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In this episode of Startups For The Rest Of Us, Rob and Mike make their predictions for 2019. They also look back at their 2018 predictions and rate how they did.
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Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about our predictions for 2019. This is Startups For The Rest Of Us Episode 424.
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 going on this week, Rob?
Rob: I’m kind of stoked that my first book Start Small, Stay Small is now out live on Audible, only eight short years after I originally recorded it and have been selling the audiobooks. What happened is back when I published the book and I recorded an audio version within a few months of releasing it, Audible wouldn’t let individuals post audiobooks. I couldn’t, there was no user ability, and I emailed then and said, “Hey, I self-published a book, it’s popular, it’s getting traction and such, and I have a podcast. There’s a lot of people who want to hear the audio version but how do I get this in there?” “Yeah, we don’t really offer that. You have to go through a publisher.”
I just never did and I’ve been selling basically the audio version from the website startupbook.net is where kind of Start Small, Stay Small lives but within a few years, I think they did release the ability to do that and then it was just wasn’t a priority when I’m building and growing companies and running conferences. It’s kind of the last thing on the list. I’ve had the last several months off, as you know, and I had the audio files. They had to be re-engineered and remastered. It’s still the same reading but it had to be re-rendered at a certain resolution or whatever and luckily, I still had the original source files from 2010 because the MP3s I had been selling are not at the bitrate that they need for Audible these days.
I literally pulled them off of DVD-ROMs from our old editor for whoever is editing this in 2010. I pulled WAV files or something off of DVDs and put then in Dropbox, which is just amazing, because back then it would have been on DVDs because there was nowhere else to store them. That was my long-term storage for these things. Our editor, Josh, for this podcast, he did a nice edit job on them and it’s now live.
We’ll link it up in the show notes. It’s for posterity. I just actually just purchased it and I’m downloading it because I haven’t listened to the audio book in forever because it’s not easily accessible. When it’s not in my Audible app, I just don’t really listen to audiobooks. Do you? If someone sent you an audio book of 12 MP3 files, you can’t to exit, it’s not easy to open it in an app. It’s a little bit clunky.
Mike: Yeah I probably would not. I think I used to throw things like that in iTunes and I’d be able to listen there but unless it was quick to grab, probably not. I actually didn’t think about taking my book and put it out on Audible. It’s one of those things that’s been such a low priority for me to even look at. Now that you mentioned the bit rate, I went back and I’ve looked and I was like, “Yeah, I’m pretty sure that what I’ve got is not enough.”
Rob: Yeah, The nice part is we do have Josh as a resource. As long as you have the pre-MP3 or whatever, if it’s M4As or I guess it’s AIFFs or the lossless and WAVs, then you could send those to him and he can re-render them in a way that Audible will accept.
Mike: Yeah, I’m not sure if I do.
Rob: But it’s still a project. It’s still a project and you have to get cover art. It wasn’t 20 minutes of my time. It was a few hours of my time and at that point, is it worth doing is a question that should probably be on your mind.
Mike: Yeah and that’s part of why I haven’t done it is because just hasn’t been worth my time to do that.
Rob: That makes sense and one of the things I’m thinking about, if you go to startupbook.net, I sell bundles and I sell an EPUB version plus a paperback version plus an audio version and you can buy in different combos. In 2010 that made a lot of sense and it’s literally fulfillment through PayPal, I built the fulfillment thing because there was no Gumroad. It was barely Kindle Books at that point. I built a bunch of stuff myself and as I’m looking at it, I still get sales of this book.
I’m thinking to myself, I don’t even know that I want that anymore. I kind of just want to link out. If you want the audio, go to Audible. If you want the electronic or the paperback, go to Amazon and everything is handled. Obviously, I make a little bit less money per copy because they take their commission but it just eliminates that thing that I had to maintain.
Mike: Yeah. And that means just simplifying things on your end from just because a process that makes things easier. It becomes the distribution channel for you and then you only have to deal with that versus all the other things that you’ve kind of hacked together over the years. I have the same thing with my book. Everything’s done through Gumroad and I just haven’t changed it because it be a pain-in-the-neck change.
Rob: So, how about you? What’s up with you this week?
Mike: Well, I’ve been planning out some of my Blue Tech marketing efforts that I want to start in January and been looking at things like putting together a set of webinars. I’ve been expanding the number of emails that are into some of my various email campaigns. Just that those are a little bit longer and they lead directly back to Blue Tech a little bit better. Putting in some automations there and just kind of thinking of more about how the different pieces connect to one another and how I can help move people through the sales funnel a little bit better than I have in past.
Rob: That sounds like a good project to be starting after the new year and to be thinking about it and planning it now so you can hit the ground running right after the holidays. I was thinking it is January 5th is the date in my head and that’s probably a Sunday this year. But between January 5th and January 7th is where we would resume big pushes of marketing.
Mike: Yeah. I’m really just planning out what needs to get done because nothing is really going to happen between now and the end of the month. There’s stuff that needs to get done and preparation would take longer even if I wanted to try and launch it. Next week just doesn’t matter so I’m planning the things out, going to do the work between now and the end of the year. Once the calendar flips over, release are pushing on some of those things. By that point, I should be ready to go live with them.
Rob: Sounds good. What are we talking about this week?
Mike: Well, we are going to go into our predictions for 2019 this week. But before we do that, we’re going to go back to episode 370, talk about our 2018 predictions, and see how well we did.
Rob: Dive into your first one. We’ll do a 1-5 scale on these.
Mike: Sure. The first one, I had said there was going to be an economic downturn and I said that things looked pretty good last year about that time, that there’s a lot of uncertainty. It felt to me there were some economic problems that were starting to build up and there weren’t any easy solutions. I kind of pointed to the health care. I don’t want to call crisis but health care problems for small businesses in the US are pretty bad. It’s just awful trying to figure out how to deal with that.
Also looking at the idea that there might be a rise in unemployment, I didn’t think that the housing market was going to go down very much but it felt like was going to relatively flat and I also thought that the stock market was going to level off but not go down. Most of those I would say, it’s hard to judge somebody because it’s not like there’s a standard or number that you can point you for most of them with the exception of the stock market.
Rob: I would say unemployment is well. Unemployment has not risen. Unemployment is at historic low. That one, I think that piece I don’t think you’ve got. I think stock market, it’s leveled off and gone down.
Mike: Well, if you look at from January 2nd to today, it is down by 300 points. It’s pretty close. I mean, that’s real close and in terms of unemployment, I think the actual number has gone down but I also think the number of people looking, who are actively looking, or has stopped has gone up. That’s hard to measure.
Rob: Yeah, I know. I agree but the other two I don’t know. Small service businesses will go out of business. I don’t know that that’s really happening yet. You’re kind of talking about a recession at that point and we’re not in a recession. Housing market won’t go down very much. It will relatively flat.
Mike: I think I was wrong on this one. I think it’s gone up a little.
Rob: Yeah, I think so. I would say such. I mean, real estate’s local but there can certainly be national things. What score do you give yourself on this? It’s not a one but it’s not a five, either.
Mike: Yeah. I’d say three on this one because of those four things that I listed, the stock market will level off but not go down. I would say within 500 points either direction is still leveling off because they could swing by 500 points in a day. I would give that a five but in terms of the housing market won’t go down very much, I thought that it was going to go down and it did not. I would say that’s a one.
I think if you would average all these things together and going to the other one like small service business going out of business due to their taxes and healthcare, I don’t think that happened. The unemployment rise, I would say, according to the numbers, that says no as well, but I think if you were to dig deeper, then there’s a lot of people who stopped looking for work. I’d give that maybe a four and the other one a one. Average is probably around three, something like that, maybe a little bit less but pretty close.
Rob: My first prediction for 2018 was that 2018 will be the year of non-institutional startup funding: angels, crowdfunding, and ICOs. If I were to rephrase this, I would not say non-institutional. I would say non-traditional or it will be the year of alternative startup funding. In hindsight now looking back, it’s like I have this inkling of something.
When new ICOs were happening, the opposite cooled off at this point but I do know that they’re still in play. I think crowdfunding has been so-so and I’ve seen a few like Hacker Noon is crowdfunding. But really the Tiny Seed model that I’m thinking about where it’s a way to get money that doesn’t look like traditional institutional venture capital, where it feels more like an angel investment but it is technically institutional money. It’s these alternative funding sources for people who would normally bootstrap frankly. There’s a whole revenue-based debt financing, like Lighter Capital, Bigfoot Capital. There’s a few others in that space and then there’s more than […], the Tiny Seed thing, that area that I see percolating and starting to happen.
Well, obviously Tiny Seed is just getting started now. Really 2018 was the year it announced but it’s not really going to be in full swing until 2019. That’s not completely accurate. I certainly would not give myself a five on this. I will say that I’ll probably give myself a three. It’s either a three or a four and I tend to want to be a harsh critic of my own stuff. I will say that it’s about a three but I actually think this is worth the beginning of a wave above all these non-traditional options.
That is why I am devoting the next several years of my life to basically starting a company and then fund an accelerator in this space because I think it’s going to be big. This prediction is I think it’s correct. I just think it’s perhaps a tiny bit too early.
Mike: I think you cheat on these things sometimes.
Rob: Why? Tell me.
Mike: Look, because you make a prediction and then you’re like, “Oh, if this isn’t going to come true, I’m going to do it and that will make it true.”
Rob: That’s how entrepreneurs cheat, huh? That’s so funny.
Mike: I mean, I surely call you out of that.
Rob: Yeah, Mike, appreciate that. I think if we have the power to do that, then we probably should. If we have the power to change something that we think should exist, that’s funny. I haven’t thought of it that way but it’s a good point.
Mike: Let me know how that works out for you in Vegas this year.
Rob: Yeah, totally. How about you? What’s your second prediction.
Mike: My second one was that we would not see a US-based legislation around in-app purchases and classification of loot crates as gambling. I don’t know that we ever actually saw that.
Rob: I think it died down.
Mike: Yeah. There was a lot of talk about it initially, and then after that, it just kind of went away because the game makers decided, “Oh, we’re going to change how these things are done,” and it just kind of silently died.
Rob: Yup. My second prediction was that artificial intelligence and machine learning would continue to be marketed as the next big thing but would not deliver again in 2018. Specifically, I think I was talking about how every marketing SaaS app says, especially the venture phone that wants, “Oh, we’re going to be AI for email or AI for you landing pages or machine learning for your data sets to do blah-blah-blah.”
Everybody’s marketing and really most people don’t have the data sets that are big enough to actually use machine learning. A lot of the machine learning winds up just saying, “Oh, it’s noise anyway.” It’s really hard to do this right and my prediction was kind of people would continue to over-promise, use it as a buzzword to raise funding and make promises that would kind of come true maybe a little bit but that it was not going to be of this thing of like, “Holy crap. Someone really finally made this happen.”
My personal opinion was this is a five. I definitely continue to see AI and ML in both startup pitches and on marketing websites, and I have yet to see something that has been a ground-breaking shift in specifically a MarTech app or really any kind of SaaS app that I’m looking at.
Mike: My third prediction was that Uber is not going to regain the ground that they’ve lost and that was kind of based on a lot of the scandals that were plaguing the company. I did a little bit of research on this and one article I found pointed to the second quarter of this year where they lost almost $900 million and then there was another article I found where they were just kind of graphing the Uber-versus-Lyft market share. Lyft is continuing to go up and Uber is continuing to go down.
I don’t know how much of that I would attribute to the fact that now there’s a second entrant, but at the same time if Lyft is eating into Uber’s market share, then it’s because they’re growing and they’re growing faster than Uber is. I have a hard time on figuring out whether or not that means that Uber is not regaining the lost ground.
Rob: I think that you are correct on this. I think this is a five based on market share. That’s what I would’ve thought when you said regain the ground they’ve lost, where losing money is nothing new for them. They’ve lost hundreds of millions, if not a billion dollars every quarter, I think, for years, which is why they had to risk so, so much money.
To the part, I’m not concerned but you wrote this prediction around the time where there was the big kerfuffle where Travis the CEO got kicked out, and there was the big article written about or several articles written about the toxic culture and the bro culture, and then he became kind of the poster child of “what’s wrong with Silicon Valley companies.” It’s not in quotes because its not real but it’s just the thing that happened at the end of 2017 was that a lot of this stuff started coming out.
I have not seen a graph of market share but if you saw a graph where Lyft is going up and they’re going down, I think very much that, that was partially caused by—not entirely caused by—that whole kerfuffle that went down. I always now look for Lyfts first and I used to always look looked for Ubers first. When this all happened, I switched. I know a ton of people who deleted their Uber app altogether. A lot of people don’t want to support a company that acting that way toward its own employees.
