progression of about a week or so trying to get back into things.
Rob: Yeah, that’s crazy, and you know that it’s best for you to completely unplug, but I almost feel like when I completely unplug it’s even worse to try to get back into it because you come back and you have 500 emails or something. At least when I came back I only had, I don’t know, maybe 80 or 100 emails to respond to but I had taken care of a bunch of short responses in the meantime. I didn’t spend six or eight hours. I’ve had times when I’ve completely unplugged and I’ll come back and basically spent eight hours just in email because it stacks up so quickly.
Mike: Yeah, I’ve done that too. It’s hard especially that first week or so back because you got this backlog of email that you know you should go through. They’re at least semi important, you’ve got to probably do something with them. But at the same time, you don’t want to spend the entire day doing that because it’s kind of depressing to sit down and do email all day.
Rob: I agree, and there’s that struggle of just sitting in email. Sometimes it’s completely unproductive and sometimes it is really productive. Sometime it does push your business forward if that’s the phase that you’re at where you’re connecting with people and making intros and responding to things is moving things forward. There has been a chunk of my career where not being in email is detrimental to whatever I’m doing, and the more I am in email–as long as I’m efficient with it–it does move the business forward.
That’s the struggle. You get a few hundred emails and you’re kind of staring them in the face and it’s like, “How do I get the low priority ones out of here and not deal with them and only look at and respond to and organize the high priority ones?” I actually of course have a system for that. I talked about–a couple episodes ago–on the Zen founder podcast and it involves email and Trello and a label that I have called “This week,” where I dump everything in and then I circle back once a week and I go through all that lower priority stuff.
It works well for me but there’s nothing that can take 500 emails and make it a 60-minute task because it’s not just replying “Yes,” or replying “No,” some of them are like really hard decisions, or some of them takes more research and more thought. You can have an email that might take you 30 or 40 minutes just to put together whatever it is, “I need to run these numbers. I need to put a graph together. I need to put a spreadsheet together,” or whatever. That’s the fun of getting back to it.
I have had some folks I worked with who don’t experience that. It’s not everyone that has a tough time getting back and into work. Some people come back super recharged and excited, they wake up in the morning and they’re like, “Oh, I’m going to hit the ground running because I haven’t worked for two weeks,” and for some reason, I’m the exact opposite. I’m like a momentum player where while I’m working, I don’t want to stop working, and while I’m not working, I don’t want to start. It sounds like you might be the same.
Mike: Yeah, pretty much. I kept a pretty good handle on my email for the most part. I’ve got 60 in my mailbox right there. Some of them, I have to deal with them. It’s not like I can just delete them. One of them was on Google’s […] policies that are changing in a couple of weeks. I have to do something with it. I can’t just let it go. It’s not only time sensitive but it’s also in my mailbox. It’s hard to figure out what to do with some of them because a lot of them I just can’t delegate, at least not yet.
I was printing books and stuff for the Single Founder handbook through CreateSpace and then they changed everything over as of January 1st. It’s just like, “Oh great. Now, I’ve got to go figure out how this happens,” because somebody placed an order for the book and I can’t even print it. I literally can’t do anything.
Rob: I do the same thing for my book and my kid’s books. CreateSpace has existed since 2006, Amazon bought them, didn’t change anything and now they rolled it into the Kindle thing. The KDP which is like the Kindle Direct Publishing. You have to go through a bunch of configuration and then you get it set up, but they remove functionality.
I used to be able to–in CreateSpace–just send one copy to a person. Now in order to do that, you have to enter their email address in your Amazon account. Now, it’s in your Amazon account. You got to go back and delete it if you don’t want it after.
I actually debated between two options there which was to either completely give up fulfillment myself. I used to have a VA that would punch it through CreateSpace and she’s like, “This isn’t working anymore.” I either was going to completely just link off to Amazon and Audible and just walk away with my hands in the air slinked back into the hedge and just be like, “Yeah, I’m just going to let people buy from there,” but I wound up ordering 20 copies, sent them to her and she is now doing one off fulfillment.
Start small, stay small. It might sell 20 physical copies in a month through the site. It sells more than that through Amazon. That’s what I do. I’m kind of thinking to wait and see how it goes and if it works out this way, then fine. But I don’t know, I hate it when software changes like that. Why did they need to update the software, Mike? Why don’t we just use the same version that we’ve been using for 20 years?
Mike: Yeah. I find it interesting that you decided or at least contemplated the idea of just walking away from all the fulfillment that you were going to do on your side and then instead decided to have your VA send out some of the books. I’ve still got a bunch of books here. I’ll probably use those for fulfillment for right now. I’m seriously contemplating going in that direction myself. Throwing my hands up and saying, “I’m done. I’m just not even going to deal with it,” but obviously, there’s lots of other implications and things to think about there.
The only other thing I have on my side is that I got a paint set for Christmas from my wife and I think that it was actually a secret ploy because she wanted to paint some of the D&D mini figures that I ended up buying. On New Year’s Eve, we decided to spend a couple of hours with some of the kids off to an overnight sleepaway camp that was $70 for each camp down in Connecticut. Her and I sat there and painted D&D mini figures for probably two or three hours or something like that and watched a movie and went to bed. That was the extent of our New Year’s festivities.
For the listeners, Rob apparently has a power blackout right now. I’m going to be doing the rest of the episode solo. Today’s episode is going to be on getting started with event tracking. I’m looking at this just because I’m reworking some parts of my sales funnel for Bluetick and wanted to look around and see what other people were doing.
I’ve revisited this a couple times in the past but it seems like I never really do a great job of documenting the entire system. I looked around to see if there were some examples of what other people were doing and came across a couple of articles over on the Segment.com blog and we’ll link those up in the show notes including a Google spreadsheet that they have that they’ve published which is essentially a guide to how they have documented their event tracking; what it is that they track and why they track it.
I’ve been reading that and a bunch of other things and various blog posts on the internet. There’s a couple of different tips and tricks that you have for event tracking. The first thing to keep in mind is that events can happen across multiple tools. For example, when somebody makes a payment, it goes in Stripe, Stripe can trigger an event. If somebody signs up for your app, that’s an event as well and that can happen inside your app; it’s completely disconnected from Stripe. Although you can integrate it into Stripe, both of those systems have their own sets of events.
Within a Segment, obviously you can send all of your events to Segment from all the different tools, but you’re not using Segment, then you still have this problem of having events in multiple systems. If you’re going to try and track those, it makes it very difficult. The idea here is that if you have events in different systems and you’re trying to tie them together, what you want to do is you want to document them.
Before you start implementing events and trying to track them, or trying to implement sort of analytics around them, what you need to do is sit down and document them. What this does is it makes revisiting them in the future a lot easier. It also makes it easier for your new hires or contractors to see at a glance what events already exist and why those different events exist and where they are.
The other thing that I found is that usually what I’ll do is I’ll go look at my events and I will go and take a look at them. I might work with them for a couple of days or a week or two and then I don’t revisit them for several months because there are other things that I need to track. I get into other things and come back to it and I’m kind of lost. I’m like, “Where is everything? What is it that I’m tracking?” and kind of forget all those things.
Documenting these is extremely helpful. The first part of that is to define what your events are. Segment recommends defining three core life cycle events. Anything more than that is probably going to be overwhelming. The idea is: what exactly is a core lifecycle event?
A life cycle event is essentially something that your customer needs to do inside of your app so that it will start providing value to them. We’ll kind of refocus this a little bit to event tracking inside of your app or the ancillary stuff associated with it, explicitly for your app and not necessarily in other tools because you don’t necessarily have a lot of control over what those things are named or how they’re put together but you may still want to document what some of those are.
Some of the things you need to look at is whether or not the app is providing value to them and what are the different events that have to happen before they get there. The first one might be that they signed up for an account. Obviously, that’s one of the first things that you probably want to track. Once they signed up for an account, there may be other things that you have to track. For example in Bluetick, once they’ve signed up for an account, they’ve gotten in there, they need to connect their mailbox. If they don’t connect their mailbox, they can’t get value out of the product.
There’s other things that they need to do as well. They need to set up a sequence. If they haven’t set up a sequence, they’re obviously not going to get any value out of the product because it’s not going to be sending out emails on their behalf. Think about the exact things that the customer needs to do before your app is going to provide value and focus on those as your events.
Next step is to name each of your events. I would highly recommend using some sort of a naming convention. Segment recommends that you use past tense verbs to describe them. Instead of saying, “Signing up,” you say, “Signed up.” If it’s sending data, you say, “Sent project data.” If they started a subscription, you say, “Started subscription.” You don’t say, “Subscription started,” that’s more of a description of what it is as opposed to the past tense description of it. You’re using it as a past tense verb as opposed to nouns.
The next part of your naming convention is make sure you’re using capitalized letters for these. Again, these are just recommendations, they’re not set in stone. If you decide that you’re going to do it differently, that’s totally okay. Just make sure that you’re consistent across all of the events when you do this. If you write these down and you are consistent across, it just makes it easier to eyeball something and say, “That’s an event,” versus, “That’s a property.”
Next thing, obviously that leads into properties. For each event that you have, which properties are going to be supplied as part of that event and what are the property values being supplied? By property values, I don’t necessarily mean is it an integer or is it a string. That kind of goes into it, but you really want to document what the name of that property is and what its purpose is. For example, customer ID, you can describe it and say it is an integer describing the unique customer ID inside of my local database. You might also say that it’s a customer ID that’s a string representation that’s the public facing version of that. You may track both of them. It depends on kind of where you’re tracking those events and seeing them and sending them.
Next one, document exactly why is this data being tracked. Why is it important to you? What is it going to do for you and what are you going to do with that data? If you’re tracking an event just to track it, it’s not very valuable. What you really want to do is focus in on those events that you’re going to take some sort of an action on. In the case of when somebody signs up, the signed up event triggers, at that point then what?
You’re probably analyzing the people who signed up and trying to figure out whether or not they’ve started a subscription. All the different things that go along in the middle, whatever that funnel looks like, you’re going to want to track people along the way to see where the drop off is. That’s why you track signed up because that’s kind of a starting point. You also track the started subscription because that’s the end of their trial period. What you want to do is make sure that you’re only tracking the events for which you’re going to take an action on. If you’re not doing that, you’ve got all these different events that you’re looking at and it’s really just going to be confusing.