Mike: Yeah, definitely. The reason I was a little confused about the graph was just because it’s a trend line that basically shows that and it doesn’t really change. Uber’s market shares continue to go down and Lyft’s is continuing to go up, but it’s showing that back as early as 2016. Is that directly caused by that? I don’t think that it is. I think that it’s just that Lyft is doing better in general than Uber is and it’s kind of eating them alive at this point.
I do think of those other things that we’ve just talked about kind of play into that. I don’t think that I see them recovering from this anytime in the near future and I don’t think that it’s just because of the PR things or the things are going on internally. I think that it’s just they don’t have a good sense of how to basically break ground against Lyft.
Rob: Right. You’re saying it’s like Lyft kind of is doing a better job of executing or whenever. I don’t disagree with that, that it’s just a competition that Lyft has hit their stride and that Uber had enough stumbles that they’re getting ground made up on them. I still think Uber is an amazingly wildly successful company, it’s still worth a ton of money, and I do think they’ll be fine.
Both of them have filed for IPOs. Both Uber and Lyft should have an IPO in the next, I don’t even know, two, three, found months. There’s going to be massive liquidity and there’s going to be deck of millionaires and millionaires coming out of both of those. It’s interesting to think long term. Will there be a two of them? Will they ever consolidate? I don’t know. I mean, they’re both still pretty healthy. Even as hard as Uber got hit, it’s still, I think, quite a successful company. Obviously it’s losing money and there’s this argument to be made. Could it withstand a recession or whatever? But I just think they just pulled back growth. They are actually making profit.
My next prediction for 2018 was that there will be an enormous crash in Bitcoin’s valuation but the long-term I’m still bullish. What do you think? You think I called this one right?
Mike: I think you hacked somebody’s servers and made this crash happen, because you’re an entrepreneur, right dude? You make things happen.
Rob: I did not do that and I give myself a six on this one. It was just an inclination, just the volatility of this whole space. Sometimes I say these things because yes, I own many different cryptocurrencies. I was saying this to my head of there going to be a crash so that I’m prepared for when it happens. It’s kind of the worst case scenario but I definitely thought that there would be some volatility. Got lucky on this one.
Mike: Yeah, especially when you saw that coming and in the middle of that run up, too, like you have to be very aware of the fact that it is run up and how much longer is this going to last before it pulls back and how hard is it going to pull back. Yeah, you were definitely right on this. I give you a six on it, too.
Rob: Yeah, I mean Bitcoin went from $1200 to $18,000 in 18 months or something? Maybe is it even 12 months? It’s insane. Yes, at the time there was irrational exuberance of people where like, “It’s going to $100,000. It’s going to $200,000,” and I was just kind of like, “I don’t think this has the staying power in the short term,” but again, I set out long term. I’m still bullish and I have another prediction this year about it.
My fourth prediction for 2018 was that cryptocurrencies will be regulated by several large governments and this has happened. I think it’s been quite a bit of a regulation in different countries around the world and I think what’s interesting is the longer cryptocurrencies are around, there’s less of a question of, “Oh, it’s this new thing. Is it going to stick around?” It’s more like, “Yes, it’s going to stick around. How do we classify it? How do we regulate it? How do we measure it? How do we tax it?”
Maybe the crash helped it. It’s like become this thing that’s just there that’s just hanging around. I think it’s going to become more and more of a ubiquitous part of kind of what we’re doing to it today.
Mike: You want to kick us off for 2019? What’s your first 2019 prediction? You said you’ve got something for this year.
Rob: Indeed. My first 2019 is a crypto prediction. I think there will continue to be ups and downs in 2019, just continued volatility across all the cryptocurrencies but there will be no major boom in 2019. There will not be a run up like we saw last year. But I am still bullish long-term, I want to be clear. I still own cryptocurrencies but I don’t think we’re going to get the 200%, 300%, 500% bump up that we saw on 2018. I think it will either be just a gradual thing over the course of the year or it will just bump along up and down and I thinking in the future year, we’ll once again see a run-up like we saw.
Mike: Do you think it’s kind of done being highly volatile because even just in the past several weeks, it’s lost half its value. That’s a lot or at least the reports specifically talking about Bitcoin because obviously each cryptocurrency is different but most of them tend to track on Bitcoin’s progress.
Rob: I think it will continue to be volatile and it’s just the nature of it for now while it’s this unknown entity. This is asset class that people aren’t exactly sure what to do with it. I think there’s still going to be people manipulating it, which causes some of the volatility. I think there’s still going to be people speculating it, which causes volatility. That’s my gut feeling.
Mike: Yeah. I look at Bitcoin and the cryptocurrencies. They are one of those things where I wish there was more regulation around it but I also understand why there’s not going to be any time in the very near future. Obviously, governments are making an effort to do that kind of stuff but until there’s federal backing and an insurance on it, there’s going to be a lot of stuff that happens. The exchange gets cracked open and they’d lose all the Bitcoins, everything. That stuff’s going to happen. There’s not much you can do to prevent it. That’s going to help cause that volatility.
Rob: How about you? What’s your first prediction for the year?
Mike: This was a little bit of a tag on the last year and I think that there’s going to start to emerge a global downturn that’s going to be in full swing and it’s going to be obvious. I think before, we were seeing signs of it. I’d say last year’s prediction was probably half-right-half-wrong and I think that’s going to continue, not me being half-right-half-wrong but the downturn, so to speak.
I think we’re going to start seeing more signs of it. I’m hoping I’m wrong but I see these little things happening here and there and it just makes me wonder because it kind of goes back to 10 years ago or so. I don’t think we’re going to hit a global economic recession that causes some massive crisis like we did last time back in 2008 but I do think that it’s going to be noticeable.
Rob: I think either you or I make that prediction every year and has for three or four years. I hope you’re wrong but I’m thinking that you’re probably going to be accurate on that one.
Mike: Is that like predicting it’s going to rain eventually—
Rob: Eventually. It’s kind of. I think that’s kind of what we’re doing here.
Mike: Okay.
Rob: My second prediction is, in 2019—this is a bold one—will be the year of augmented reality. Really deep down, I question if it will but I wanted to make one at least one prediction that I was super unsure about. It’s kind of a big proclamation. I kind of want AR or VR to catch on. I want it to be cool and accessible and I want to do stuff with it, but every time I tried VR, it’s like, “Meh. It’s not there yet.”
I think that AR is probably a more viable thing because you’re not sitting there with a big old mask on your face, you can’t see anything else in the room, whereas AR, there just so many real applications of it that I think can take hold. Whether 2019 will actually be the year of it or whether it will take longer is another thing but my prediction is it going to be this year, Mike, in the next 13 months.
Mike: Now, when you say there’s a whole mess of applications that it could be used for, are you thinking more consumer or you thinking more like industrial- and factory-type things? It seems to me like that would be the place where I would start and then eventually would move over into mainstream consumer because I don’t see anything out there where augmented reality is really something that people would buy into just yet. I definitely see the industrial applications of it but not like practical things that people would use on a regular basis.
Rob: Yeah. I like the way you’re thinking. I mean, that’s what I’m thinking about as well. When I say practical applications, I do mean kind of B2B stuff which means people will pay money for it. If you’re on a factory floor, you can you look over and whatever, see the instructions, how to do things, or you can see the inventory levels. If you’re surgeon, when you look down at a patient and there’s an overlay of what should be there and where you should cut or whatever. It’s incredible for pilots, for all kinds of applications where this could work.
Now I also think that even on our phones, you can imagine having Yelp augment reality around. You hold your phone up, kind of like have you ever done the ones where the apps where you can look at the stars?
Mike: Yeah. I’ve seen—
Rob: You hold them up and that’s essentially augmented reality. Those are cool and those are fun but what are the consumer applications of this? Could you hold your phone up as cars are coming through? You hold your Uber app or your Lyft app up and it will just have a big sign over your Uber? Especially when you’re at a crowded airport, it’s often hard to find things out. They’re trying to do it right now with these lights that sit on the dashboard but what if you’re able to hold that up and just see? That’s maybe a clunky example of it.
I think once we get some contact lenses or some better version of like a Google Glass type thing, that would be even better because then you don’t have to hold your phone up and it’s just kind of projected into your eyes so that you can see things that are augmented, which is not going to happen in 2019. But those are the kinds of, I think, consumer applications that could do it but I think you’re probably right. I think B2B may be the place that makes it work and makes it more affordable.
Mike: You answer my question throughout even though I didn’t directly ask it because what I was really interested in was how do you see it working and what it sounded me like you’re saying is it’s not wearable but it’s kind of on all time. You’re carrying your device around and then you can use it in certain situations when you recommend a situation to augment the data that you receive and it would show you, “Hey, this is what you should be exactly looking at.” It’s a difference between something like Google Glass that you wear all the time versus you pull out your phone and then see the additional stuff.
Rob: Right. That would be the idea. I don’t think that you’re going to wear this stuff all the time. Most people aren’t going to do that unless you’re on factory floor and you might need to, then you do put on safety goggles and maybe it projects under your eye. If you’re surgeon or dentist, they often wear the glasses anyway that have a magnifying something or other, have augmentation there. It just makes a lot of sense and they don’t wear those all the time but they wear when they’re doing surgery o when they’re doing a procedure. Same thing perhaps for pilots. I don’t know if it would be and they already have heads up displays in certain aircrafts but that’s where it just makes more sense and you don’t have to do extreme behavior changes for people to do start adopting this.
Mike: Yeah and you don’t have to worry about the social context or social problems that are associated with that stuff. When I think about some of this stuff, it kind of reminds me of a project that I worked on at Wegmans back in I think it’s 2000-2001 where they had this voice recognition unit and I had to program things to integrate into the wireless system for the warehouse.
I got to a spot and there’s all these people wandering around the warehouse with these power lift jacks. They had to grab things at a warehouse so they could put on the trucks and they would just talk to this thing and it would tell them what it is that they needed. Fast forward 15 years and now tablets exist and you can do that kind of stuff now in a visual format that whereas before it was just text only, speech-to-text recognition.
My second prediction for 2019 is that esports leagues will get a dedicated TV channel and having done the research on this after the fact, I realize now that there is already one in existence.
Rob: I was going to say I think this exists that’s not Twitch.
Mike: Yeah, I didn’t realize it. That’s the thing is that it was not going to be Twitch. Obviously, there’s streaming systems out there, obviously. People stream out on YouTube. My kids watch that stuff constantly. Whenever they get a chance, they want to watch other people playing video games. I had this discussion with my half brother. His comments on it was, “You will watch a football game or a baseball game. How is watching somebody play video games any different than that? You’re not involved, you’re not directly playing, you’re just being entertained by the fact that somebody else is playing.”
It’s a good point to make and I think that it especially applies to people who grow up around this technology and are able to watch other people play those types of things versus back when I was a kid, you either went to a ball game some place or you watch it on TV. Now, there’s other things that people are finding interesting like esports leagues and video games. They want to watch that stuff as well and they have their own personal heroes and people that they follow.
Rob: Right and I feel the same way as you do about it. It makes no sense to me which truly proves that we are old and that people should get off our lawn but my kids, at least my oldest is really likes it. Something that I realized is it’s not just that he is watching someone else play video games. It’s that this someone else is way better than most people, who’s way better than him at it, and has witty banter, is saying funny things so they’re entertained along the way.
It’s not just like when we used to go to an arcade and when your buddy was playing Donkey Kong, you are bored because (a) your buddy wasn’t saying witty things and (b) your buddy wasn’t that good at it. He wasn’t any better than you are at it but if you put those two things, if you would sat and watch someone live on a stand-up arcade machine who is making these hilarious quips, doing well on level 50 when you can only make it to level 5, that actually is intriguing when I started thinking about what’s actually going on there.
I’m personally not a fan of esports in terms of I don’t watch any of them but I think I’ve seen the appeal and how it could appeal to folks who are into it.
Mike: Yup. I’m going to cross this one off just because it’s not applicable but I came up with that and I was just like, “Oh, I think that this could be a thing.” Oh well.
Rob: Yeah. That makes sense. Cool. My third prediction is that Facebook will face antitrust issues and due to that, whether it’s negative press, they are not having a great couple months right now. I think it’s going to get worse for them and I think that it’s going to open up a possibility of there being a new social network that comes about in 2019. I don’t mean the next Facebook but much you would say Instagram is a social network or you’d say these messenger apps like WhatsApp and Snapchat that are called social network.
These aren’t things that just replicate or replace Facebook, but they are new forms of it and a new takes on social networking and I think that door will open even wider based on perhaps, I don’t know if I’m going so far as to say that the declining used to Facebook, but that at least I’m imagining growth is going to slow down pretty precipitously for them.
Mike: Wouldn’t the growth slow down just do a market saturation as well?