The next thing to take a look at and make sure that you document is where is this event coming from? Whether you document this as a URL, or a set of URLs, or wild cards or something like that, there’s a lot of different ways to do it. You may even say that this particular event comes from Stripe or gets fed in from Zapier, or some other tool and then put it into your system. You really want to know where it comes from and what is triggering it. Because otherwise, it’s going to take you awhile to figure out how events lead into one another.
For example, if you have a Stripe event and it happens, it says, “They started a subscription,” because the billing got triggered, how is that done? Is it done natively from a Stripe subscription, or is it something that you initialize inside of your app, you send it over to Stripe, and then it comes back, and then Stripe does it. Depending on which of those two things is true, you’re going to have to document that differently because what you don’t want to have is you don’t want to have this event that says, “Started subscription,” and then not be able to find where that event gets triggered.
Otherwise, you can try and modify what your sales funnel looks like because you’re trying to optimize some things and then suddenly these new events keep popping up. You thought you removed the code for it but you didn’t remove all of it because there were other codes in different locations, either on the app or in some other tool that gets fed in. You want to make sure that you document not just the tool that it comes from, but how it’s triggered and how that data gets back into whatever your essential repository is.
Like I said, whether it’s Segment, or your own app, or your own database, or mixed panels, something along those lines. You need to know the entire path because if you don’t have the entire path, lots of things can go haywire and it’s really hard to deal with those pieces of data. Especially when those events are triggering other things because essentially it’s a cascading system and it’s so hard to remove some of those events or prevent things from happening if they are triggered by things.
Next, you’re going to want to take a look at exactly the code that is in place and document exactly what that is supposed to be inside of whatever your document is. Again, Segment uses a Google sheet to document it. We’ll link that up in the show notes. I really think that it’s a good idea to go take a look at that and see what they do and how they do it because they have the exact snippets of code that are in there. All the stuff that I’m talking about today is all documented in there.
Once you got that code documented in there, just at a glance, you’re going to be able to say, “Well, is this JavaScript, is it going to be sitting on a webpage?” You’ll see that based on all the other information that you’re putting into this Google Sheet. You’ll see is it JavaScript, is it Ruby, is it C Sharp. You’ll get a sense of that when you take a look at that code, or there may even be something in there that says, “This is externally generated and we don’t have anything.” For example, one of their events says that it comes from a Zendesk webhook. Obviously, there’s no code for that. It’s just configured directly inside of Zendesk.
Next is take a look at the status of those events. The status fields are actually pretty important. This isn’t something I had thought about until I took a look at their documentation. They have three different fields for this. They have ready, installed, and tested. They have a yes/no for each of those. It may be installed but it hasn’t been fully tested. They may have put it together and it’s maybe ready to be deployed, but it hasn’t actually been installed on to the website or into the app,, or anything like that. They also may not have tested it.
The other thing that you can keep in mind here is that you could add another field here, or you could even just reuse the install field to keep track of this. You may decide to deprecate certain events because as I said before, once an event is in your system or has been in place somewhere inside of your app or as part of your app’s life cycle and it’s been used to track your customers, it’s impossible to basically rip that out because it’s a historical event. You can’t delete it and say this never happened, because it actually did. You just have to make sure that if you decide that you’re no longer going to be tracking a particular event, that you change the status in there so that if you go start looking at customers that are six months, or a year, or three years old and you start seeing these weird events in there, you can look at the documentation and say, “This used to be used for this at that point and now it’s no longer used which is why all the new customers don’t have that anymore.”
Then the last thing to keep track of–and this is kind of a notes field–it just allows you to put whatever other information you need to put in there to discuss this particular event, maybe you say, “This was deprecated on such and such date,” or, “We created this on such and such date,” those could be their own unique column inside the spreadsheet. But in any case, it allows you to put some notes in there.
Now that we’ve kind of talked about the documentation itself for these particular events, one thing to think about is why use events at all? If you look at a bunch of different marketing platforms, you’ll see things like some of them use tags, some of them use events, some of them have both. The key question here is what’s really the difference? Why would use one versus the other? The thing to keep in mind with a tag versus an event is a tag is essentially a status field, there’s a categorization. Does this need such and such criteria or does it not? Have they achieved this particular goal or have they not? That’s a little different from an event where an event also has a date and time that something happened.
With the tag, it just says is it yes or no. Whereas with an event, it may have that information, but in addition to that, it also has a date and time with it. It could happen more than once. You may decide if this happens twice within a week for example, let’s send out a particular email, or let’s act on that in a certain way.
For example, in one of the things I have in Bluetick is that when somebody’s subscription is canceled and then a new subscription is created, that is essentially an aggregate the says, “Okay, do not trigger an event for this,” because it’s not a cancellation. I treat it that way because inside of Stripe, I can’t just say, “Translate or convert this subscription from this level,” I can’t do that. Instead, what I do is I say, “Well, if this event happens and then this other event happens within a certain timeframe, then treat it in one way. Otherwise, treat it a different way.” If an event comes in and says, “Subscription cancelled,” and then there is not a corresponding subscription created within maybe four to six hours or something like that. If those two things don’t go together, then treat it as a cancellation and it triggers that cancellation event.
That’s in my system, it’s not Stripe’s. Stripe is obviously going to say, “Okay, well this is a cancellation and then here’s a new subscription,” but to me in my own marketing sales funnel, it is not a cancellation. It is, for Stripe, but in my events system, it is not. Those are the types of things that you want to make sure that you differentiate between how you’re tracking your events, versus how other people are.
The nice thing about this is that, when you’re using an event, it’s a lot better than just the fact that something happened in the past. It’s because you’ve got that time and date associated with it. Think of for example if there’s something in your app and somebody runs into a particular error, and you have the error surface back into the backend of your system. Maybe it’s a frontend client side JavaScript error, maybe it’s a backend inside of your Ruby code or something like that. That stuff can bubble up into your event system, and your event system can take a look at that and say, “Well, this particular customer ran into this problem,” and we’ve got all the documentation around that the says, “Here’s the stack trace,” or “Here’s the line of code that they ran into through this particular error,” and you can dig into it and figure out why.
But when you’re trying to prioritize things, you may look at that and say, “Well, do I need to prioritize this higher? Did they run into it 30 times or 50 times in an hour? And then they went over to the help desk or the documentation and started looking there. Then they came back and they ran into it more.” That’s a lot more information that you’d be able to see from an event than if you were to see from a tag. A tag will just tell you, “Well, they ran into an error,” but the events, the series of events, you’re going to be able to see that and see exactly what that person did along the way.
Now, to kind of step a little bit back from that, I’m not saying that you would go in there and you would necessarily create all of those things as events in your system that you would be tracking on a regular basis and trying to use to match up to your KPIs for the system, for your application, and try and move the business forward, or tweak different things to make that possible. What you might do is you might want to say are people running into errors with a particular piece of the application before they reach one of those goals along the way in order to activate them into a customer after they’ve signed up, but before their subscription is created and you have charged them.
That’s the type of thing that you want to think about. How do these events chain together and what do they mean to you? What are you going to do with that information afterwards? Because if you’re just tracking events to track events, it’s not very helpful.
A key example of this I think in most cases is page views. If you are looking at anonymous visitors coming to your website and trying to figure out what is the path that they go through on your website. In some cases, that’s very important. In a lot of cases, it’s not, though. All these events that can be triggered you can say, okay, here’s a page view for example, that’s the event that gets triggered. Then for the properties you may say page name and you send that into your analytics software or whatever it happens to be. As I said, whether it’s Google Analytics, or mixed panel, or Segment or what have you. You’ve got that information, but what does it really do for you? Are you going to tweak the layout of your website? Are you going to make changes to the web pages? Are you going to modify the navigation a little bit?
If those are the types of things that you’re looking to do, then yes, you should absolutely be tracking those. But if you’re just tracking them to track them with no purpose in mind, then they’re worthless. The one caveat I would say with that is that you start tracking those events in order to get a general idea of what’s going on. For example, how do you know how many people visited your about page? That’s one of those key things that a lot of people don’t spend very much time on their about page. It actually is a page the most people’s websites gets a fair amount of traffic and these people want to know about the businesses that they’re buying things from.
If you need to know how many people are coming there, most people will look at their Google Analytics but that’s a situation where you could say, “I’m sending this information into my analytics software and I’m tracking that because I want to get a general idea of how many people are going there.” Once you have that, you can start narrowing it down because you’re associating each of those events with a visitor or with a unique user, that gives you the ability to say how many unique visits is this getting versus the total number of visits.
The same person visiting that 10 or 15 times sends a very different signal than 10 different people who visited that page once. With all that, I think I’m going to wrap up today’s episode. Again, we’ll link up both the article itself to the Segment blog and a link directly to the Google spreadsheet that they have directly in the show notes for this episode.
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 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 425 | How to Launch a Product Into a Mature Market
/
RSS Feed
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to launch a product into a mature market. They give a definition of what a mature market is, list some examples of established players in different markets, discuss how to tell if you should enter a particular market and how to execute on it.
Items mentioned in this episode:
Rob: In this episode of Startups For the Rest of Us, Mike and I discuss how to launch a product into a mature market. This is Startups For the Rest of Us episode 425. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs to be awesome at building, launching, and growing software products. Weather you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: 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: It’s the end of the year, so I’m just doing a lot of end-of-year paperwork that’s—mostly required government filings and getting ready for taxes and stuff like that. I had to submit, I think it was a affidavit of eligibility for my health insurance and it had to be done before the end of this year for my health insurance to be able to be renewed in April or something like that. It’s like, come on, you have to be kidding me. This far and advance and at the end of the year they’re requesting it but whatever you have to do it.
Rob: Yeah, that’s fascinating. The end-of-year stuff is always a pain in the butt. Because I’m always taking this time off. I take a week off, sometimes a week and a half off but it’s not fully off. I’m recording podcasts and doing a few calls here and there but a lot of thinking and planning scheming for the next year, and so it’s a bummer to have to think about government filings and that kind of stuff during this time.
Mike: How about you? What’s new with you?
Rob: Well, you probably hear I’m a little sick right now. Happy New Year everyone. This episode goes live on New Year’s Day. I hope your hangover is treating you well, and that Mike and I can be there for you. And for me, it’s another year, man. My birthday is December 28. So I turned 34 this year.
Mike: Did you say 34?
Rob: Yeah, I’m glad you caught that. Good. So listeners may or may not know how old I am. But everyone knows now that I’m definitely not 34.
Mike: I’m surprised you didn’t try to shoot for like 29.
Rob: Yeah, now that would have been good. I still get carded here in Minneapolis. So they’re funny. In California, they don’t card you very much at bars once you look old enough, but they still card everyone here. So it’s kind of not. It’s something you say, like, “Oh, I still get carded.” But it’s like, everyone kind of gets carded here.
Mike: Yeah, certain places I’ve seen where, like it’s just as a general rule. They’re like, hey, it doesn’t matter. Like, you have to card everybody. And depending on where you are, certain states or jurisdictions, they’ll say that if you have a violation of any kind, like you immediately lose your liquor license, and then, like, your entire business is gone. So I think that’s the case of the next town over here in Massachusetts, and they’re like, they’re not willing to take the risk. So there’s like, “Yup, we card everybody and if you don’t have ID, too bad.”
Rob: Yeah, that’s funny, you know, I found a retreat in California, and I walked into a bar and they carded me and when I walked an interval said they didn’t card him and was just laughing and laughing because they were like, “You look so old dude,” and he went with it but I think that’s funny when one person in a group gets carded and it’s kind of obvious you’re all the same age and I believe he’s like a few years younger than me as well.
So we have three new iTunes reviews. Three Mike, three in December. This one is from MJ SFS, says best Startup podcast. I’m on my fourth software, venture to battlemaps.co, and this podcast has been invaluable. Keep up the great work guys.
Another reviewer says a podcasting masterpiece filled with actionable product focused insights. It’s never moved from the top of my podcast list. Robin Mike are always full of enthusiasm, insights and great knowledge acquired from years of actually building products.
Thanks so much for those five star reviews. If you have not left startups for the rest of us a five star review. I would invite you to log into Stitcher or iTunes and help us get a few more listeners help us stay motivated and help us on those long, lonely winter nights when we’re sad and considering crying ourselves to sleep, and instead, we actually read our iTunes reviews to make ourselves feel better.
Mike: Because we’re not actually 34.
Rob: That’s because we’re not actually 34. So this week’s topic is interesting. I was going through our listener questions and there was a question that I felt like almost warranted an entire episode. So, I started just hammering out a quick outline. It turns out, it’s at least an entire episode and could probably be a book chapter. But the question asked, his name is Eric Roberts and he’s asking about how to launch into a mature market. He says, I know from listening to you guys, the competition in place is a good thing. But what about an overly mature market? How can you tell if a market is primed for a new solution to an old problem? And I think there’s a lot of nuance to this. I mean, there’s the idea of, what is a mature market, then how can you tell when you should or should not enter one, and how do you execute on that those are kind of the three angles that I was thinking it through. And so, that’s what we’re going to talk about today.
Mike: Cool. So where do you start?
Rob: Let’s talk about, what is a mature market, a give a little definition and some examples. So when I think of a mature market, I think of a market that has established players that are well known. So, think of examples in CRM, it’s definitely mature market, there is Salesforce, there’s HubSpot, there’s Base, there’s Pipedrive, there’s a long list Trigger, CRM, long list of folks there.
In addition, I think in a mature market, there tends to be maybe two or three really obvious choices. So if I say CRM, a lot of people think of Salesforce, HubSpot, maybe Highrise maybe Base or Pipedrive, in email marketing, in ESPs, people think of MailChimp, they think of AWeber, they think of Infusionsoft. I mean, there’s this kind of short list, it’s the opposite of the long tail, it’s the fat head, it’s called where there’s a cluster of companies, be it one, two, or three that have the vast majority of the market and kind of sit at the top of the market share. In addition, I think the third piece of that is that there are these product norms that have developed.
So if you think about CRM, there’s this nomenclature of leads, and deals and contacts. And if you think of ESPs, there’s this, these norms that are developed, like lists and subscribers and forms. And so, while this may not be an exhaustive list of everything that defines a mature market, those are the three pieces that I think of, in my mind, that kind of defined it, that’s having established players, it’s having two or three obvious choices, and then having kind of norms or nomenclature that have developed through those products – and then in the other products that are also entering the space.
Mike: I think the easiest way to recognize whether or not something is a mature market is if you go out to a handful of people and say, “Hey, do you know of any companies that are in this particular software vertical, whether it’s you know, CRMs or mailing lists,” like if the people that you know, or who are in your circles who have any familiarity with that can name at least two or three or four different companies that are in that space then it’s probably a mature market, obviously, like if they’re if it’s a not well-known industry, for example, let’s say like virtual tabletop software. If you talk to a bunch of people who are in that particular industry, they’re going to know very well like who the players are. But it doesn’t necessarily mean that it’s a mature market.
Rob: Yeah, I think that’s a good point. I mean, anytime you see a forum post that’s like, what do you use for CRM, you know, and then you’ll get dozens of responses and almost everyone’s using a different one, or what do you use for your to do lists? And, you know, there’s, there’s dozens and bug tracking and issue tracking and all these things. So what’s interesting is, I don’t think, you know, a mature market doesn’t necessarily mean it’s a big market.
Mike: I was just thinking that.
Rob: Yeah, because to even think about like more aware software where they have a mature product in a market that has been around now for more than a decade. They build a SaaS app for countertop installers. People who install the actual physical tile that goes in a kitchen or bathroom and that’s not a huge market, right? That’s not a $100 million market. And yet if you were to try to enter that now they are so far ahead, the market has matured because they launched in, I don’t remember what it was like 2006 or 2007. And they’ve just kept adding things in and maturing the market during that time.
Mike: Well, I guess it makes – tt begs the question like, is it considered a mature market? Or is it like mature players in that market? How do you differentiate between those two things like CRM, lots of people use it so by definition you could call that a mature market but for table countertop installers, they are more aware as is very mature player in that market. But the market itself is small. So do you consider it a mature market? Because it’s not like there’s a lot of competition or a lot of people in that market? So like, is that a mature market. Do you consider that?
Rob: Well, I guess by my definition, I have three points or is there an established player or players in the countertop installer market? Yes, because there’s more aware. Is there one, or two, or three obvious choices? Yes, there’s more aware and I think they own most of the market, but there’s obviously at least one other competitor and have they developed product norms that may not have existed before software into the space. I don’t know their space well enough, but I’m guessing that there’s nomenclature in things in their product that they came up with that that didn’t exist before then.
So I would say yeah, I would say even a small market I understand your differentiation of mature product versus a mature market but I feel like once there is a mature product or two in a market the market becomes mature at that point yeah.
Mike: I was just kind of thinking about the product norms piece of it because if there aren’t a large number of products in that market and obviously like there’s room for that software to grow and for the products who are already in place to grow that’s fine but do the majority of countertop installers know about them? How many of them are actually using software of any kind or how many of them are looking for it? Do you see kind of the direction I’m going with that because like if there’s 100,000 countertop installers, but only 500 of them are using software of any kind. Does that establish a product norm, because that’s only five percent.
Rob: That’s a good point, yes, and imagine if they’d been around for, you know, if you’ve been around for 10 years. So you’d say, “Hey, this is a pretty mature product. There’s a lot of features, it’s stable,” all those things, but you only have five percent market penetration. Is that a mature market? I don’t know. I don’t know that I have a good answer to that, other than that either means that they’re not marketing very well. And we’ve now removed from more of our software that we’re doing a hypothetical at this point. But in that hypothetical where this company has been around for 10 years, they only have five percent market penetration, and there’s really no one else, it’s only five percent of market is even using software, then either that’s a really tough market. It’s a market that is highly resistant to technology, or that company is not marketing themselves very well, right? They’re not penetrating the market past five percent.
So I would then ask myself – If I wanted to enter that market, which of those is it, because if they’re not marketing very well, we’ll come in and out market them. But if the industry is just highly resistant to it, then that’s probably not a good market to throw yourself into.
Mike: And I would say that that’s probably a general rule. If it’s hard to get into them, then it’s because they’re resistant to change and resistant to adopting technology, then I would probably would avoid them in general. But it’s a very different story if they’re not marketing themselves very well. And you just trying to make a name for yourself there.
Rob: Right. And I think, that’s a good point. Because the kind of the second point that I wanted to cover, this question I want to answer is, how can you tell when you should or should not enter a mature market? I think we’ve just touched on one.
If you determine that, boy, this market is mature and really no one else wants to use software in it and I’m just going to have to be pulling from the existing competitor who only has five percent of the entire space that would give me pause, that tells me about the customer type and about the how they don’t want to change, right. So then that means that even getting them to switch from a competitor is going to be really difficult. I think also entering a mature market, I personally would not do that as a first time founder without money. One example that I kept coming back to of course is the one that I lived, entering a mature market with the drip, becoming an ESP and then becoming a marketing automation provider.
If I had not had the experience and the past successes that I had and did not have the self-fundability, you know, I was pulling money off of hit tail and other apps that I had, I don’t know that we could have made it. I don’t know that Drip would have survived because the market had so many mature players. Again, MailChimp, AWeber, Infusionsoft, and others – and it cuts both ways because, obviously, that’s what made it possible to grow Drip so quickly is that the market was – it did have opportunity. But if you’re a first time founder and you’re not going to raise funding, I would seriously reconsider trying to enter a mature market because these are the ones we can get a lot of success but these markets are very, very hard to penetrate, if you don’t have the right tool set.
Mike: I just have a quick search for, something kind of running through my brain is where we’re talking about what constitutes a mature market and there’s terms like total addressable market and then serviceable available market, which to me it seems like going back to the example of, if there’s a total of 100,000 countertop installers but only 500 of them are actually using that type of software then maybe your serviceable market is only about 1000 or maybe it’s 750 or something like that versus the total market which is 100,000. And you can look at that and say, well, if the established players have 50% or 75% of the serviceable market, which again is only 750 or 1000, then that’s a fairly significant chunk of those people. And it’s because those types of people are resistant to adopting technology or adopting software solutions for that. And maybe the delineation there is like, are they established players? Do they have most of the addressable market or the serviceable market?