Rob: I’m going to get a five on this, Mike, just because. You just gave away my secret. No. It might. I haven’t honestly look at that. I mean, to be honest the prediction is not that growth is going to slow down. My prediction is that Facebook’s going to continue to face antitrust issues or start facing antitrust issues if they’re not already and that, that will make way for the rise of another social network to come. Frankly, maybe Facebook buys them, too. It’s not I have a question. They bought Instagram and it was a good call for them to do that. I think there’s a two-part prediction basically.
Mike: Got it. I just wanted to clarify that last piece. I’ll call this my second prediction here. I think that there’s going to be something “bad” that happens involving Tesla, SpaceX, or Elon Musk, possibly at least two out of the three. Looking at it, I don’t know how to define something bad. I don’t think anything is going to specifically happened to Elon Musk like he gets in a car crash and dies—but that’s certainly obviously a possibility—but I think it’s going to be more likely that he starts making some bad decisions.
I mean he’s already had to step down from his CEO position at Tesla because of some of things that he said on Twitter that influenced the stock price. The SEC came after him and basically he had to pay these massive fines, step down for three years, and I feel something along those lines is going to progress and maybe he has to step away, maybe they push him away from Tesla because maybe he can’t keep his mouth shut or something along those lines. I don’t know what but I just kind of have a feeling about that based on what I’ve seen in his behavior. Seems very erratic.
Rob: Is this a prediction or it kind of a continuation of what’s already going on? Like you said, something bad has already happened. He’s been, basically, asked by the SEC to leave. He had to settle with them because they were going to sue him—I don’t know if that’s the right word—they were going to do really bad things.
Mike: They fined him, I think it was $20 million and they made him step down as CEO for a period of three years.
Rob: Yeah, for three years. That’s something bad has already happened to him. You’re just saying something else bad—
Mike: I’m saying something else, which is going to be in addition to the stuff that has already happened. Maybe he does something else and the board says, “Look, you’re out,” or SpaceX gets some contract and instead of putting something into space, that thing blows up on the way up or it’s trying to land it and the thing just gets destroyed. It’s not going to be one of their tests. It’s going to be something actually important. I think something like that is just going to bite them. I don’t know what.
Rob: Oh, Mike, this is such a morose prediction, man. Geeze. I hope—
Mike: I don’t want it to happen.
Rob: You’re like the shorts, the people who bet against the stock market. They’re right sometimes but nobody likes the shorts because they’re negative. They’re basically against the marks. You’re kind of betting against these companies. I’m not saying that no one should like you. I was just pointing out that there is a similarity. That was a weird thing to go down.
One of the predictions I’m most proud of actually, Mike, one that I remember is, I don’t remember if it was 2017 or 2016 but I predicted that, I was contemplating that Twitter would have major issues, that they would see their growth decline because they were growing super fast and they were just one of the many social networks.
Obviously, Twitter has continued to have a slide. I’m actually proud of that one. I picked the year, stumbled upon the right year that they did start to decline. My prediction for this year 2019 is that Twitter gets acquired by someone. I don’t even have a guess as to who. There are public companies. They have to be obviously—
Mike: They got acquired by Tiny Seed. I’m calling bull…
Rob: There it is. Nice. Making stuff come true, am I right?
Mike: Yes.
Rob: That’s good.
Mike: Yup. I mean it’s certainly possible. I don’t know. Isn’t Jack Dorsey the founder, right?
Rob: He’s one of the – I mean, Ev Williams was the founder, yeah.
Mike: Yes, one of the co-founders. He’s the CEO right now and he’s also the CEO of Square, isn’t he?
Rob: Yeah.
Mike: Got it.
Rob: Which is got to be interesting. It’s got to be a challenge.
Mike: Right. I don’t know. It seems like he’s got, I don’t want to a stranglehold on it but it seems like he’s trying really hard to manage all the problems that are coming up inside of Twitter, with people harassment, and things like. I don’t feel like he’s doing a particularly great job but at the same time not tracking every single thing that they’re doing and how they’re handling stuff. I definitely see situations where it’s just handled really, really poorly and everyone seems to think that except him, but I don’t know. It’s an interesting prediction.
Rob: Yeah. That’s been a criticism of Twitter for the past year or two, is that they’re just not doing enough to send the harassment. They don’t have verified accounts anymore or they have them but you can’t get verified anymore and they say, “Hey, we’re going to come out with a new verified process.” That was ages ago and there’s no new process. What are they doing in there that they can’t get the stuff done has been a criticism.
I don’t care that much in all honesty. I’m not a captain. I’m on Twitter all the time. I’m on now and again but it’s not something that’s part of my daily or even weekly regiment but I think that they are going to be ripe for an acquisition. I don’t know if their acquire will be able to turn this stuff around or not but that’s probably what the intent will be.
Mike: Yeah. I’m trying to think of who would even acquire them and I don’t know who that would be.
Rob: Facebook, Microsoft. No, I don’t know. I’m just kidding.
Mike: My last prediction is that Amazon is going to overtake Apple in terms of net worth.
Rob: Market cap?
Mike: Market cap, yes. I know it’s sort of close but I think that they are going to not only overtake them but in a solid and definitive way. I think they’re both somewhere in the $800 million range or something like that and I think Amazon is going to surpass them. They may even be the first to hit $1 trillion or did Apple hit that at one point then drop?
Rob: Apple hit it. Yup, they already hit it.
Mike: But anyway, I think Amazon is going to be solidly in front of Apple and the only way I see that not happening is it if they take AWS and spin it out as its own subcompany and it’s independently operated, which is also a possibility, I think.
Rob: Yeah, I do, too. I think that’s an interesting prediction especially given you’re talking about this global downturn, which would imply that stocks will continue to slide and they’re both, in theory, going to go down. You’re predicting that Apple is going to go down more than Amazon, if you tie those two predictions together.
Mike: Yeah, I guess so. I don’t know. It’s hard to say whether or not both of those would actually go down. I do think that Apple is probably headed for a downturn. I think that they’ve saturated the market so much at this point with their phones and that recently they started increasing the prices and they said that they’re not going to continue releasing sales numbers for units. I think that’s what it was.
Essentially, what they’re doing is they’re kind of hiding what their actual sales are in terms of what the revenue. They’re going to provide revenue but they won’t provide actual unit sales. You won’t be able to tell independently whether or not they sold more or less based on those numbers long because everything’s kind of aggregated. They just make it harder to tell whether they sold more from one year to the next.
Rob: Yeah, and who knows? I mean, Amazon has done that with their Kindle and Apple’s doen that with different device categories that they just keep in in other devices like Apple TV. That’s one point they were not releasing any numbers for that. I think when something gets successful, they break it out. Not uncommon for them to do that but it definitely is interesting.
I feel this is a good prediction, actually. I just think unless Apple comes out with a breakthrough something in the next year or two, they are just incremental improvements on good technology—I like their hardware—but there’s been nothing groundbreaking that’s really capture the market, whereas Amazon continues to innovate and continues to just kind of have cool stuff.
I mean, you think about AWS, multi-billion dollar business, Amazon Alexa they’re way ahead of everyone else in terms of the smart home stuff. They’re just pushing things forward and I have become a fan of Amazon’s products. Even that Kindle Paperwhite, first one was super clunky and then they just get better and better. Amazon is certaining doing a good job executing. I think you’re going to be right on this one I guess is what I’m saying.
Mike: Yeah. Well you’re point on Apple just making incremental improvements, I still have an iPhone 6s+ I think—I see there 6+ or 6s+ I forget which—it’s several years old and I have no compelling reason to upgrade, like none whatsoever. My wife got one just because her old one was an iPhone 5. There were certain things that just would not run. She kind of needed to upgrade.
It kind of made sense, but I don’t see Apple coming out with anything. The watch was nice but it’s not a game changer for them in terms of revenue and with AWS, that’s the biggest cloud platform on the planet and only Microsoft is behind them with Azure. But that’s still a $40-$50 billion a year industry for them.
Rob: Yup, and there’s Google app engine as well. That would be the other one.
Mike: Yup, that’s number three. I’ve looked at an article here that says Amazon’s revenue, it says $44 billion for AWS, $19 billion for Azure and then $17 billion for Google. Yup. Crazy, crazy numbers.
Rob: Crazy. Well, sir, we should probably wrap this up.
Mike: Sounds good.
Rob: We will see how we do about 12 months from now. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt. 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, 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 going on this week, Rob?
Rob: I’m kind of stoked that my first book Start Small, Stay Small is now out live on Audible, only eight short years after I originally recorded it and have been selling the audiobooks. What happened is back when I published the book and I recorded an audio version within a few months of releasing it, Audible wouldn’t let individuals post audiobooks. I couldn’t, there was no user ability, and I emailed then and said, “Hey, I self-published a book, it’s popular, it’s getting traction and such, and I have a podcast. There’s a lot of people who want to hear the audio version but how do I get this in there?” “Yeah, we don’t really offer that. You have to go through a publisher.”
I just never did and I’ve been selling basically the audio version from the website startupbook.net is where kind of Start Small, Stay Small lives but within a few years, I think they did release the ability to do that and then it was just wasn’t a priority when I’m building and growing companies and running conferences. It’s kind of the last thing on the list. I’ve had the last several months off, as you know, and I had the audio files. They had to be re-engineered and remastered. It’s still the same reading but it had to be re-rendered at a certain resolution or whatever and luckily, I still had the original source files from 2010 because the MP3s I had been selling are not at the bitrate that they need for Audible these days.
I literally pulled them off of DVD-ROMs from our old editor for whoever is editing this in 2010. I pulled WAV files or something off of DVDs and put then in Dropbox, which is just amazing, because back then it would have been on DVDs because there was nowhere else to store them. That was my long-term storage for these things. Our editor, Josh, for this podcast, he did a nice edit job on them and it’s now live.
We’ll link it up in the show notes. It’s for posterity. I just actually just purchased it and I’m downloading it because I haven’t listened to the audio book in forever because it’s not easily accessible. When it’s not in my Audible app, I just don’t really listen to audiobooks. Do you? If someone sent you an audio book of 12 MP3 files, you can’t to exit, it’s not easy to open it in an app. It’s a little bit clunky.
Mike: Yeah I probably would not. I think I used to throw things like that in iTunes and I’d be able to listen there but unless it was quick to grab, probably not. I actually didn’t think about taking my book and put it out on Audible. It’s one of those things that’s been such a low priority for me to even look at. Now that you mentioned the bit rate, I went back and I’ve looked and I was like, “Yeah, I’m pretty sure that what I’ve got is not enough.”
Rob: Yeah, The nice part is we do have Josh as a resource. As long as you have the pre-MP3 or whatever, if it’s M4As or I guess it’s AIFFs or the lossless and WAVs, then you could send those to him and he can re-render them in a way that Audible will accept.
Mike: Yeah, I’m not sure if I do.
Rob: But it’s still a project. It’s still a project and you have to get cover art. It wasn’t 20 minutes of my time. It was a few hours of my time and at that point, is it worth doing is a question that should probably be on your mind.
Mike: Yeah and that’s part of why I haven’t done it is because just hasn’t been worth my time to do that.
Rob: That makes sense and one of the things I’m thinking about, if you go to startupbook.net, I sell bundles and I sell an EPUB version plus a paperback version plus an audio version and you can buy in different combos. In 2010 that made a lot of sense and it’s literally fulfillment through PayPal, I built the fulfillment thing because there was no Gumroad. It was barely Kindle Books at that point. I built a bunch of stuff myself and as I’m looking at it, I still get sales of this book.
I’m thinking to myself, I don’t even know that I want that anymore. I kind of just want to link out. If you want the audio, go to Audible. If you want the electronic or the paperback, go to Amazon and everything is handled. Obviously, I make a little bit less money per copy because they take their commission but it just eliminates that thing that I had to maintain.
Mike: Yeah. And that means just simplifying things on your end from just because a process that makes things easier. It becomes the distribution channel for you and then you only have to deal with that versus all the other things that you’ve kind of hacked together over the years. I have the same thing with my book. Everything’s done through Gumroad and I just haven’t changed it because it be a pain-in-the-neck change.
Rob: So, how about you? What’s up with you this week?
Mike: Well, I’ve been planning out some of my Blue Tech marketing efforts that I want to start in January and been looking at things like putting together a set of webinars. I’ve been expanding the number of emails that are into some of my various email campaigns. Just that those are a little bit longer and they lead directly back to Blue Tech a little bit better. Putting in some automations there and just kind of thinking of more about how the different pieces connect to one another and how I can help move people through the sales funnel a little bit better than I have in past.
Rob: That sounds like a good project to be starting after the new year and to be thinking about it and planning it now so you can hit the ground running right after the holidays. I was thinking it is January 5th is the date in my head and that’s probably a Sunday this year. But between January 5th and January 7th is where we would resume big pushes of marketing.