Rob: Yeah, I think that’s a good differentiation there. As I think through this, when I think of mature markets, where there is a lot of adoption. So let’s flip back to the ESP or the CRM or markets where total addressable and serviceable are approximately equivalent, or at least 80%, 70% of the total addressable is already using some type of software and is able and willing to pay for this, I don’t know that I can think of a really good reason not to try to disrupt one of these markets if that’s your ambition.
Like, disrupting an existing market is where that hyper growth comes from and hypergrowth for us bootstrappers might be getting to seven figures in two years and hypergrowth for AirBnb and Stripe, maybe was getting to seven figures in six months, you know, past the point of product market fit. Because you think about AirBnb, did they invent a new market? No, they really essentially disrupted the hotel market. It was an existing place where people were already spending money on these things and they figured out a different way to implement it.
Stripe is the same one, I have them as an example later in this episode. Did invent a whole new market? Did payment processing exist before them? No, of course not. There was Off.net, there was PayPal Web Payments Pro. There were all these gateways and all these services that were really a pain in the ass to use. And Stripe came in and just made it a heck of a lot easier. And even, Drip is the same thing, I think about – there were already ESPs, there were already marketing automation providers. But that made it that much easier to basically pull existing people away who were unhappy with the current state of affairs.
That’s what I think you have to find, is if everyone in the market is using a product and loves it, then maybe you shouldn’t enter that market. But I don’t know of a mature market where people aren’t disgruntled and you think of QuickBooks. Everybody hates QuickBooks, but everybody uses it. So is that right for disruption, you think of Slack, everybody uses Slack but now we see level.app from Derek Reimer, there’s a couple other apps in that space as well.
The more I think about—if that’s your ambition, and you’re willing to really go to the mattresses because it’s going to be a hard fight. I don’t know that there’s a good reason not to try to disrupt. Honestly, if you want to build a little niche lifestyle business and generate that low six-figure income and have it on autopilot and be able to work five or 10 hours a week, then don’t go into a mature market. That’s where I would say, think twice about it, because I’ve had apps like that and they don’t have the great single channel of traffic, and they made whatever it is maybe $1000 a month, and maybe it was 10 grand a month. But there were these awesome little niche products. I mean, they were not—they were in these very nascent markets in these very tight niches and you could autopilot them, but they would never grow past that.
And so, I think that’s the thing to think about, your personal preference. Does it sound interesting, fun to do the hard work and the stress of going after these mature markets? Because I think my hypothesis is that, like, most mature markets right now are ripe for disruption in one way or another.
Mike: Now, one question I have about everything that you just said there is that, it feels to me like a lot of what you talked about relates to the product itself and not necessarily the channels at which those markets are accessible. And something that really comes to mind is enterprise sales for certain types of software, so anything that’s installed across the entire organization, whether it’s 500, or 1000, or 50,000 endpoints in that environment, it feels to me like those are cases where it’s probably a mature market already. You probably can’t start there on day one, you’re going to have a really hard time going into those and being able to offer something that is going to compete with existing solutions. One, because they’re so far ahead of you, but two, also to be able to have the resources to walk in the door and do that at 10, 50, 100 different potential customers, because you don’t necessarily have the time. So, I feel like the channel that you use, that you’re going to get in front of these customers has to come into play here.
Rob: Yeah, no, it absolutely does. That’s where bootstrapping versus raising funding comes into play. If you’re going to bootstrap then your point is dead on. Don’t go after enterprise sales and a mature market because you’re just not going to have the cloud, you’re not going to have the logos, you’re not going to have the time to execute on that.
I have a good friend here in Minneapolis, who has worked for two different companies over the past few years. Both of them were heavily, heavily venture funded and both were going after these massive and mature markets. One was like data storage and the other one, I don’t even really know exactly what it is. But it’s deep-tech stuff. It’s stuff that kind of competes with like parts of AWS, or it competes with stuff that HP or HPE has, or launches or whatever. And yes, they were upstarts but they had to raise buckets of funding in order to do that and build out a team in advance of having any real revenue. And if it works, then they’ll take part of this huge deck of billion dollar market, but that’s the gamble. If it doesn’t work, then they’ll burn through their funding. If they have enough traction after 18 months, they won’t be able to raise the next round.
Obviously, we tend to talk to more to bootstrappers and folks who are listening to this podcast or probably on that side, but it is possible it’s just a whole different playbook if you’re going to do that.
One other exception I can think of when I would give it a second thought as to whether or not I wanted to enter a mature market is if there are other startups also entering that same space who are getting traction. To me, I’m more scared of other startups than I am the big, lumbering, 800-pound gorillas in the space, right? I’m less scared of sales or competing with Salesforce and I’d be more concerned of competing with Pipedrive or one of the other like, smaller, more agile CRMs that I see kind of innovating and things.
Mike: Yeah, I would agree with that. Although there are certain times where if your features start to show up in Gmail or something like that, like you probably want to be a little concerned.
Rob: Yeah, I agree. That’s just Gmail or Salesforce is going to move so much slower that it’s almost by coincidence. I feel like, if you build a feature and one of them, build it within a few months, they’ve probably been working on that for six or eight months. They don’t move fast enough to copy a little upstarts, until you become not a little upstart.
Mike: Yeah, for sure.
Rob: The other thing I would think about perhaps not entering a space, is if you find a space that doesn’t have early adopters. So you find a market – because that’s what you’re going to need, right? You’re going to need, you’re going to need early adopters to basically jump ship on existing solutions who are willing to switch. If you found a space where there are no early adopters—we could go back to that example where we had the company who only had five percent market penetration, and it took them 10 years to get that, it’s pretty obvious no one wants to change. And so, there really aren’t going to be, early adopters.
I can’t think of another good example. I mean, maybe I think of like, the legal space. I know that, when I was a consultant, I worked for a guy who launched a product and legal space. I remember, he just had a really tough time getting traction, because there were not many early adopters in that space. So that could be, I don’t know, that space today and maybe there are more early adopters, but it’s spaces like that that I think are going to be hard to compete with where, the person’s motto is, “Well, I never got fired for choosing IBM,” or “I never got fired for choosing Salesforce.” If that’s really the mantra of everyone, then it’s going to be hard to penetrate.
Mike: I think the other consideration there is whether or not you have to essentially build something that is going to completely replace an existing solution, or you’re just solving an extreme pain point that an existing solution doesn’t solve adequately. And if people are angry about it and looking for a solution to that and they’re willing to plug your product, in addition to whatever it is that they already have as kind of a stopgap measure because it’s so painful versus you have to—it’s the difference between implementing two or three features versus implementing 250 because you have to completely rip and replace that entire product.
I think you have a lot easier time if you only have to implement a couple of things. And if you execute on them really well, people are willing to spend a little bit of extra money to get your solution in there because they’re in such a huge amount of pain.
Rob: So the third part that I want to cover is if you decide to do this, how do you execute on it? I think the thing that – maybe the common wisdom is you have to be 10x better in order to get people to switch. I would say yes and no to that. I don’t know that you need to directly build a 10x better product. I think you do need to build a better product. But I think there’s other things that you can improve upon that are not just product basis, not just a feature race or usability race. So I want to talk about three or four ways that I feel like you could be two-x better in each and perhaps they multiply together to give you more than more than 10x and this really comes out. I mean, the more I wrote this down, this just came out of the Drip playbook. It’s the playbook that I executed as we as we built Drip up and it was these four places where we innovate.
There may be more but this is what comes to mind. The first is, price and if you’re in a mature market and you have a huge player, they often have pricing power where they their brand name and they can charge a lot more than everyone else and you won’t be able to without that brand name. And not only can you not charge that much but you can use that strength of that player against them. And if your product—It’s easier to use and you’re cheaper, you can get these early adopters to start switching
Now, you and I’ve talked a lot about Don’t be the low cost provider. The point is not to be the low cost provider forever. It’s long term to raise your prices. But in the early days trying to price match a large competitor with a brand name, when you don’t have the feature set that they do, it’s going to be difficult.
And so, either price innovation, where you’re innovating on the pricing model itself, that’s risky, but you can think about it or just being cheaper. Again, it cuts in multiple directions. It can bring people who turn or who are more price sensitive in all honesty with drip. I mean, we were priced against Infusionsoft, and Infusionsoft was $300 a month to start and it had a $2000 sign-up fee that you paid right at the beginning.
And that was easy to be cheaper than them and still turn a heck of a profit, right. But we could start at $50 or $100 a month and still not have people who were super price sensitive because if you’re paying $50 or $100 a month, you still have buy-ins, it’s not like we’re going down to $20 a month or something. And so, that’s the kind of pressing I’m talking about, right? Or Salesforce, I believe, is $125 per seat per month, if I recall.
Think about being able to innovate on that and charge $20 or $30 a month per seat, that’s still a nice revenue stream as you’re getting started, and you’re not bottom of the barrel, you’re not a B2C pricing, but it is and can be a competitive advantage, especially in the early days.
Mike: Yeah, I think what you’re kind of referring to there is not using the price as just the sole way to get in the door and be cheaper like because, obviously, you don’t want to do that long term, but it’s really to unlock that the unwillingness to move by having the cheaper price and get them to take that step. You reduce the friction enough by lowering the price to be able to get them to say, “Well, you know what, I’ll give it a shot,” versus if you are priced exactly the same and you have an identical feature set or they have a much better feature set because you’re just not there and they’re mature in the market, then it makes it easier for them to justify giving it a shot. Or even just like saying, “Okay, you know what, I can’t buy into all that stuff because I can’t afford it right now.” Or I’m not even using 90% of it.
I’ve seen a lot of mature solutions out there where they will throw every feature under the sun into the product. And eventually it just becomes this model with that is difficult for some people to adopt. Because they know that they’re not going to use 80% of it. They’re like, “Well, why am I paying this much money for something, I’m only using 10% or 20% off.”
Rob: Second place, I feel like you can innovate and outmaneuver your bigger competitors with the sales model. Oftentimes, you’re competing against enterprise-ish sales models where they have high-tech sales process. You can’t sign up on the site, you have to see a demo. There’s often setup fees to pay the hefty commissions they’re paying to the sales processes. And so, if you bring them and make them, either no touch, or low touch, or even medium touch, you can innovate on that process.
Again, coming back to Salesforce, it’s very hard to go to their site. I don’t believe you can just go to their site and sign up for an account. You have to go through this long process. Whereas with Pipedrive, you can go and sign up for it. Same thing with with Infusionsoft versus Drip, that was always a differentiator, is that you could come and try Drip out, there was a free trial. Infusionsoft, you didn’t even get to see the product unless you were on a demo. They didn’t want to in there playing around with it. So that can be another way to, basically, bring your innovations to the masses and outmaneuver folks and it’s not a product, it’s not just a feature, usability, it’s actually implementing a different sales model that can be more conducive to bring on early adopters.
Mike: I would say that this cuts the other way as well. Because if there are products out there that don’t offer like the ability to get on to a demo because they’re trying to be mass market and they’re trying to have a low-touch sales process. If you go the other direction, then you can have a lot of success there because you can get those people who have given those solutions to try and they got confused or lost and they just said, “Well, how do I get on a demo or have somebody show me something.” And if that company doesn’t offer it and you do, then you can get them on a call and you can – I won’t say gloss over the things that your product can’t do but you can essentially offer to do those things for them and do that high touch onboarding process and thereby justify a higher price tag for your software.
Rob: The third area where I feel like you can outmaneuver the big competition is in product and this one I it’s really hard to do. But it’s pretty straightforward to describe it. You make it way easier to use, which doesn’t tend to be that hard when you’re dealing with larger clumsier companies with 10 or 12-year-old code bases, you ship faster—so you have a better shipping velocity of new features. And it feels like products are constantly improving versus there are once or twice a year launch cycles and you build a unique feature, or two, or three that no one else has for now. You try to figure out a way to go back to first principles and innovate on something that is really hard for them to do.
So, adding automation into your ESP, when it takes everybody else a year to do it. Because the code base and they’re already at scale is one way to do that, or adding a lot of integrations that you know, that the early adopters will use that your competitors have not added. Because again, they just move slower than you do. So, you know, you look around and you say, “Oh, there’s this whole new ecosystem around Stripe.” And there’s there, Baremetrics, and there’s ProfitWell, and there’s Termbusters, and there’s Stunning, and there’s all this stuff, it’s like, you know, Infusionsoft or Salesforce, they’re not going to integrate with those tools yet, because they’re just not on their radar. But if you integrate with all of them, you could scoop up this early adopter, you know, the bootstrapper crowd the, the online business folks, because they use those tools. Gumroad is another one, but I want to, underscore that having those features is a short-term thing, because if they are successful, other folks will implement whether other upstarts or you know big competitors will implement them. But that’s how I think about, product innovation.
Again, easier said than done. But that is the playbook that I see working as, as startups try to attack these more mature markets.
Mike: Something else, I think that kind of falls under this bucket is just making your product look better. I mean, there’s products out there – I’ll specifically look at things like paychecks or ADP where, to log into them, you’ve got to have this weird looking JavaScript plugin on your website, that you load into the browser or some download that it looks terrible. It looks like it was built in the 80s because it actually was and they’ve never changed it. They’ve never updated it. And you end up with companies like Gusto that came out, which used to be ZenPayroll, and they just looked fantastic and just the look alone makes it feel like it’s in a more modern application.
Of course it is because it was just recently built, but the look and feel of it can go a long way towards making people feel like you’re responsive to the needs of the customers and you actually care about how your product looks and is presented.
Rob: I think that’s a great example. I think Gusto is another example of a company that entered a very mature market and through—I mean honestly, if you look at these points I hadn’t—so here’s a great example, because I was thinking about Drip, and Stripe, and others, when I wrote these four points of price, sales model product and marketing, which we’ll get into next. But gusto came in their price was cheaper than paychecks. I think I was using paychecks before at Gusto and Gusto was cheaper, Gusto’s sales model was so much better, it was all self served. I didn’t have to talk to people, it was a lot easier for me the product itself was easier to use. It was a better looking as you said, and they file, I don’t know, all my stuff. I guess Paychecks did some of that too, but the experience of Gusto in the communication is all via email, like click and do things like it is so much of a better thing and then their marketing, I would say that I really heard about it from word of mouth and the other three price sales model and product really drove that for me, but obviously their marketing to get into the hands of early adopters like us, I think was a pretty deliberate decision.
Mike: Yeah, I think the word of mouth marketing, if you have a good enough product that, I won’t say, it sells itself. But like if the customers that you have love it so much over the other things that they’ve tried then that word of mouth is really going to drive a lot of revenue for your new customers. And I don’t know how easy it is to recognize that that’s what’s actually going on. But I have seen that happen. And, there’s certain products that I’ve recommended where you look around and you don’t see a lot of marketing for them, but you’ve recommended them a lot to other people or other people have recommended those products to you. It’s just easy to see when those things are actually working.
Yeah. When you’re in a mature market, and the number one player is big, but everybody hates using it. That’s when word of mouth is huge. Because you will be you will become the thing that we’re all talking about, on our podcasts, at conferences on our blogs. I mean, think of Gusto or, again, ZenPayroll when it came out. Think of when Stripe came up, a ton of it was word of mouth.
Zenefits, it’s basically likes Gusto but for health insurance and other benefits. Drip had a really strong word of mouth in the early days. You know, there’s others. I’ll give another example, ready to wrap up, but we’re working on something that’s really hard to generate in general, and it can be a cap out, when people don’t know how they actually grew. I’ll often hear founders say – Oh just word of mouth, and it’s like, Yeah, I don’t think it really was word of mouth. You know, you just don’t really know, you don’t track your metrics. But in this case, like a mature market where you have this reviled number one player, I think getting in there, building a better product, better pricing, better sales model can really lead to word of mouth and some good stuff.
I think the other thing that they don’t mention about marketing in a space like this is you can take the approach of being the underdog, right? It’s easy to market against big guys when you can basically talk about being the anti them. So Salesforce had their – especially in the early days, no software, right. They had the circle with the red line through it and it said software in it because they were saying, no on-premise software, no massive installation and server footprints and stuff – we are just this thing in the cloud.
They were anti software. Less accounting was kind of the anti QuickBooks. I don’t know that they mentioned QuickBooks by name but I remember one of their headlines was about all accounting software sucks or sucks less. I mean, it was it was a good—It was a really interesting approach to it. Drip was the not Infusionsoft, what was my headline – lightweight marketing automation that doesn’t suck and I was implying that most marketing automation software sucks and listed the Marketos and Eloquas and the Infusionsofts that are just not fun to use and they’re not fun to be sold because the sales model sucks and they’re really expensive and here’s all the reasons that you don’t like them and here’s why we’re the opposite of all of that.
So, if you’re going to enter this market embrace market leaders’ strength and turn it into their weaknesses. I think it’s Jiu-jitsu, where if your opponent is really strong and he or she swings you do a parry and you let their momentum carry them through and that’s a big part of marketing against these really big players in established markets – is what is their biggest strength can be turned against them as the biggest weakness.
I feel like we’ve covered this topic pretty well. I think the one last thing I’ll say is we’ve given a ton of examples of people doing this, talked about Stripe, Gusto, Zenefits, Drip, and a few others. The one other example, I think, that’s doing a good job of it today is Superhuman and it’s that email client that—they’ve changed the sales model, they’ve actually gone from no touch the opposite direction, there’s onboarding, every person individually. Their product, from what I’ve heard, is easier to use and it’s amazing. Their marketing is, obviously – they’re doing a good job with it. Now, their price is interesting because they’re more expensive than any other ESPs. So that’s a whole that’s a whole other thing from extremely experienced founders that they’ve, basically, made a gamble to say we think we can build something truly 10x better and we’re going to charge for it.
I think they charge $30 a month, which if you think about it, compare Gmail to Superhuman, Gmail is essentially free. Although, I pay for it now because of how much storage I use, but, very different pricing model there. So they’re one example that’s doing it successfully today. And they’re not following, you know, the exact playbook that we’ve laid out here. But I they also have buckets of money. They’re three and four-time founders. So that’s where you can, in my opinion, you can start breaking rules because you know which rules to break.
Mike: Yeah, and that’s really a matter of like, certain types of people are in so much pain, that they are willing to be the early adopters and they’re willing to pay more money for it because it just makes their lives that much easier. And whereas no knock against Gmail because I use it as well but there’s certain things about Gmail that I wish were just a little bit easier and I’ve heard the guy who runs Superhuman spoke before and he’s talked about like, how the experience is really what they focus on and I’ve seen him commenting on Twitter here and there and showing pictures of all the different things that they’re testing. Somebody said, “Oh, why don’t you support this products on,” such and such. And he showed them a picture of like eight different laptops, where they were testing different variations of like the browser client, and he’s like, “We’re working on it but this is what we’ve got so far.”
It’s incredible because it partly tells a story, but it also explains or demonstrates how much pain certain people are in to be requesting that stuff and still willing to wait for it.
Rob: Yeah, and they worked on Superhuman, I believe, for 18 months to two years. It was a small team of developers before they launched. So they broke they broke a lot of “rules”. And again, it’s because they did have a lot of funding, they had prior exits. I mean, the guy had started Reportive and sold it to LinkedIn. And then, he had even another one before that.
When you get to that level, you’re just at the point where you can make some difficult calls and pivot out of the risk because of your experience in funding. Frankly, which is something I talked about earlier in this episode.
Mike: I’m sure Data had something to do with it.
Rob: Indeed.
Mike: Well, I think that about wraps us up for the day. Thanks to Eric Roberts for sending us that question. 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 Outta Control” by MoOt used under Creative Commons. Subscribes to us in 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.
Mike: And I’m Mike.
Rob: 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: It’s the end of the year, so I’m just doing a lot of end-of-year paperwork that’s—mostly required government filings and getting ready for taxes and stuff like that. I had to submit, I think it was a affidavit of eligibility for my health insurance and it had to be done before the end of this year for my health insurance to be able to be renewed in April or something like that. It’s like, come on, you have to be kidding me. This far and advance and at the end of the year they’re requesting it but whatever you have to do it.