Mike: Yeah. I’m really just planning out what needs to get done because nothing is really going to happen between now and the end of the month. There’s stuff that needs to get done and preparation would take longer even if I wanted to try and launch it. Next week just doesn’t matter so I’m planning the things out, going to do the work between now and the end of the year. Once the calendar flips over, release are pushing on some of those things. By that point, I should be ready to go live with them.
Rob: Sounds good. What are we talking about this week?
Mike: Well, we are going to go into our predictions for 2019 this week. But before we do that, we’re going to go back to episode 370, talk about our 2018 predictions, and see how well we did.
Rob: Dive into your first one. We’ll do a 1-5 scale on these.
Mike: Sure. The first one, I had said there was going to be an economic downturn and I said that things looked pretty good last year about that time, that there’s a lot of uncertainty. It felt to me there were some economic problems that were starting to build up and there weren’t any easy solutions. I kind of pointed to the health care. I don’t want to call crisis but health care problems for small businesses in the US are pretty bad. It’s just awful trying to figure out how to deal with that.
Also looking at the idea that there might be a rise in unemployment, I didn’t think that the housing market was going to go down very much but it felt like was going to relatively flat and I also thought that the stock market was going to level off but not go down. Most of those I would say, it’s hard to judge somebody because it’s not like there’s a standard or number that you can point you for most of them with the exception of the stock market.
Rob: I would say unemployment is well. Unemployment has not risen. Unemployment is at historic low. That one, I think that piece I don’t think you’ve got. I think stock market, it’s leveled off and gone down.
Mike: Well, if you look at from January 2nd to today, it is down by 300 points. It’s pretty close. I mean, that’s real close and in terms of unemployment, I think the actual number has gone down but I also think the number of people looking, who are actively looking, or has stopped has gone up. That’s hard to measure.
Rob: Yeah, I know. I agree but the other two I don’t know. Small service businesses will go out of business. I don’t know that that’s really happening yet. You’re kind of talking about a recession at that point and we’re not in a recession. Housing market won’t go down very much. It will relatively flat.
Mike: I think I was wrong on this one. I think it’s gone up a little.
Rob: Yeah, I think so. I would say such. I mean, real estate’s local but there can certainly be national things. What score do you give yourself on this? It’s not a one but it’s not a five, either.
Mike: Yeah. I’d say three on this one because of those four things that I listed, the stock market will level off but not go down. I would say within 500 points either direction is still leveling off because they could swing by 500 points in a day. I would give that a five but in terms of the housing market won’t go down very much, I thought that it was going to go down and it did not. I would say that’s a one.
I think if you would average all these things together and going to the other one like small service business going out of business due to their taxes and healthcare, I don’t think that happened. The unemployment rise, I would say, according to the numbers, that says no as well, but I think if you were to dig deeper, then there’s a lot of people who stopped looking for work. I’d give that maybe a four and the other one a one. Average is probably around three, something like that, maybe a little bit less but pretty close.
Rob: My first prediction for 2018 was that 2018 will be the year of non-institutional startup funding: angels, crowdfunding, and ICOs. If I were to rephrase this, I would not say non-institutional. I would say non-traditional or it will be the year of alternative startup funding. In hindsight now looking back, it’s like I have this inkling of something.
When new ICOs were happening, the opposite cooled off at this point but I do know that they’re still in play. I think crowdfunding has been so-so and I’ve seen a few like Hacker Noon is crowdfunding. But really the Tiny Seed model that I’m thinking about where it’s a way to get money that doesn’t look like traditional institutional venture capital, where it feels more like an angel investment but it is technically institutional money. It’s these alternative funding sources for people who would normally bootstrap frankly. There’s a whole revenue-based debt financing, like Lighter Capital, Bigfoot Capital. There’s a few others in that space and then there’s more than […], the Tiny Seed thing, that area that I see percolating and starting to happen.
Well, obviously Tiny Seed is just getting started now. Really 2018 was the year it announced but it’s not really going to be in full swing until 2019. That’s not completely accurate. I certainly would not give myself a five on this. I will say that I’ll probably give myself a three. It’s either a three or a four and I tend to want to be a harsh critic of my own stuff. I will say that it’s about a three but I actually think this is worth the beginning of a wave above all these non-traditional options.
That is why I am devoting the next several years of my life to basically starting a company and then fund an accelerator in this space because I think it’s going to be big. This prediction is I think it’s correct. I just think it’s perhaps a tiny bit too early.
Mike: I think you cheat on these things sometimes.
Rob: Why? Tell me.
Mike: Look, because you make a prediction and then you’re like, “Oh, if this isn’t going to come true, I’m going to do it and that will make it true.”
Rob: That’s how entrepreneurs cheat, huh? That’s so funny.
Mike: I mean, I surely call you out of that.
Rob: Yeah, Mike, appreciate that. I think if we have the power to do that, then we probably should. If we have the power to change something that we think should exist, that’s funny. I haven’t thought of it that way but it’s a good point.
Mike: Let me know how that works out for you in Vegas this year.
Rob: Yeah, totally. How about you? What’s your second prediction.
Mike: My second one was that we would not see a US-based legislation around in-app purchases and classification of loot crates as gambling. I don’t know that we ever actually saw that.
Rob: I think it died down.
Mike: Yeah. There was a lot of talk about it initially, and then after that, it just kind of went away because the game makers decided, “Oh, we’re going to change how these things are done,” and it just kind of silently died.
Rob: Yup. My second prediction was that artificial intelligence and machine learning would continue to be marketed as the next big thing but would not deliver again in 2018. Specifically, I think I was talking about how every marketing SaaS app says, especially the venture phone that wants, “Oh, we’re going to be AI for email or AI for you landing pages or machine learning for your data sets to do blah-blah-blah.”
Everybody’s marketing and really most people don’t have the data sets that are big enough to actually use machine learning. A lot of the machine learning winds up just saying, “Oh, it’s noise anyway.” It’s really hard to do this right and my prediction was kind of people would continue to over-promise, use it as a buzzword to raise funding and make promises that would kind of come true maybe a little bit but that it was not going to be of this thing of like, “Holy crap. Someone really finally made this happen.”
My personal opinion was this is a five. I definitely continue to see AI and ML in both startup pitches and on marketing websites, and I have yet to see something that has been a ground-breaking shift in specifically a MarTech app or really any kind of SaaS app that I’m looking at.
Mike: My third prediction was that Uber is not going to regain the ground that they’ve lost and that was kind of based on a lot of the scandals that were plaguing the company. I did a little bit of research on this and one article I found pointed to the second quarter of this year where they lost almost $900 million and then there was another article I found where they were just kind of graphing the Uber-versus-Lyft market share. Lyft is continuing to go up and Uber is continuing to go down.
I don’t know how much of that I would attribute to the fact that now there’s a second entrant, but at the same time if Lyft is eating into Uber’s market share, then it’s because they’re growing and they’re growing faster than Uber is. I have a hard time on figuring out whether or not that means that Uber is not regaining the lost ground.
Rob: I think that you are correct on this. I think this is a five based on market share. That’s what I would’ve thought when you said regain the ground they’ve lost, where losing money is nothing new for them. They’ve lost hundreds of millions, if not a billion dollars every quarter, I think, for years, which is why they had to risk so, so much money.
To the part, I’m not concerned but you wrote this prediction around the time where there was the big kerfuffle where Travis the CEO got kicked out, and there was the big article written about or several articles written about the toxic culture and the bro culture, and then he became kind of the poster child of “what’s wrong with Silicon Valley companies.” It’s not in quotes because its not real but it’s just the thing that happened at the end of 2017 was that a lot of this stuff started coming out.
I have not seen a graph of market share but if you saw a graph where Lyft is going up and they’re going down, I think very much that, that was partially caused by—not entirely caused by—that whole kerfuffle that went down. I always now look for Lyfts first and I used to always look looked for Ubers first. When this all happened, I switched. I know a ton of people who deleted their Uber app altogether. A lot of people don’t want to support a company that acting that way toward its own employees.
Mike: Yeah, definitely. The reason I was a little confused about the graph was just because it’s a trend line that basically shows that and it doesn’t really change. Uber’s market shares continue to go down and Lyft’s is continuing to go up, but it’s showing that back as early as 2016. Is that directly caused by that? I don’t think that it is. I think that it’s just that Lyft is doing better in general than Uber is and it’s kind of eating them alive at this point.
I do think of those other things that we’ve just talked about kind of play into that. I don’t think that I see them recovering from this anytime in the near future and I don’t think that it’s just because of the PR things or the things are going on internally. I think that it’s just they don’t have a good sense of how to basically break ground against Lyft.
Rob: Right. You’re saying it’s like Lyft kind of is doing a better job of executing or whenever. I don’t disagree with that, that it’s just a competition that Lyft has hit their stride and that Uber had enough stumbles that they’re getting ground made up on them. I still think Uber is an amazingly wildly successful company, it’s still worth a ton of money, and I do think they’ll be fine.
Both of them have filed for IPOs. Both Uber and Lyft should have an IPO in the next, I don’t even know, two, three, found months. There’s going to be massive liquidity and there’s going to be deck of millionaires and millionaires coming out of both of those. It’s interesting to think long term. Will there be a two of them? Will they ever consolidate? I don’t know. I mean, they’re both still pretty healthy. Even as hard as Uber got hit, it’s still, I think, quite a successful company. Obviously it’s losing money and there’s this argument to be made. Could it withstand a recession or whatever? But I just think they just pulled back growth. They are actually making profit.
My next prediction for 2018 was that there will be an enormous crash in Bitcoin’s valuation but the long-term I’m still bullish. What do you think? You think I called this one right?
Mike: I think you hacked somebody’s servers and made this crash happen, because you’re an entrepreneur, right dude? You make things happen.
Rob: I did not do that and I give myself a six on this one. It was just an inclination, just the volatility of this whole space. Sometimes I say these things because yes, I own many different cryptocurrencies. I was saying this to my head of there going to be a crash so that I’m prepared for when it happens. It’s kind of the worst case scenario but I definitely thought that there would be some volatility. Got lucky on this one.
Mike: Yeah, especially when you saw that coming and in the middle of that run up, too, like you have to be very aware of the fact that it is run up and how much longer is this going to last before it pulls back and how hard is it going to pull back. Yeah, you were definitely right on this. I give you a six on it, too.
Rob: Yeah, I mean Bitcoin went from $1200 to $18,000 in 18 months or something? Maybe is it even 12 months? It’s insane. Yes, at the time there was irrational exuberance of people where like, “It’s going to $100,000. It’s going to $200,000,” and I was just kind of like, “I don’t think this has the staying power in the short term,” but again, I set out long term. I’m still bullish and I have another prediction this year about it.
My fourth prediction for 2018 was that cryptocurrencies will be regulated by several large governments and this has happened. I think it’s been quite a bit of a regulation in different countries around the world and I think what’s interesting is the longer cryptocurrencies are around, there’s less of a question of, “Oh, it’s this new thing. Is it going to stick around?” It’s more like, “Yes, it’s going to stick around. How do we classify it? How do we regulate it? How do we measure it? How do we tax it?”
Maybe the crash helped it. It’s like become this thing that’s just there that’s just hanging around. I think it’s going to become more and more of a ubiquitous part of kind of what we’re doing to it today.
Mike: You want to kick us off for 2019? What’s your first 2019 prediction? You said you’ve got something for this year.
Rob: Indeed. My first 2019 is a crypto prediction. I think there will continue to be ups and downs in 2019, just continued volatility across all the cryptocurrencies but there will be no major boom in 2019. There will not be a run up like we saw last year. But I am still bullish long-term, I want to be clear. I still own cryptocurrencies but I don’t think we’re going to get the 200%, 300%, 500% bump up that we saw on 2018. I think it will either be just a gradual thing over the course of the year or it will just bump along up and down and I thinking in the future year, we’ll once again see a run-up like we saw.
Mike: Do you think it’s kind of done being highly volatile because even just in the past several weeks, it’s lost half its value. That’s a lot or at least the reports specifically talking about Bitcoin because obviously each cryptocurrency is different but most of them tend to track on Bitcoin’s progress.
Rob: I think it will continue to be volatile and it’s just the nature of it for now while it’s this unknown entity. This is asset class that people aren’t exactly sure what to do with it. I think there’s still going to be people manipulating it, which causes some of the volatility. I think there’s still going to be people speculating it, which causes volatility. That’s my gut feeling.
Mike: Yeah. I look at Bitcoin and the cryptocurrencies. They are one of those things where I wish there was more regulation around it but I also understand why there’s not going to be any time in the very near future. Obviously, governments are making an effort to do that kind of stuff but until there’s federal backing and an insurance on it, there’s going to be a lot of stuff that happens. The exchange gets cracked open and they’d lose all the Bitcoins, everything. That stuff’s going to happen. There’s not much you can do to prevent it. That’s going to help cause that volatility.
Rob: How about you? What’s your first prediction for the year?
Mike: This was a little bit of a tag on the last year and I think that there’s going to start to emerge a global downturn that’s going to be in full swing and it’s going to be obvious. I think before, we were seeing signs of it. I’d say last year’s prediction was probably half-right-half-wrong and I think that’s going to continue, not me being half-right-half-wrong but the downturn, so to speak.
I think we’re going to start seeing more signs of it. I’m hoping I’m wrong but I see these little things happening here and there and it just makes me wonder because it kind of goes back to 10 years ago or so. I don’t think we’re going to hit a global economic recession that causes some massive crisis like we did last time back in 2008 but I do think that it’s going to be noticeable.
Rob: I think either you or I make that prediction every year and has for three or four years. I hope you’re wrong but I’m thinking that you’re probably going to be accurate on that one.
Mike: Is that like predicting it’s going to rain eventually—
Rob: Eventually. It’s kind of. I think that’s kind of what we’re doing here.
Mike: Okay.
Rob: My second prediction is, in 2019—this is a bold one—will be the year of augmented reality. Really deep down, I question if it will but I wanted to make one at least one prediction that I was super unsure about. It’s kind of a big proclamation. I kind of want AR or VR to catch on. I want it to be cool and accessible and I want to do stuff with it, but every time I tried VR, it’s like, “Meh. It’s not there yet.”
I think that AR is probably a more viable thing because you’re not sitting there with a big old mask on your face, you can’t see anything else in the room, whereas AR, there just so many real applications of it that I think can take hold. Whether 2019 will actually be the year of it or whether it will take longer is another thing but my prediction is it going to be this year, Mike, in the next 13 months.
Mike: Now, when you say there’s a whole mess of applications that it could be used for, are you thinking more consumer or you thinking more like industrial- and factory-type things? It seems to me like that would be the place where I would start and then eventually would move over into mainstream consumer because I don’t see anything out there where augmented reality is really something that people would buy into just yet. I definitely see the industrial applications of it but not like practical things that people would use on a regular basis.
Rob: Yeah. I like the way you’re thinking. I mean, that’s what I’m thinking about as well. When I say practical applications, I do mean kind of B2B stuff which means people will pay money for it. If you’re on a factory floor, you can you look over and whatever, see the instructions, how to do things, or you can see the inventory levels. If you’re surgeon, when you look down at a patient and there’s an overlay of what should be there and where you should cut or whatever. It’s incredible for pilots, for all kinds of applications where this could work.
Now I also think that even on our phones, you can imagine having Yelp augment reality around. You hold your phone up, kind of like have you ever done the ones where the apps where you can look at the stars?
Mike: Yeah. I’ve seen—
Rob: You hold them up and that’s essentially augmented reality. Those are cool and those are fun but what are the consumer applications of this? Could you hold your phone up as cars are coming through? You hold your Uber app or your Lyft app up and it will just have a big sign over your Uber? Especially when you’re at a crowded airport, it’s often hard to find things out. They’re trying to do it right now with these lights that sit on the dashboard but what if you’re able to hold that up and just see? That’s maybe a clunky example of it.
I think once we get some contact lenses or some better version of like a Google Glass type thing, that would be even better because then you don’t have to hold your phone up and it’s just kind of projected into your eyes so that you can see things that are augmented, which is not going to happen in 2019. But those are the kinds of, I think, consumer applications that could do it but I think you’re probably right. I think B2B may be the place that makes it work and makes it more affordable.
Mike: You answer my question throughout even though I didn’t directly ask it because what I was really interested in was how do you see it working and what it sounded me like you’re saying is it’s not wearable but it’s kind of on all time. You’re carrying your device around and then you can use it in certain situations when you recommend a situation to augment the data that you receive and it would show you, “Hey, this is what you should be exactly looking at.” It’s a difference between something like Google Glass that you wear all the time versus you pull out your phone and then see the additional stuff.
Rob: Right. That would be the idea. I don’t think that you’re going to wear this stuff all the time. Most people aren’t going to do that unless you’re on factory floor and you might need to, then you do put on safety goggles and maybe it projects under your eye. If you’re surgeon or dentist, they often wear the glasses anyway that have a magnifying something or other, have augmentation there. It just makes a lot of sense and they don’t wear those all the time but they wear when they’re doing surgery o when they’re doing a procedure. Same thing perhaps for pilots. I don’t know if it would be and they already have heads up displays in certain aircrafts but that’s where it just makes more sense and you don’t have to do extreme behavior changes for people to do start adopting this.
Mike: Yeah and you don’t have to worry about the social context or social problems that are associated with that stuff. When I think about some of this stuff, it kind of reminds me of a project that I worked on at Wegmans back in I think it’s 2000-2001 where they had this voice recognition unit and I had to program things to integrate into the wireless system for the warehouse.
I got to a spot and there’s all these people wandering around the warehouse with these power lift jacks. They had to grab things at a warehouse so they could put on the trucks and they would just talk to this thing and it would tell them what it is that they needed. Fast forward 15 years and now tablets exist and you can do that kind of stuff now in a visual format that whereas before it was just text only, speech-to-text recognition.
My second prediction for 2019 is that esports leagues will get a dedicated TV channel and having done the research on this after the fact, I realize now that there is already one in existence.
Rob: I was going to say I think this exists that’s not Twitch.
Mike: Yeah, I didn’t realize it. That’s the thing is that it was not going to be Twitch. Obviously, there’s streaming systems out there, obviously. People stream out on YouTube. My kids watch that stuff constantly. Whenever they get a chance, they want to watch other people playing video games. I had this discussion with my half brother. His comments on it was, “You will watch a football game or a baseball game. How is watching somebody play video games any different than that? You’re not involved, you’re not directly playing, you’re just being entertained by the fact that somebody else is playing.”
It’s a good point to make and I think that it especially applies to people who grow up around this technology and are able to watch other people play those types of things versus back when I was a kid, you either went to a ball game some place or you watch it on TV. Now, there’s other things that people are finding interesting like esports leagues and video games. They want to watch that stuff as well and they have their own personal heroes and people that they follow.
Rob: Right and I feel the same way as you do about it. It makes no sense to me which truly proves that we are old and that people should get off our lawn but my kids, at least my oldest is really likes it. Something that I realized is it’s not just that he is watching someone else play video games. It’s that this someone else is way better than most people, who’s way better than him at it, and has witty banter, is saying funny things so they’re entertained along the way.
It’s not just like when we used to go to an arcade and when your buddy was playing Donkey Kong, you are bored because (a) your buddy wasn’t saying witty things and (b) your buddy wasn’t that good at it. He wasn’t any better than you are at it but if you put those two things, if you would sat and watch someone live on a stand-up arcade machine who is making these hilarious quips, doing well on level 50 when you can only make it to level 5, that actually is intriguing when I started thinking about what’s actually going on there.
I’m personally not a fan of esports in terms of I don’t watch any of them but I think I’ve seen the appeal and how it could appeal to folks who are into it.
Mike: Yup. I’m going to cross this one off just because it’s not applicable but I came up with that and I was just like, “Oh, I think that this could be a thing.” Oh well.
Rob: Yeah. That makes sense. Cool. My third prediction is that Facebook will face antitrust issues and due to that, whether it’s negative press, they are not having a great couple months right now. I think it’s going to get worse for them and I think that it’s going to open up a possibility of there being a new social network that comes about in 2019. I don’t mean the next Facebook but much you would say Instagram is a social network or you’d say these messenger apps like WhatsApp and Snapchat that are called social network.
These aren’t things that just replicate or replace Facebook, but they are new forms of it and a new takes on social networking and I think that door will open even wider based on perhaps, I don’t know if I’m going so far as to say that the declining used to Facebook, but that at least I’m imagining growth is going to slow down pretty precipitously for them.
Mike: Wouldn’t the growth slow down just do a market saturation as well?
Rob: I’m going to get a five on this, Mike, just because. You just gave away my secret. No. It might. I haven’t honestly look at that. I mean, to be honest the prediction is not that growth is going to slow down. My prediction is that Facebook’s going to continue to face antitrust issues or start facing antitrust issues if they’re not already and that, that will make way for the rise of another social network to come. Frankly, maybe Facebook buys them, too. It’s not I have a question. They bought Instagram and it was a good call for them to do that. I think there’s a two-part prediction basically.
Mike: Got it. I just wanted to clarify that last piece. I’ll call this my second prediction here. I think that there’s going to be something “bad” that happens involving Tesla, SpaceX, or Elon Musk, possibly at least two out of the three. Looking at it, I don’t know how to define something bad. I don’t think anything is going to specifically happened to Elon Musk like he gets in a car crash and dies—but that’s certainly obviously a possibility—but I think it’s going to be more likely that he starts making some bad decisions.
I mean he’s already had to step down from his CEO position at Tesla because of some of things that he said on Twitter that influenced the stock price. The SEC came after him and basically he had to pay these massive fines, step down for three years, and I feel something along those lines is going to progress and maybe he has to step away, maybe they push him away from Tesla because maybe he can’t keep his mouth shut or something along those lines. I don’t know what but I just kind of have a feeling about that based on what I’ve seen in his behavior. Seems very erratic.
Rob: Is this a prediction or it kind of a continuation of what’s already going on? Like you said, something bad has already happened. He’s been, basically, asked by the SEC to leave. He had to settle with them because they were going to sue him—I don’t know if that’s the right word—they were going to do really bad things.
Mike: They fined him, I think it was $20 million and they made him step down as CEO for a period of three years.
Rob: Yeah, for three years. That’s something bad has already happened to him. You’re just saying something else bad—
Mike: I’m saying something else, which is going to be in addition to the stuff that has already happened. Maybe he does something else and the board says, “Look, you’re out,” or SpaceX gets some contract and instead of putting something into space, that thing blows up on the way up or it’s trying to land it and the thing just gets destroyed. It’s not going to be one of their tests. It’s going to be something actually important. I think something like that is just going to bite them. I don’t know what.
Rob: Oh, Mike, this is such a morose prediction, man. Geeze. I hope—
Mike: I don’t want it to happen.
Rob: You’re like the shorts, the people who bet against the stock market. They’re right sometimes but nobody likes the shorts because they’re negative. They’re basically against the marks. You’re kind of betting against these companies. I’m not saying that no one should like you. I was just pointing out that there is a similarity. That was a weird thing to go down.
One of the predictions I’m most proud of actually, Mike, one that I remember is, I don’t remember if it was 2017 or 2016 but I predicted that, I was contemplating that Twitter would have major issues, that they would see their growth decline because they were growing super fast and they were just one of the many social networks.
Obviously, Twitter has continued to have a slide. I’m actually proud of that one. I picked the year, stumbled upon the right year that they did start to decline. My prediction for this year 2019 is that Twitter gets acquired by someone. I don’t even have a guess as to who. There are public companies. They have to be obviously—
Mike: They got acquired by Tiny Seed. I’m calling bull…
Rob: There it is. Nice. Making stuff come true, am I right?
Mike: Yes.
Rob: That’s good.
Mike: Yup. I mean it’s certainly possible. I don’t know. Isn’t Jack Dorsey the founder, right?
Rob: He’s one of the – I mean, Ev Williams was the founder, yeah.
Mike: Yes, one of the co-founders. He’s the CEO right now and he’s also the CEO of Square, isn’t he?
Rob: Yeah.
Mike: Got it.
Rob: Which is got to be interesting. It’s got to be a challenge.
Mike: Right. I don’t know. It seems like he’s got, I don’t want to a stranglehold on it but it seems like he’s trying really hard to manage all the problems that are coming up inside of Twitter, with people harassment, and things like. I don’t feel like he’s doing a particularly great job but at the same time not tracking every single thing that they’re doing and how they’re handling stuff. I definitely see situations where it’s just handled really, really poorly and everyone seems to think that except him, but I don’t know. It’s an interesting prediction.
Rob: Yeah. That’s been a criticism of Twitter for the past year or two, is that they’re just not doing enough to send the harassment. They don’t have verified accounts anymore or they have them but you can’t get verified anymore and they say, “Hey, we’re going to come out with a new verified process.” That was ages ago and there’s no new process. What are they doing in there that they can’t get the stuff done has been a criticism.
I don’t care that much in all honesty. I’m not a captain. I’m on Twitter all the time. I’m on now and again but it’s not something that’s part of my daily or even weekly regiment but I think that they are going to be ripe for an acquisition. I don’t know if their acquire will be able to turn this stuff around or not but that’s probably what the intent will be.
Mike: Yeah. I’m trying to think of who would even acquire them and I don’t know who that would be.