Rob: Yeah, that’s fascinating. The end-of-year stuff is always a pain in the butt. Because I’m always taking this time off. I take a week off, sometimes a week and a half off but it’s not fully off. I’m recording podcasts and doing a few calls here and there but a lot of thinking and planning scheming for the next year, and so it’s a bummer to have to think about government filings and that kind of stuff during this time.
Mike: How about you? What’s new with you?
Rob: Well, you probably hear I’m a little sick right now. Happy New Year everyone. This episode goes live on New Year’s Day. I hope your hangover is treating you well, and that Mike and I can be there for you. And for me, it’s another year, man. My birthday is December 28. So I turned 34 this year.
Mike: Did you say 34?
Rob: Yeah, I’m glad you caught that. Good. So listeners may or may not know how old I am. But everyone knows now that I’m definitely not 34.
Mike: I’m surprised you didn’t try to shoot for like 29.
Rob: Yeah, now that would have been good. I still get carded here in Minneapolis. So they’re funny. In California, they don’t card you very much at bars once you look old enough, but they still card everyone here. So it’s kind of not. It’s something you say, like, “Oh, I still get carded.” But it’s like, everyone kind of gets carded here.
Mike: Yeah, certain places I’ve seen where, like it’s just as a general rule. They’re like, hey, it doesn’t matter. Like, you have to card everybody. And depending on where you are, certain states or jurisdictions, they’ll say that if you have a violation of any kind, like you immediately lose your liquor license, and then, like, your entire business is gone. So I think that’s the case of the next town over here in Massachusetts, and they’re like, they’re not willing to take the risk. So there’s like, “Yup, we card everybody and if you don’t have ID, too bad.”
Rob: Yeah, that’s funny, you know, I found a retreat in California, and I walked into a bar and they carded me and when I walked an interval said they didn’t card him and was just laughing and laughing because they were like, “You look so old dude,” and he went with it but I think that’s funny when one person in a group gets carded and it’s kind of obvious you’re all the same age and I believe he’s like a few years younger than me as well.
So we have three new iTunes reviews. Three Mike, three in December. This one is from MJ SFS, says best Startup podcast. I’m on my fourth software, venture to battlemaps.co, and this podcast has been invaluable. Keep up the great work guys.
Another reviewer says a podcasting masterpiece filled with actionable product focused insights. It’s never moved from the top of my podcast list. Robin Mike are always full of enthusiasm, insights and great knowledge acquired from years of actually building products.
Thanks so much for those five star reviews. If you have not left startups for the rest of us a five star review. I would invite you to log into Stitcher or iTunes and help us get a few more listeners help us stay motivated and help us on those long, lonely winter nights when we’re sad and considering crying ourselves to sleep, and instead, we actually read our iTunes reviews to make ourselves feel better.
Mike: Because we’re not actually 34.
Rob: That’s because we’re not actually 34. So this week’s topic is interesting. I was going through our listener questions and there was a question that I felt like almost warranted an entire episode. So, I started just hammering out a quick outline. It turns out, it’s at least an entire episode and could probably be a book chapter. But the question asked, his name is Eric Roberts and he’s asking about how to launch into a mature market. He says, I know from listening to you guys, the competition in place is a good thing. But what about an overly mature market? How can you tell if a market is primed for a new solution to an old problem? And I think there’s a lot of nuance to this. I mean, there’s the idea of, what is a mature market, then how can you tell when you should or should not enter one, and how do you execute on that those are kind of the three angles that I was thinking it through. And so, that’s what we’re going to talk about today.
Mike: Cool. So where do you start?
Rob: Let’s talk about, what is a mature market, a give a little definition and some examples. So when I think of a mature market, I think of a market that has established players that are well known. So, think of examples in CRM, it’s definitely mature market, there is Salesforce, there’s HubSpot, there’s Base, there’s Pipedrive, there’s a long list Trigger, CRM, long list of folks there.
In addition, I think in a mature market, there tends to be maybe two or three really obvious choices. So if I say CRM, a lot of people think of Salesforce, HubSpot, maybe Highrise maybe Base or Pipedrive, in email marketing, in ESPs, people think of MailChimp, they think of AWeber, they think of Infusionsoft. I mean, there’s this kind of short list, it’s the opposite of the long tail, it’s the fat head, it’s called where there’s a cluster of companies, be it one, two, or three that have the vast majority of the market and kind of sit at the top of the market share. In addition, I think the third piece of that is that there are these product norms that have developed.
So if you think about CRM, there’s this nomenclature of leads, and deals and contacts. And if you think of ESPs, there’s this, these norms that are developed, like lists and subscribers and forms. And so, while this may not be an exhaustive list of everything that defines a mature market, those are the three pieces that I think of, in my mind, that kind of defined it, that’s having established players, it’s having two or three obvious choices, and then having kind of norms or nomenclature that have developed through those products – and then in the other products that are also entering the space.
Mike: I think the easiest way to recognize whether or not something is a mature market is if you go out to a handful of people and say, “Hey, do you know of any companies that are in this particular software vertical, whether it’s you know, CRMs or mailing lists,” like if the people that you know, or who are in your circles who have any familiarity with that can name at least two or three or four different companies that are in that space then it’s probably a mature market, obviously, like if they’re if it’s a not well-known industry, for example, let’s say like virtual tabletop software. If you talk to a bunch of people who are in that particular industry, they’re going to know very well like who the players are. But it doesn’t necessarily mean that it’s a mature market.
Rob: Yeah, I think that’s a good point. I mean, anytime you see a forum post that’s like, what do you use for CRM, you know, and then you’ll get dozens of responses and almost everyone’s using a different one, or what do you use for your to do lists? And, you know, there’s, there’s dozens and bug tracking and issue tracking and all these things. So what’s interesting is, I don’t think, you know, a mature market doesn’t necessarily mean it’s a big market.
Mike: I was just thinking that.
Rob: Yeah, because to even think about like more aware software where they have a mature product in a market that has been around now for more than a decade. They build a SaaS app for countertop installers. People who install the actual physical tile that goes in a kitchen or bathroom and that’s not a huge market, right? That’s not a $100 million market. And yet if you were to try to enter that now they are so far ahead, the market has matured because they launched in, I don’t remember what it was like 2006 or 2007. And they’ve just kept adding things in and maturing the market during that time.
Mike: Well, I guess it makes – tt begs the question like, is it considered a mature market? Or is it like mature players in that market? How do you differentiate between those two things like CRM, lots of people use it so by definition you could call that a mature market but for table countertop installers, they are more aware as is very mature player in that market. But the market itself is small. So do you consider it a mature market? Because it’s not like there’s a lot of competition or a lot of people in that market? So like, is that a mature market. Do you consider that?
Rob: Well, I guess by my definition, I have three points or is there an established player or players in the countertop installer market? Yes, because there’s more aware. Is there one, or two, or three obvious choices? Yes, there’s more aware and I think they own most of the market, but there’s obviously at least one other competitor and have they developed product norms that may not have existed before software into the space. I don’t know their space well enough, but I’m guessing that there’s nomenclature in things in their product that they came up with that that didn’t exist before then.
So I would say yeah, I would say even a small market I understand your differentiation of mature product versus a mature market but I feel like once there is a mature product or two in a market the market becomes mature at that point yeah.
Mike: I was just kind of thinking about the product norms piece of it because if there aren’t a large number of products in that market and obviously like there’s room for that software to grow and for the products who are already in place to grow that’s fine but do the majority of countertop installers know about them? How many of them are actually using software of any kind or how many of them are looking for it? Do you see kind of the direction I’m going with that because like if there’s 100,000 countertop installers, but only 500 of them are using software of any kind. Does that establish a product norm, because that’s only five percent.
Rob: That’s a good point, yes, and imagine if they’d been around for, you know, if you’ve been around for 10 years. So you’d say, “Hey, this is a pretty mature product. There’s a lot of features, it’s stable,” all those things, but you only have five percent market penetration. Is that a mature market? I don’t know. I don’t know that I have a good answer to that, other than that either means that they’re not marketing very well. And we’ve now removed from more of our software that we’re doing a hypothetical at this point. But in that hypothetical where this company has been around for 10 years, they only have five percent market penetration, and there’s really no one else, it’s only five percent of market is even using software, then either that’s a really tough market. It’s a market that is highly resistant to technology, or that company is not marketing themselves very well, right? They’re not penetrating the market past five percent.
So I would then ask myself – If I wanted to enter that market, which of those is it, because if they’re not marketing very well, we’ll come in and out market them. But if the industry is just highly resistant to it, then that’s probably not a good market to throw yourself into.
Mike: And I would say that that’s probably a general rule. If it’s hard to get into them, then it’s because they’re resistant to change and resistant to adopting technology, then I would probably would avoid them in general. But it’s a very different story if they’re not marketing themselves very well. And you just trying to make a name for yourself there.
Rob: Right. And I think, that’s a good point. Because the kind of the second point that I wanted to cover, this question I want to answer is, how can you tell when you should or should not enter a mature market? I think we’ve just touched on one.
If you determine that, boy, this market is mature and really no one else wants to use software in it and I’m just going to have to be pulling from the existing competitor who only has five percent of the entire space that would give me pause, that tells me about the customer type and about the how they don’t want to change, right. So then that means that even getting them to switch from a competitor is going to be really difficult. I think also entering a mature market, I personally would not do that as a first time founder without money. One example that I kept coming back to of course is the one that I lived, entering a mature market with the drip, becoming an ESP and then becoming a marketing automation provider.
If I had not had the experience and the past successes that I had and did not have the self-fundability, you know, I was pulling money off of hit tail and other apps that I had, I don’t know that we could have made it. I don’t know that Drip would have survived because the market had so many mature players. Again, MailChimp, AWeber, Infusionsoft, and others – and it cuts both ways because, obviously, that’s what made it possible to grow Drip so quickly is that the market was – it did have opportunity. But if you’re a first time founder and you’re not going to raise funding, I would seriously reconsider trying to enter a mature market because these are the ones we can get a lot of success but these markets are very, very hard to penetrate, if you don’t have the right tool set.