Rob: Facebook, Microsoft. No, I don’t know. I’m just kidding.
Mike: My last prediction is that Amazon is going to overtake Apple in terms of net worth.
Rob: Market cap?
Mike: Market cap, yes. I know it’s sort of close but I think that they are going to not only overtake them but in a solid and definitive way. I think they’re both somewhere in the $800 million range or something like that and I think Amazon is going to surpass them. They may even be the first to hit $1 trillion or did Apple hit that at one point then drop?
Rob: Apple hit it. Yup, they already hit it.
Mike: But anyway, I think Amazon is going to be solidly in front of Apple and the only way I see that not happening is it if they take AWS and spin it out as its own subcompany and it’s independently operated, which is also a possibility, I think.
Rob: Yeah, I do, too. I think that’s an interesting prediction especially given you’re talking about this global downturn, which would imply that stocks will continue to slide and they’re both, in theory, going to go down. You’re predicting that Apple is going to go down more than Amazon, if you tie those two predictions together.
Mike: Yeah, I guess so. I don’t know. It’s hard to say whether or not both of those would actually go down. I do think that Apple is probably headed for a downturn. I think that they’ve saturated the market so much at this point with their phones and that recently they started increasing the prices and they said that they’re not going to continue releasing sales numbers for units. I think that’s what it was.
Essentially, what they’re doing is they’re kind of hiding what their actual sales are in terms of what the revenue. They’re going to provide revenue but they won’t provide actual unit sales. You won’t be able to tell independently whether or not they sold more or less based on those numbers long because everything’s kind of aggregated. They just make it harder to tell whether they sold more from one year to the next.
Rob: Yeah, and who knows? I mean, Amazon has done that with their Kindle and Apple’s doen that with different device categories that they just keep in in other devices like Apple TV. That’s one point they were not releasing any numbers for that. I think when something gets successful, they break it out. Not uncommon for them to do that but it definitely is interesting.
I feel this is a good prediction, actually. I just think unless Apple comes out with a breakthrough something in the next year or two, they are just incremental improvements on good technology—I like their hardware—but there’s been nothing groundbreaking that’s really capture the market, whereas Amazon continues to innovate and continues to just kind of have cool stuff.
I mean, you think about AWS, multi-billion dollar business, Amazon Alexa they’re way ahead of everyone else in terms of the smart home stuff. They’re just pushing things forward and I have become a fan of Amazon’s products. Even that Kindle Paperwhite, first one was super clunky and then they just get better and better. Amazon is certaining doing a good job executing. I think you’re going to be right on this one I guess is what I’m saying.
Mike: Yeah. Well you’re point on Apple just making incremental improvements, I still have an iPhone 6s+ I think—I see there 6+ or 6s+ I forget which—it’s several years old and I have no compelling reason to upgrade, like none whatsoever. My wife got one just because her old one was an iPhone 5. There were certain things that just would not run. She kind of needed to upgrade.
It kind of made sense, but I don’t see Apple coming out with anything. The watch was nice but it’s not a game changer for them in terms of revenue and with AWS, that’s the biggest cloud platform on the planet and only Microsoft is behind them with Azure. But that’s still a $40-$50 billion a year industry for them.
Rob: Yup, and there’s Google app engine as well. That would be the other one.
Mike: Yup, that’s number three. I’ve looked at an article here that says Amazon’s revenue, it says $44 billion for AWS, $19 billion for Azure and then $17 billion for Google. Yup. Crazy, crazy numbers.
Rob: Crazy. Well, sir, we should probably wrap this up.
Mike: Sounds good.
Rob: We will see how we do about 12 months from now. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt. 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, we’ll see you next time.
Episode 423 | Our Goals for 2019
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike set their goals for 2019 as well check in and rate how they did for their 2018 goals.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about our goals for 2019. We also look back at our goals for 2018 and evaluate how well we did. This is Startups For The Rest Of Us Episode 423.
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: And we’re to share our experiences to help you avoid the same mistakes we’ve made. What of this week, sir?
Mike: Well, it’s the middle of December so I’m just kind of working on MicroConf sponsorships and scholarships at the moment. I was just having various conversations with people about different options with things that are a little bit different for a sponsorship option for MicroConf. There’s a few different options that are on there that also include the scholarships.
Last year we kind of quietly and under the radar offered 14 scholarships to people for Starter Edition. I’m looking to expand that this year and talking to various people about it. I’ve already got some people who’ve committed funds and already actually put the money in and started sponsoring those. That’s good to see and we’ll just kind of see where things shake out at the end of it. I kind of have a mental goal in mind but I don’t want to shoot myself in the foot by sharing it.
Rob: Sure and if someone was interested in either sponsoring either the conferences or offering a scholarship ticket to Starter, how do they get in touch with you?
Mike: They can reach me at mike@micropeneur.com or I think sponsors@microconf.com also works. Either one of those and if you’re interested in just sponsoring one individual scholarship option, there’s a link for that right on the sales page for the MicroConf Sales or you can go to microconf.com, click on the link to buy a ticket, and there’s an option there to just purchase an individual ticket. The terms of the sponsorships, there’s kind of a mechanism for purchasing more than just one or two tickets. I think it starts at four and goes up from there.
Rob: Yeah and I knew part of the scholarships. I mean, this is something you really spearheaded and you kind of came under the radar a couple of years ago, and then you really started pushing on this program last year. But it helps folks get to Starter who otherwise can’t afford to or they don’t have an expendable cash to get out there and it can really make a difference for someone. I know that we interviewed some folks with the kind of video interviews after the fact or during the conference to share with the person or company who would sponsor them. You and I looked through those and they were pretty meaningful and people were really impacted by the conference. I think it was a transformative experience for them. It’s nice to be able to offer something like that.
Mike: Yeah, definitely. What’s up with you this week?
Rob: Well, I’ve long had an LLC in California, obviously because that’s where I’ve been running my businesses and I just entered a process, I believe it’s going to get finalized this week, of transferring that LLC to Minnesota. There’s a bunch of reasons for doing this: (a) it’s cheaper to do business here, but (b) I had to have basically a kind of a PO Box or an accountant or whatever, you have to have an address in California that they could send stuff to. I don’t need to file tax returns in California anymore. Even just that, it’s like an extra tax return my accountant charges me several hundred bucks for.
It feels kind of a nice piece of closure for me and it’s also an opportunity to rename the thing because I can name it whatever I wanted. The name that I picked in 2007 does not resonate with me. I picked a name that was so broad and esoteric that I could put whatever I wanted under it. At first, it was like a consulting firm so it had the name ‘Group’ in it. It’s called The Numa Group. It was a consulting firm but then I just put a bunch of software products under it and put my part of MicroConf under it. I don’t particularly love the name anymore and the domain name I have for it is clunky. So I just kind of consolidate the thing. I renamed it to Start Small LLC.
Mike: Oh nice.
Rob: Yeah. It took me a while. I’m not good at naming stuff and I was like, “What is something that for me is timeless? That in 10 years, I’m going to think back and say that was a good call?” and it’s not just because it’s the title of my book, or part of the title but I just feel like it fits into so much. It tells my story in two words and it fits in with the MicroConf ethos. It just said so many things.
Anyway, that’s been kind of a fun, cathartic process of just moving everything here, like The Numa Group redirects to my robwalling.com site which I had redone. I’m just kind of getting rid of a bunch of cruft. The Numa Group site was a landing page that was outdated and I just kept saying, “Oh, I’m going to get back to that,” but why it even have a landing page? Why even have that anymore? The company is not important. Frankly, at this point, it’s kind of about robwalling.com and then about Tiny Seed. It’s my personal site and the business site and everything else in MicroConf, of course. Anyway, that’s kind of been the process.
Mike: Yeah, I can imagine that’s a real pain in the neck and it’s something you probably want to get taken cared of before December 31st because if you don’t, you’ll have a file taxes again in California the following year.
Rob: That’s exactly what I’m doing. The only other thing is I’ve been coming out of the woodwork a little more and doing some interviews and even wrote a Q&A piece for a software execute magazine. That will be out in a couple of months and I’ll probably mentioned that again when it comes out. Have you heard of Hacker Noon?
Mike: Yeah.
Rob: Dave, the guy emailed me from there and did a little-written interview with me. It was kinda fun. It took a lot of work. I forget how easy voice interviews are compared to written interviews. I know that you know this because of the Indie Hacker one you did last year or earlier this year and you’re like, “Yeah, I spent two days on it.” So much effort.
Mike: Yeah. It was way more effort to do those. I think people’s expectations are different as well if you’re talking versus if it’s written, it seems like it should be carefully crafted, say exactly what you mean, and not anything else. When people are listening to you, you have a lot more leeway, I think, because people understand that you’re talking off-the-cuff and it’s not heavily scripted thing when you’ve memorized ever question and every answer.
Rob: Yeah, that’s right, and it feels less prepared whereas writing, it feels like you need to rewrite it, reread it, edit it, and do all that, which is exactly what I did. It took me 2-3 hours to answer the questions. What was cool was some of the questions at Hacker Noon interview, ones that I’ve really never been asked, which is always fun to think through but it’s also time-consuming, and it’s peaked.
It’s kind of peaked productivity stuff. I had to do it in the morning. I couldn’t in the afternoon there. I would just been too tired to really hammer something out. Then I came back to revised it, updated it, and stuff. I feel like it turned into a really good interview. I haven’t done a written interview in probably five years just because of the time that it takes. I just turn them down. But I kind of wanted to do this one. We’ll be sure to link that up in the show notes.
This week, we are diving into our goals for 2019. But first, Mike, the walk of shame. We get to look back at our 2018 goals. Episode 372, just a short 50 or so, 51 episodes ago, it looks like. We talked about our 2018 goals. Why don’t you roll into your first one? Are we going to do a 1-5 scale of one we completely flubbed the goal and five is we completely nailed it?
Mike: Oh I figure we talking about 1-5 is like my goals versus your goals.
Rob: Oh, no. No, no. This is how well we carried them out.
Mike: Well, I’ve been quite honestly we could put one on pretty much every single one of mine. We could kind of shorten it. I’ll go through them but this last year was just absolutely atrocious.
Rob: Let’s do it. Let’s roll through all yours right now then.
Mike: Sure. You want me to go through all five of them then?
Rob: Oh yeah, the agony. Let’s read them in slow motion so everyone can watch a trainwreck.
Mike: The first one was actually a carry-over goal from the previous year, which was login at least 100 days of exercise the coming year, and I fell way, way short of that. I probably got to 25 or 30 and that was just about it. The second one was making Blue Tech profitable including my time, which has also not happened.
And then the other three, I think at least one or two of these, about two or three months in, maybe March or so we decided, “Hey, these just don’t even look realistic. We should just can these to begin with.” One of them was speaking at six plus conferences or events because the idea was that, at first I thought, “Okay, well this can be a way to market Blue Tech,” but at the same time, you really have to have the right audience for that kind of thing anyway, and it felt like more of a distraction than anything else. So, I ended up canning that one.
Then the other one, reading at least one business book every two weeks. That seem to me like it was also a distraction. It was like a consumption thing. I also cut back on podcast listening just because of the same thing. It will just take up mental overhead that I just didn’t want to have. Then the last one of that list was hiring someone to take over Blue Tech development, which kind of requires that Blue Tech become profitable. If that doesn’t happen then it’s hard to fund that. So yeah, I would say pretty much one on all of those.
Rob: What does that tell us? Is it were you doing other things that you would say were accomplishments that were outside of this? Was it a focus thing or was there a better priority that came up? Or do you think our goals are stupid? That’s another. Should we not set goals?
Mike: I think a lot of it had to do with lack of focus. By lack of focus, I don’t mean I’m working on one thing and then working on another. I mean literally lack of focus. Inability to focus. Because I wasn’t sleeping. I mean, I’ve been kind of suffering through this for the past several years, like I got on a CPAP machine a couple of months ago and that thing has been working fantastically. I’m actually sleeping now. But I went back and before this episode, I looked at the sleep blog that I’ve kept for this sleep therapist that I saw. I was up anywhere from 3-8 times a night and I was only getting anywhere from 4-6 hours of sleep. There were times when I would get 1½-2 hours of sleep a night so I felt fuzzy.
It’s hard to describe the difference that it may swing. I felt that way. Yesterday, for example, I woke up and I had a fantastic night of sleep. It’s a world of difference between being able to think straight and just kind of going through the motions and getting things done but not really able to focus on any one thing and feeling like you’re shifting back and forth but not making any real progress.
Rob: Yeah. It’s easy to get distracted and your thoughts are fleeting. In addition, I don’t know if this happens to everyone but when I only get a few hours sleep, I am actually super pessimistic and I tend to look like someone with depression. I don’t technically have it because it’s not over a long period of time. I will wake up and just be like, “Oh this is all just shit. None of this is going to work. Oh my gosh. Why am I even starting startups? I can’t do any of it.” That will be my inner self-talk and I’ll catch myself now and be like, “Dude, you’re really tired. You should just go to sleep.”
I know that’s not easy for you but that’s what my inner monologue will be on those days of like, “You’re going to be better off not working today.” But for you, it was happening everyday, right?
Mike: Yeah, even on the weekends, too. That was the worst part is, I was exhausted and I couldn’t get to sleep. When I did go to sleep, I didn’t realize also the time because I was trying all these different things to just get to sleep. Or I’ll move my bedtime back earlier and I’ll go to sleep, or try to go to bed at 10:00 or 10:30, turn off all electronics, don’t answer emails after 7:00 or 8:00 o’clock at night, just turn all that stuff off. It works to a slight degree but not enough and I couldn’t figure out why and it kept happening.
Of course, come to find out through the sleep study, like, “Oh, my body is waking me up multiple times a night because I stopped breathing.” You can’t change habits and fix that. It just doesn’t happen. It didn’t matter what I did. Nothing was working.
Rob: Yeah, and that’s tough and it’s frustrating. Obviously, five goal set and zero goals achieved. Health issues were a major impact on that. It’s interesting. Sherry talks about this, that a lot of mental health issues in general, like people with depression or ADHD or other stuff, one cause of those, not for everyone, but one cause is a lack of sleep. Once people stop being able to sleep full nights, their minds start doing weird things.
She also talks about there’s some research studies that talk about the quite a bit the angst of being a teenager, how you turn 13 and you get all angsty from 13 to 18 or whatever kind of the thing is in high school. A lot of that could very well be too just a lack of sleep. The kids at that age need about 10 or 11 hours and most kids do not get that much and they’re tired all the time and it leads to the sadness or whatever. I’m no expert on this, so I don’t want to talk, but Sherry has talked to me multiple times about this and especially with our kids, because a couple of our kids at different times, they have behavioral issues, they have focus issues, and one of the first things that we will get is sleep and exercise every time instead of trying to medicate or whatever.
I’m not anti-medication but it’s like the first two resorts every time Sherry is like, “How has he been sleeping?” and, “Is he getting out and getting 20 minutes of hustle, hard exercise?” Not a 20 minutes walk but 20 minutes of running around playing dodgeball a day. I think that it’s interesting and it can have a huge impact on your mood and your ability to focus, which then has a huge impact on your productivity.
Mike: Yeah. For me, it was that vicious cycle of not being able to sleep and then it also affects my ability to go to the gym. If I don’t go to the gym first thing in the morning, it’s just not going to happen because I get busy in other things getting in the way. Not being able to sleep has a direct impact on my willingness and ability to go to the gym. It just puts me in this vicious cycle where I don’t get to sleep, so I don’t go to the gym, so I don’t feel good in any way, shape, or form, and then I go to bed and I’m stressed out, exhausted, and tired. And then my mind is wandering even before I get to sleep so I can’t get to sleep. When I do sleep, my body just – I guess I’m assuming because it’s physical problems. I just got the sleep apnea that wakes me up.
All of it combined. It just doesn’t end and there is no way for me to kind of break the cycle until I found out what it really was. I knew I wasn’t sleeping but that was a symptom. It wasn’t the underlying problem.
Rob: And you have that machine for the past couple of months. Dude, how’s your progress? Has it been night and day? Not just how you feel because I know that you feel is night and day but are you making substantially more measurable progress since then?
Mike: Yes. I can point to different things that I’ve done in the past, like two months or so. In the past two months, I have probably made more progress than I have in the past 10 or 15. It is night and day but I’m cautiously optimistic about how things are going to turn out but obviously at this point, I feel it’s more about execution that anything else. But I still have to make sure that I crack down on those health issues and make sure that they don’t get in the way.
Now that I know what the problem is or problem was, then I can try to do things to address it. But before, I was trying all these different things because I didn’t know what was going to work or what wasn’t and how to get around it. I remember pushing off on the sleep study a while back for my doctor, and she’s like, “Have you ever thought about having this done?” and I was like, “Well, I have but I don’t really want to go through it and have nothing come out of it,” because last time I ended up going in, she recommended that I go for a blood work. She’s like, “Oh your platelet count’s low and let’s check this out.” I go and she referred me to this doctor, go through that, and then $400 worth of test later, the doctor tells me, “Well, you don’t have leukemia,” and I’m like, “I never thought I did. I don’t know why I’m here for that test.” It kind of pissed me off but what do you do? The doctor’s are really just trying to figure out what’s going on here and they do it by process of elimination.
Part of it’s maybe my own fault for not doing it sooner because she had recommended it in the past but at the same time, I didn’t really want to have that done just because I didn’t know how much it was going to cost. My insurance barely covered any of it. It cost me several thousand dollars for between the machine and the tests and everything else anyway.
Rob: In looking back on obviously these goals, you said five of them are ones. This is a weird question but is there something that you’d accomplished in 2018 that you feel good about, that if it had been a goal, it would be a five? Something of note? I don’t know how you even rank that. I’m just trying to dig in to figure out is there anything there?
Mike: Like was 2018 a complete loss or were things you actually proud of?
Rob: Kind of, yeah. I mean, I just kind of digging into it because this sucks and there’s gonna be someone listening to this who thinks, “Oh, Mike should’ve sucked it up, accomplish stuff anyway, and push forward,” and then there are the majority of people I’m guessing are going to be like, “Wow, that totally sucks. I hope that never happens to me. I hope I never feel that way.” And then there are going to be people who like, “I’ve been through that.”
Whether it’s sleep issue, whether it’s your neck and back hurting so much that you can only work two hours a day, which has happened to me, whether some people get vertigo really bad so they get super dizzy, some people get depression, they get ADHD, there are all these debilitating things. They can be physical, they can be mental, they can be whatever, but it happens to a good chunk of us. Maybe not for a whole year in us since you’re saying on and off for a couple of years but I just think there’s a lot to think about with that. In terms of staying healthy, I think it’s probably the big takeaway, perhaps.
Mike: Yeah. The two things that I can point to is, the first one is the accomplishment, the scholarship program that I got, going last year at MicroConf. I think that, that was a good start and this year’s trying to take it to the next level. We’ll see how that goes but it was more about experimenting and trying to figure out what’s going to work, what’s not, and help work with the sponsors, figure out what works for them as well. I think that we did well with that.
Rob: I would agree with that and you basically spearheaded that and put in a bunch of time. That was something that was a little mini startup within MicroConf and I’m glad you called that out because that was something you did that was really cool. I think something else you may not call this up but you kind of crushed it on sponsorships this year with both the conferences so I would call that as a win for you. It’s weird to put a goal in there of like, “I want to increase sponsorships by X, Y, and Z,” because it’s more relevant to us, it’s an internal thing, and I don’t know that it’s that interesting to folks outside, but it is something you put time into and had success with.
Mike: Yeah but even the sponsorships themselves, they help us make Starter Edition possible because we, too, subsidize Starter Edition out from Growth Edition to some extent, and we have to because it costs the same to run both of the conferences. The stuff that we do there has a direct impact on Started Edition, which has a direct impact on people who are getting started with entrepreneurship and softwares. I think that all ties together is like a general kind of goal or direction that we both kind of always as long as this podcast has been going. But yeah, it’s a good thing to call those out. But I don’t know as I would probably have put those in exclusively as goals.
The only other thing I would say is, and I wouldn’t even call this a goal again, but I’ve started getting out with a group of friends here once a week and actually having some social contact outside of my office. It’s weird to say that because I don’t have an office that I go to. I don’t have employees or people that I meet with on a regular basis. I barely have any contractors at this point. It’s really just me, working on most stuff.
Like my social contacts, outside of my house is extremely limited. One of the things that I was trying to do is figure out in terms of the mood and you kind of talked about, if you don’t get sleep, you kind of feel depressed and why am I working on this and things aren’t working and you’re very pessimistic. I felt like that for a very long time because I wasn’t getting sleep. One of the things I tried to do was say, “Okay, well what can I do to fight this?” and one of them was getting out and be more social with people. So I kind of established that, Dungeons and Dragons group, then meeting with them on a weekly basis. Honestly, it was quite helpful but even now after getting sleep, it’s even more helpful because it’s not just me looking forward to it every week but everybody else is as well.
Rob: That makes sense. So some good things did come out of 2018 is what you’re saying.
Mike: Yeah, some, but I don’t know. I’m hoping 2019 will be substantially better.
Rob: Yeah. Sounds like a rough year. Looking at my 2018 goals, looks like I had three of them. One was to be in fewer meetings under 10 hours a week. You and I laughed, chuckled about this a few months back because the reason I was into so much meetings is because I was at fast-growing startup that was growing from, I don’t know, it was 20 or 30 people and it went up to 60-70 by the time I was leaving and that just requires a bunch of meetings to keep everybody apprised of what’s going on and all that. I was running a big team and non-senior leadership and there’s just a lot of stuff required with that.
When I left Drip in April, basically my meetings went to zero. We did this in November or December of last year so I didn’t have knowledge I was going to be leaving in April but I did achieve this in a way that I probably didn’t expect. I think the way I wanted to achieve it or would have thought about in November-December was to stay at the job but just change it so I was in fewer meetings but it turns out that leaving the job also did the trick. Frankly, my life’s been better for it, being in fewer meetings, that is.
Mike: Yeah. Add in six plus months of zero meetings a week, it tends to bring that average put down pretty far.
Rob: Yeah, I know. I am so much more chill and just content taking time off like this is something I’ve never done and it’s worth it.
My next goal was three days of exercise each week and so fewer meetings, but I give myself a five, a few days of exercise, I’m going to give myself a four. I basically crushed this goal from January until it got cold. I crushed it during last winter and then all through summer I was out doing stuff, I was riding my bike. Everything was built into my day and I was doing it.
Then it was probably around October, just a couple of months ago, that it got cold. We started homeschooling one of our kids and Tiny Seed started picking up. But what I let go was exercise and it’s what I always do and it’s always my lowest priority. So I did it for maybe 9 or 10 months of the year and there were weeks where I had five days of exercise. Way more than I even need in my opinion. Healthy by nature just by genetics or whatever. Even getting in three days of 20 or 30 minutes pop is enough. Mostly achieved, and I think it’s something that I want to certainly get back on the wagon here and the next few weeks as winter continues to bare down on us.
My last goal for 2018 and this one’s interesting. Let me read this whole thing. To ship something in 2018. Not sure what it’s going to be, yet. But I’ve been laying low for 18 months, 2017 was supposed to be a rest year and it was a hard year. First part of 2018 is going to continue to be rest but I need to start shipping, either consistent blog posts, a book, a new podcast, a course, software, something, and what is that something like?
Mike: I assume that that would be Tiny Seed.
Rob: It is and in 2017 November, I had no idea that that’s what I’d be doing. It’s interesting that it’s like knowing yourself. I figured I was going to need to do something and then I actually frankly started working on a book after I left Drip in April. I did write maybe 12,000-13,000 words, which is about a quarter of a book, 20%-25% of worth from a book. I did do that and then I eventually just slowed down on it and lost some interest and decided I just didn’t want to force it. There’s also that that’s in play and could feasibly come out sometime.
That’s what I had and I don’t know with me if goals are self-fulfilling prophecies or I make goals that I secretly, way in the back of my subconscious, know that I will achieve or something. This one strikes me as weird, honestly, because I remember the mindset I had at the time and I genuinely had no idea what I was going to do. I just know that I needed to put something out into the world and that something obviously has become Tiny Seed.
Mike: I think that generally, your goals tend to be, I wouldn’t necessarily call them self-fulfilling prophecies but more along the lines of you have this inkling in your head and in your subconscious that you know what direction you want to go or need to go but you’re not quite sure how you’re going to get there, and during our goals episode you put something down that has kind of surfaced but you’re not always certain of the specifics. But by the end of the year, something has solidified or something has come about.
For example, your fewer meetings. You probably weren’t thinking, “Oh, I’m going to leave Leadpages,” but at the end of the day, that was one of the ways that that came about. Maybe that partly influenced your decision because you wanted to have fewer meetings. And then the same thing with shipping something. That kind of goes back to leaving Leadpages as well but Tiny Seed kind of came out of that. You knew in the back of your mind, “I want to do something, not sure what that looks like.” I think your goals on a yearly basis tend to reflect that.
Rob: Yeah. That’s good insight. I also feel like I’m pretty methodical and I kind of know when it’s push year and maybe a rest year. I don’t know. I haven’t had many rest years per se but I don’t know. As we started Drip, I knew 2013 the goal had to be launch it and grow it to X, and then 2014, 2015, and 2016 at the beginning of them, I did make revenue goals for the end of the year.