Mike: I just have a quick search for, something kind of running through my brain is where we’re talking about what constitutes a mature market and there’s terms like total addressable market and then serviceable available market, which to me it seems like going back to the example of, if there’s a total of 100,000 countertop installers but only 500 of them are actually using that type of software then maybe your serviceable market is only about 1000 or maybe it’s 750 or something like that versus the total market which is 100,000. And you can look at that and say, well, if the established players have 50% or 75% of the serviceable market, which again is only 750 or 1000, then that’s a fairly significant chunk of those people. And it’s because those types of people are resistant to adopting technology or adopting software solutions for that. And maybe the delineation there is like, are they established players? Do they have most of the addressable market or the serviceable market?
Rob: Yeah, I think that’s a good differentiation there. As I think through this, when I think of mature markets, where there is a lot of adoption. So let’s flip back to the ESP or the CRM or markets where total addressable and serviceable are approximately equivalent, or at least 80%, 70% of the total addressable is already using some type of software and is able and willing to pay for this, I don’t know that I can think of a really good reason not to try to disrupt one of these markets if that’s your ambition.
Like, disrupting an existing market is where that hyper growth comes from and hypergrowth for us bootstrappers might be getting to seven figures in two years and hypergrowth for AirBnb and Stripe, maybe was getting to seven figures in six months, you know, past the point of product market fit. Because you think about AirBnb, did they invent a new market? No, they really essentially disrupted the hotel market. It was an existing place where people were already spending money on these things and they figured out a different way to implement it.
Stripe is the same one, I have them as an example later in this episode. Did invent a whole new market? Did payment processing exist before them? No, of course not. There was Off.net, there was PayPal Web Payments Pro. There were all these gateways and all these services that were really a pain in the ass to use. And Stripe came in and just made it a heck of a lot easier. And even, Drip is the same thing, I think about – there were already ESPs, there were already marketing automation providers. But that made it that much easier to basically pull existing people away who were unhappy with the current state of affairs.
That’s what I think you have to find, is if everyone in the market is using a product and loves it, then maybe you shouldn’t enter that market. But I don’t know of a mature market where people aren’t disgruntled and you think of QuickBooks. Everybody hates QuickBooks, but everybody uses it. So is that right for disruption, you think of Slack, everybody uses Slack but now we see level.app from Derek Reimer, there’s a couple other apps in that space as well.
The more I think about—if that’s your ambition, and you’re willing to really go to the mattresses because it’s going to be a hard fight. I don’t know that there’s a good reason not to try to disrupt. Honestly, if you want to build a little niche lifestyle business and generate that low six-figure income and have it on autopilot and be able to work five or 10 hours a week, then don’t go into a mature market. That’s where I would say, think twice about it, because I’ve had apps like that and they don’t have the great single channel of traffic, and they made whatever it is maybe $1000 a month, and maybe it was 10 grand a month. But there were these awesome little niche products. I mean, they were not—they were in these very nascent markets in these very tight niches and you could autopilot them, but they would never grow past that.
And so, I think that’s the thing to think about, your personal preference. Does it sound interesting, fun to do the hard work and the stress of going after these mature markets? Because I think my hypothesis is that, like, most mature markets right now are ripe for disruption in one way or another.
Mike: Now, one question I have about everything that you just said there is that, it feels to me like a lot of what you talked about relates to the product itself and not necessarily the channels at which those markets are accessible. And something that really comes to mind is enterprise sales for certain types of software, so anything that’s installed across the entire organization, whether it’s 500, or 1000, or 50,000 endpoints in that environment, it feels to me like those are cases where it’s probably a mature market already. You probably can’t start there on day one, you’re going to have a really hard time going into those and being able to offer something that is going to compete with existing solutions. One, because they’re so far ahead of you, but two, also to be able to have the resources to walk in the door and do that at 10, 50, 100 different potential customers, because you don’t necessarily have the time. So, I feel like the channel that you use, that you’re going to get in front of these customers has to come into play here.
Rob: Yeah, no, it absolutely does. That’s where bootstrapping versus raising funding comes into play. If you’re going to bootstrap then your point is dead on. Don’t go after enterprise sales and a mature market because you’re just not going to have the cloud, you’re not going to have the logos, you’re not going to have the time to execute on that.
I have a good friend here in Minneapolis, who has worked for two different companies over the past few years. Both of them were heavily, heavily venture funded and both were going after these massive and mature markets. One was like data storage and the other one, I don’t even really know exactly what it is. But it’s deep-tech stuff. It’s stuff that kind of competes with like parts of AWS, or it competes with stuff that HP or HPE has, or launches or whatever. And yes, they were upstarts but they had to raise buckets of funding in order to do that and build out a team in advance of having any real revenue. And if it works, then they’ll take part of this huge deck of billion dollar market, but that’s the gamble. If it doesn’t work, then they’ll burn through their funding. If they have enough traction after 18 months, they won’t be able to raise the next round.
Obviously, we tend to talk to more to bootstrappers and folks who are listening to this podcast or probably on that side, but it is possible it’s just a whole different playbook if you’re going to do that.
One other exception I can think of when I would give it a second thought as to whether or not I wanted to enter a mature market is if there are other startups also entering that same space who are getting traction. To me, I’m more scared of other startups than I am the big, lumbering, 800-pound gorillas in the space, right? I’m less scared of sales or competing with Salesforce and I’d be more concerned of competing with Pipedrive or one of the other like, smaller, more agile CRMs that I see kind of innovating and things.
Mike: Yeah, I would agree with that. Although there are certain times where if your features start to show up in Gmail or something like that, like you probably want to be a little concerned.
Rob: Yeah, I agree. That’s just Gmail or Salesforce is going to move so much slower that it’s almost by coincidence. I feel like, if you build a feature and one of them, build it within a few months, they’ve probably been working on that for six or eight months. They don’t move fast enough to copy a little upstarts, until you become not a little upstart.
Mike: Yeah, for sure.
Rob: The other thing I would think about perhaps not entering a space, is if you find a space that doesn’t have early adopters. So you find a market – because that’s what you’re going to need, right? You’re going to need, you’re going to need early adopters to basically jump ship on existing solutions who are willing to switch. If you found a space where there are no early adopters—we could go back to that example where we had the company who only had five percent market penetration, and it took them 10 years to get that, it’s pretty obvious no one wants to change. And so, there really aren’t going to be, early adopters.
I can’t think of another good example. I mean, maybe I think of like, the legal space. I know that, when I was a consultant, I worked for a guy who launched a product and legal space. I remember, he just had a really tough time getting traction, because there were not many early adopters in that space. So that could be, I don’t know, that space today and maybe there are more early adopters, but it’s spaces like that that I think are going to be hard to compete with where, the person’s motto is, “Well, I never got fired for choosing IBM,” or “I never got fired for choosing Salesforce.” If that’s really the mantra of everyone, then it’s going to be hard to penetrate.
Mike: I think the other consideration there is whether or not you have to essentially build something that is going to completely replace an existing solution, or you’re just solving an extreme pain point that an existing solution doesn’t solve adequately. And if people are angry about it and looking for a solution to that and they’re willing to plug your product, in addition to whatever it is that they already have as kind of a stopgap measure because it’s so painful versus you have to—it’s the difference between implementing two or three features versus implementing 250 because you have to completely rip and replace that entire product.
I think you have a lot easier time if you only have to implement a couple of things. And if you execute on them really well, people are willing to spend a little bit of extra money to get your solution in there because they’re in such a huge amount of pain.
Rob: So the third part that I want to cover is if you decide to do this, how do you execute on it? I think the thing that – maybe the common wisdom is you have to be 10x better in order to get people to switch. I would say yes and no to that. I don’t know that you need to directly build a 10x better product. I think you do need to build a better product. But I think there’s other things that you can improve upon that are not just product basis, not just a feature race or usability race. So I want to talk about three or four ways that I feel like you could be two-x better in each and perhaps they multiply together to give you more than more than 10x and this really comes out. I mean, the more I wrote this down, this just came out of the Drip playbook. It’s the playbook that I executed as we as we built Drip up and it was these four places where we innovate.
There may be more but this is what comes to mind. The first is, price and if you’re in a mature market and you have a huge player, they often have pricing power where they their brand name and they can charge a lot more than everyone else and you won’t be able to without that brand name. And not only can you not charge that much but you can use that strength of that player against them. And if your product—It’s easier to use and you’re cheaper, you can get these early adopters to start switching
Now, you and I’ve talked a lot about Don’t be the low cost provider. The point is not to be the low cost provider forever. It’s long term to raise your prices. But in the early days trying to price match a large competitor with a brand name, when you don’t have the feature set that they do, it’s going to be difficult.
And so, either price innovation, where you’re innovating on the pricing model itself, that’s risky, but you can think about it or just being cheaper. Again, it cuts in multiple directions. It can bring people who turn or who are more price sensitive in all honesty with drip. I mean, we were priced against Infusionsoft, and Infusionsoft was $300 a month to start and it had a $2000 sign-up fee that you paid right at the beginning.
And that was easy to be cheaper than them and still turn a heck of a profit, right. But we could start at $50 or $100 a month and still not have people who were super price sensitive because if you’re paying $50 or $100 a month, you still have buy-ins, it’s not like we’re going down to $20 a month or something. And so, that’s the kind of pressing I’m talking about, right? Or Salesforce, I believe, is $125 per seat per month, if I recall.
Think about being able to innovate on that and charge $20 or $30 a month per seat, that’s still a nice revenue stream as you’re getting started, and you’re not bottom of the barrel, you’re not a B2C pricing, but it is and can be a competitive advantage, especially in the early days.
Mike: Yeah, I think what you’re kind of referring to there is not using the price as just the sole way to get in the door and be cheaper like because, obviously, you don’t want to do that long term, but it’s really to unlock that the unwillingness to move by having the cheaper price and get them to take that step. You reduce the friction enough by lowering the price to be able to get them to say, “Well, you know what, I’ll give it a shot,” versus if you are priced exactly the same and you have an identical feature set or they have a much better feature set because you’re just not there and they’re mature in the market, then it makes it easier for them to justify giving it a shot. Or even just like saying, “Okay, you know what, I can’t buy into all that stuff because I can’t afford it right now.” Or I’m not even using 90% of it.
I’ve seen a lot of mature solutions out there where they will throw every feature under the sun into the product. And eventually it just becomes this model with that is difficult for some people to adopt. Because they know that they’re not going to use 80% of it. They’re like, “Well, why am I paying this much money for something, I’m only using 10% or 20% off.”
Rob: Second place, I feel like you can innovate and outmaneuver your bigger competitors with the sales model. Oftentimes, you’re competing against enterprise-ish sales models where they have high-tech sales process. You can’t sign up on the site, you have to see a demo. There’s often setup fees to pay the hefty commissions they’re paying to the sales processes. And so, if you bring them and make them, either no touch, or low touch, or even medium touch, you can innovate on that process.
Again, coming back to Salesforce, it’s very hard to go to their site. I don’t believe you can just go to their site and sign up for an account. You have to go through this long process. Whereas with Pipedrive, you can go and sign up for it. Same thing with with Infusionsoft versus Drip, that was always a differentiator, is that you could come and try Drip out, there was a free trial. Infusionsoft, you didn’t even get to see the product unless you were on a demo. They didn’t want to in there playing around with it. So that can be another way to, basically, bring your innovations to the masses and outmaneuver folks and it’s not a product, it’s not just a feature, usability, it’s actually implementing a different sales model that can be more conducive to bring on early adopters.
Mike: I would say that this cuts the other way as well. Because if there are products out there that don’t offer like the ability to get on to a demo because they’re trying to be mass market and they’re trying to have a low-touch sales process. If you go the other direction, then you can have a lot of success there because you can get those people who have given those solutions to try and they got confused or lost and they just said, “Well, how do I get on a demo or have somebody show me something.” And if that company doesn’t offer it and you do, then you can get them on a call and you can – I won’t say gloss over the things that your product can’t do but you can essentially offer to do those things for them and do that high touch onboarding process and thereby justify a higher price tag for your software.
Rob: The third area where I feel like you can outmaneuver the big competition is in product and this one I it’s really hard to do. But it’s pretty straightforward to describe it. You make it way easier to use, which doesn’t tend to be that hard when you’re dealing with larger clumsier companies with 10 or 12-year-old code bases, you ship faster—so you have a better shipping velocity of new features. And it feels like products are constantly improving versus there are once or twice a year launch cycles and you build a unique feature, or two, or three that no one else has for now. You try to figure out a way to go back to first principles and innovate on something that is really hard for them to do.
So, adding automation into your ESP, when it takes everybody else a year to do it. Because the code base and they’re already at scale is one way to do that, or adding a lot of integrations that you know, that the early adopters will use that your competitors have not added. Because again, they just move slower than you do. So, you know, you look around and you say, “Oh, there’s this whole new ecosystem around Stripe.” And there’s there, Baremetrics, and there’s ProfitWell, and there’s Termbusters, and there’s Stunning, and there’s all this stuff, it’s like, you know, Infusionsoft or Salesforce, they’re not going to integrate with those tools yet, because they’re just not on their radar. But if you integrate with all of them, you could scoop up this early adopter, you know, the bootstrapper crowd the, the online business folks, because they use those tools. Gumroad is another one, but I want to, underscore that having those features is a short-term thing, because if they are successful, other folks will implement whether other upstarts or you know big competitors will implement them. But that’s how I think about, product innovation.
Again, easier said than done. But that is the playbook that I see working as, as startups try to attack these more mature markets.
Mike: Something else, I think that kind of falls under this bucket is just making your product look better. I mean, there’s products out there – I’ll specifically look at things like paychecks or ADP where, to log into them, you’ve got to have this weird looking JavaScript plugin on your website, that you load into the browser or some download that it looks terrible. It looks like it was built in the 80s because it actually was and they’ve never changed it. They’ve never updated it. And you end up with companies like Gusto that came out, which used to be ZenPayroll, and they just looked fantastic and just the look alone makes it feel like it’s in a more modern application.
Of course it is because it was just recently built, but the look and feel of it can go a long way towards making people feel like you’re responsive to the needs of the customers and you actually care about how your product looks and is presented.
Rob: I think that’s a great example. I think Gusto is another example of a company that entered a very mature market and through—I mean honestly, if you look at these points I hadn’t—so here’s a great example, because I was thinking about Drip, and Stripe, and others, when I wrote these four points of price, sales model product and marketing, which we’ll get into next. But gusto came in their price was cheaper than paychecks. I think I was using paychecks before at Gusto and Gusto was cheaper, Gusto’s sales model was so much better, it was all self served. I didn’t have to talk to people, it was a lot easier for me the product itself was easier to use. It was a better looking as you said, and they file, I don’t know, all my stuff. I guess Paychecks did some of that too, but the experience of Gusto in the communication is all via email, like click and do things like it is so much of a better thing and then their marketing, I would say that I really heard about it from word of mouth and the other three price sales model and product really drove that for me, but obviously their marketing to get into the hands of early adopters like us, I think was a pretty deliberate decision.
Mike: Yeah, I think the word of mouth marketing, if you have a good enough product that, I won’t say, it sells itself. But like if the customers that you have love it so much over the other things that they’ve tried then that word of mouth is really going to drive a lot of revenue for your new customers. And I don’t know how easy it is to recognize that that’s what’s actually going on. But I have seen that happen. And, there’s certain products that I’ve recommended where you look around and you don’t see a lot of marketing for them, but you’ve recommended them a lot to other people or other people have recommended those products to you. It’s just easy to see when those things are actually working.
Yeah. When you’re in a mature market, and the number one player is big, but everybody hates using it. That’s when word of mouth is huge. Because you will be you will become the thing that we’re all talking about, on our podcasts, at conferences on our blogs. I mean, think of Gusto or, again, ZenPayroll when it came out. Think of when Stripe came up, a ton of it was word of mouth.
Zenefits, it’s basically likes Gusto but for health insurance and other benefits. Drip had a really strong word of mouth in the early days. You know, there’s others. I’ll give another example, ready to wrap up, but we’re working on something that’s really hard to generate in general, and it can be a cap out, when people don’t know how they actually grew. I’ll often hear founders say – Oh just word of mouth, and it’s like, Yeah, I don’t think it really was word of mouth. You know, you just don’t really know, you don’t track your metrics. But in this case, like a mature market where you have this reviled number one player, I think getting in there, building a better product, better pricing, better sales model can really lead to word of mouth and some good stuff.
I think the other thing that they don’t mention about marketing in a space like this is you can take the approach of being the underdog, right? It’s easy to market against big guys when you can basically talk about being the anti them. So Salesforce had their – especially in the early days, no software, right. They had the circle with the red line through it and it said software in it because they were saying, no on-premise software, no massive installation and server footprints and stuff – we are just this thing in the cloud.
They were anti software. Less accounting was kind of the anti QuickBooks. I don’t know that they mentioned QuickBooks by name but I remember one of their headlines was about all accounting software sucks or sucks less. I mean, it was it was a good—It was a really interesting approach to it. Drip was the not Infusionsoft, what was my headline – lightweight marketing automation that doesn’t suck and I was implying that most marketing automation software sucks and listed the Marketos and Eloquas and the Infusionsofts that are just not fun to use and they’re not fun to be sold because the sales model sucks and they’re really expensive and here’s all the reasons that you don’t like them and here’s why we’re the opposite of all of that.
So, if you’re going to enter this market embrace market leaders’ strength and turn it into their weaknesses. I think it’s Jiu-jitsu, where if your opponent is really strong and he or she swings you do a parry and you let their momentum carry them through and that’s a big part of marketing against these really big players in established markets – is what is their biggest strength can be turned against them as the biggest weakness.
I feel like we’ve covered this topic pretty well. I think the one last thing I’ll say is we’ve given a ton of examples of people doing this, talked about Stripe, Gusto, Zenefits, Drip, and a few others. The one other example, I think, that’s doing a good job of it today is Superhuman and it’s that email client that—they’ve changed the sales model, they’ve actually gone from no touch the opposite direction, there’s onboarding, every person individually. Their product, from what I’ve heard, is easier to use and it’s amazing. Their marketing is, obviously – they’re doing a good job with it. Now, their price is interesting because they’re more expensive than any other ESPs. So that’s a whole that’s a whole other thing from extremely experienced founders that they’ve, basically, made a gamble to say we think we can build something truly 10x better and we’re going to charge for it.
I think they charge $30 a month, which if you think about it, compare Gmail to Superhuman, Gmail is essentially free. Although, I pay for it now because of how much storage I use, but, very different pricing model there. So they’re one example that’s doing it successfully today. And they’re not following, you know, the exact playbook that we’ve laid out here. But I they also have buckets of money. They’re three and four-time founders. So that’s where you can, in my opinion, you can start breaking rules because you know which rules to break.
Mike: Yeah, and that’s really a matter of like, certain types of people are in so much pain, that they are willing to be the early adopters and they’re willing to pay more money for it because it just makes their lives that much easier. And whereas no knock against Gmail because I use it as well but there’s certain things about Gmail that I wish were just a little bit easier and I’ve heard the guy who runs Superhuman spoke before and he’s talked about like, how the experience is really what they focus on and I’ve seen him commenting on Twitter here and there and showing pictures of all the different things that they’re testing. Somebody said, “Oh, why don’t you support this products on,” such and such. And he showed them a picture of like eight different laptops, where they were testing different variations of like the browser client, and he’s like, “We’re working on it but this is what we’ve got so far.”
It’s incredible because it partly tells a story, but it also explains or demonstrates how much pain certain people are in to be requesting that stuff and still willing to wait for it.
Rob: Yeah, and they worked on Superhuman, I believe, for 18 months to two years. It was a small team of developers before they launched. So they broke they broke a lot of “rules”. And again, it’s because they did have a lot of funding, they had prior exits. I mean, the guy had started Reportive and sold it to LinkedIn. And then, he had even another one before that.
When you get to that level, you’re just at the point where you can make some difficult calls and pivot out of the risk because of your experience in funding. Frankly, which is something I talked about earlier in this episode.
Mike: I’m sure Data had something to do with it.
Rob: Indeed.
Mike: Well, I think that about wraps us up for the day. Thanks to Eric Roberts for sending us that question. 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 Outta Control” by MoOt used under Creative Commons. Subscribes to us in 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.