This is an interesting conversation, actually, because some people don’t like goals, or they don’t believe in them, or they say they’re not worthwhile, or they say that they don’t fit them, they’re like, “Oh, how can you possibly plan 12 months out?” Maybe that’s a personality thing but I have had set goals for myself frankly since back in high school with Running Track.
I had goals to hit certain times at certain by certain meets or to make the state meet or whatever, and that to me was a motivator to strive to do that. I had goals to write certain amounts of things and then when I started blogging and started becoming a professional, I had a goal to make this much money by the time I was this old. I don’t know. I’ve been a goal to reverse it so maybe these goals fit my personality and am not something that everyone necessarily needs.
What I find is interesting is my wife, Sherry’s personality is quite a bit different than mine. But when she goes on a retreat, she also sets at least some, I don’t know if she calls them goals, but there’s things that she’s striving to do and she looks ahead a year and says, what are some things that I want to get done? Now I would call those goals but maybe you could call them a mind map. You could call them something different but it still is something and it may not have an exact time frame, it may not be, I want to make exactly this much money from this thing but it’s like I know that I need to kind of do this.
That’s how we do these episodes. I think we should probably call that out. Do you feel the same way? Are you a goal-driven person and does having goals, you think it helps you? Or do you think it’s a waste of time, I guess, to have these?
Mike: I’m definitely driven by goals but I feel like the further out those goals are, it’s harder for me to really conceptualize the entire path getting there, and unless I sit down and kind of do all the planning work of saying, “This is what it’s gonna take to get here. This is what’s it’s going to take to get here.” Unless I kind of do that whole process, I’m probably less likely to reach the end goal because I don’t necessarily have a map to follow. Part of having that map to follow it’s fun for me to build that but once I figure out the answer to a particular problem, I am not always the best at following through and actually implementing it.
That’s more of a personality thing than anything else but I can definitely buckle down and get things done, but it depends on kind of what is and what my interest level is. If there is a goal that I put down and I know exactly how to get there, if the hardest part is figuring out how to get there, then I probably weight less likely to actually do it.
Rob: Yeah. That makes sense and I think, to be honest, there were times when, I think back seven, eight, nine years ago for me, it was really hard to look ahead a year because I just didn’t know. These were years where I decided to write a book and wrote it in three months. There was no inclination that I was going to write a book that year. I just decided this is a new thing and I’m going to move on to it. We decided to launch MicroConf into that pretty quick and launched a podcast.
Those years, I think, if I had goals that I wrote down, probably completely went off the rails. But I was okay with that. There was a lot of stuff in flux in terms of my professional career and I was trying to figure stuff out and it’s not like I nailed these goals to my door and I could only do them when I etched them in cement and I could not veer from them. I veered from them because it was a better decision at the time.
What I find with goals I set now like we’re going to talk about in these episodes, these are a way for me to focus because I think most of us are presented with way more opportunities than we could possibly pursue and way more “good” ideas than we could ever implement, some of them good, some not. Having goals is at least some bumpers to keep me in a lane so that I don’t look around at every email I get offering for me to do this thing or this opportunity or whatever, and say, “Oh, of course that sounds like fun. I should do that.” But I come back to these goals and say, “Yeah, these are things that I really wanted to do and they made sense when I really thought about them,” and unless something amazing comes along that just blows my mind, I’m going to kind of stay on this track for this year and see things through.
I think that not having goals can lead to a shorter term perspective because again, shiny object syndrome. Opportunities come up so frequently that can be just derail you and you can get to the end of the year and be like, “What did I do the last 12 months?”
Mike: Yeah. It’s giving yourself permission to say no to things. There’s that idea that unless it’s a “Hell, yes,” it should be a no. But you’re right. There’s just so many things that we could do. It’s more about what do you want to do if you had all the time and resources in the world? But you only have so much time see in your lifetime to do anything.
It’s hard to figure out for each individual, I think. If you’ve got this unlimited list of options, what is it that you want to achieve? What are you going to be proud of? Eventually, you’re going to be gone and what do you have left behind?
Rob: Yeah. It’s an interesting thing to think about. It’s like a legacy. If you look at legacy and say, “All right. Mike, in 20 years, you and I will be in our 60s. We could still work, we’re still going to do stuff. But are our best days of accomplishment behind us?” This is a rhetorical question. We don’t have time to answer it here but do you have goals? Or a goal of when you look back, when you’re in your 60s or 70s, would you want to think, “Yeah, I did that.”
I think each of us should if we don’t. And how are we going to get there if we haven’t set some goals along the way? Do we just kind of wander our way and make it and in the end we’re like, “Hey, I’m glad all of that worked out.” Or does it have to be a deliberate decision every week, month, year to kind of make progress towards something bigger?
Mike: Yeah, but I don’t think you’ve always know what that’s going to be 20 years in advance. I mean, it’s hard to know what’s going to work and what’s not as you’re moving forward, and some things you’re going to do and be very proud of them. But in the grand scheme of things, they may be meaningless to, I will say, the greater world but to you, they meant something.
I think looking back, you’re going to want to have those things that meant something to you and yes, it would be really nice to have legacy where other people recognize the accomplishments that you’ve had. But at the end of the day, did you live the life that you’ve wanted to live?
Rob: That’s almost a great way to end this episode except for we haven’t covered our 2019 goals yet.
Mike: Damn you.
Rob: I know. I’m glad we talked to that through because I think the whole goals conversation is kind of been on my mind recently or every year or so, it just comes on my radar of why do we set these and what does all these mean? Maybe a separate episode we talk about legacy but for now, shall we dive into 2019 goals? Looks like you have two of them with multiple sub-parts. It’s like a tax. You’re like you’re an IRS document. One part D is, yeah. You let this roll into it.
Mike: All right. The two goals that I have for 2019, the first one is really just get my health back on track. With goals you really want to have some sort of definition around exactly what that goal means, so for me it means basically four different things. One of them is exercising, the second one is getting a regular sleep schedule going, and then the third one is losing some weight because I’ve put on probably about 25-30 pounds or so in the past couple of years, and it’s more because just lack of sleep and everything else is going into it.
Then the fourth one is regular in-person social contact, which I’ve got partially down at this point, I think, but think I probably need to expand that a little bit. Exercise a certain number of times a week. I wanted to get to it at least twice a week, and then the normal sleep schedule, I really need to be getting at least 6½-7 hours of sleep every night. Previously it was only maybe 4-5 on average, I think. Then obviously losing weight. I’d say 15 pounds to kind of start with for this coming year. Then regular in-person social contract. It’s kind of a nebulous thing, but I’ve got at least one scheduled night a week with people. Maybe I’ll go to two, but I’m not sure about that.
Rob: Yeah, that one’s tough because I don’t know that you want to commit yourself to two nights a week. It doesn’t necessarily always makes sense.
Mike: No, but I do notice that when I go to my gaming group and I come back, I tend to get a really good night of sleep that night every single time.
Rob: Interesting. Is it because you drink a lot?
Mike: I plead the fifth. It’s when I host, I don’t have to drive anywhere so that’s certainly helpful.
Rob: Less drinking disturbs your sleep, right?
Mike: Yeah, it does.
Rob: It helps you fall asleep but it doesn’t actually give you a good night sleep.
Mike: That’s true. Those are kind of the four subheadings under that first goal.
Rob: That makes sense. Let me do my first one. My first one, not surprisingly, is three days of exercise per week. It’s basically a continuation of something that I started a couple years ago, although I believe you started a whole exercise goal first, probably 3-4 years ago and eventually I was, “All right, I need to get on this.” It’s never something I’ve needed to do but I know it’s something I should do in all honesty, especially as I get older.
It’s kind of a boring goal, but it’s something that I need to have on my list or else I have no desire to do it and I will not make the time. Unless it’s written down and I know that I’m going to have to come back here and talk about it, it’s an interesting accountability thing. It’s not that I’d be terribly devastated if I came back and say, “Oh, I got a one.” I know it’s good for me, like eating my vegetables and I know that I will at least made some type of public commitment to it. For me, it’s helpful to say this as a goal.
My second goal is for Einar and I to build it into essentially the de facto brand when bootstrap has look for early-stage funding. This one is going to be tough to measure and this is where the 1-5 will help us out because I think by the end of 2019 frankly, that’s only 12 months away and it’s not a lot of time to do this.
I’m guessing this is this is a multi-year process. What I’m saying here is, I want to raise all the fund, kind of close the funding and have a batch that goes live. We get companies, they’re having success, and it’s just executing on the Tiny Seed vision. I don’t know exactly what to put to measure at the end of 12 months, but I have a feeling in my head of what I want it to be and I want it to feel successful. I want it to feel like it’s well-regarded and I want it to do right by both the founders and the investors who were involved with it. I want it to make a difference.
I feel like if we had said at the beginning of starting MicroConf, that the end of next year or the year after, we want it to be a prominent player in the conference space, which was not a foregone conclusion when we launched it by any stretch. That did happen. It didn’t probably happen in the first year. It took us a couple of years to get there but we knew it when we saw it. Once it happened, it was like, “Oh yeah. MicroConf is a thing now.”
That’s how I want. I want Tiny Seed to be a thing. That’s my long way of saying 2019 for me is definitely the year of Tiny Seed.
Mike: Yeah. I think for this one, I agree that for the way you kind of phrased it here is for it to be the de facto brand when bootstrappers are looking for early-stage funding. That is in and of itself as kind of a multi-year goal, but I think you could probably narrow that down a little bit to say you’ve got the first batch of people going through, however big that batch happen to be. Maybe you put goals around it, maybe you don’t, but at the end of the year, I think that you want to see that whoever has gone through that batch, has a reasonable looking chances for success based on where they started.
The exact definition of that is not going to be determinable right now, but you’re going to kind of know it when you see it six, eight, ten months afterwards. Maybe they’re at that point by the end of the year, maybe they’re not. It depends on kind of when you start that batch and get them started through the process, because if you start in January, then obviously you’ve got a lot more time than if you started in next October.
Rob: Yup. I made a note there, first batch of founders are in the batch and they have a good chance of success. I mean, in the back of my head, I really want this stuff to start moving in Q1, which is January, February, March, so we’ll see how close we can align to that, but it should give us a good chunk of the year to get people moving.
Mike: My second goal I have here on the list is specifically related to Blue Tech. First one is just getting my health back on track and then the second one is to establish some sort of traction for it or move on to something else. Maybe that sounds like a major shift, but at the same time I feel like with the focus starting to coming back to me and clarity and getting sleep, things need to move in a good direction or it’s just going to be meandering. If it’s still meandering at the end of next year, then chances are good that either I’m not committed to it or there’s something else going on.
Quite frankly, I just don’t want to be in a position where I’m making excuses at the end of next year. It’s got to move or not. If not, then fine. I don’t want that to happen but at the same time, as I said, I just don’t want to be in this position next year where I have to justify kind of what happened.
Rob: Yeah, I think that makes a lot of sense. I think it will be a tough decision. A lot of work easier to try to push it forward and then evaluate that.
Mike: Yeah. I don’t know exactly what the target is for that. I’m kind of fuzzy on what it means. Is it a revenue target? Is it customer base if I get to X-1 customers I plan to get to X? Do I kill things? I don’t think that’s really applicable. Did things shift substantially now that I feel like I’m able to focus or am I still in that position? Do I still feel like I’m not able to focus on it? If that’s the case then made it’s a motivation issue and maybe I’m just not really interested in it. But we’ll see.
Rob: Yeah. I feel like in my head it would be finding product-market fit. Having a product with that really is easy to grow because turn is so low and when people start using it, they stay and that you’re able to add enough customers that, like you said, it becomes profitable including your time, or it’s very close to that. It’s on a trajectory to hit that within a short amount of time, I guess. That’s all still amorphous but that’s what I think in my head it probably looks like.
Mike: Yeah, but that’s what I said, establish some sort of traction with it like the MU site trajectory and I think that’s exactly the same thing. Does it to appear to be on the right path, and you may not know exactly what that is right now but afterwards, you kind of know whether there’s a good difference between where it’s sat now versus where it is at that time.
Rob: Yeah. My last two goals. Again, my first one is three days of exercise a week, second one was about Tiny Seed, and my third one is do not panic when the stock market crashes. This is one of our predictions that we have every year. There’s going to be this correction or whatever.
Mike: Did you panic last week or the week before when the stock market dropped like 1000 points in a week?
Rob: Nah. I didn’t at all. No.
Mike: Okay.
Rob: Maybe this is an easy one. I mean, I kind of pay attention to it but I’m also so diversified and I don’t have so much in stocks that it matters. I don’t know. Maybe I’m just not going to panic. Maybe this is not a big one for me. But I’ve just been thinking about it. In 2008 when it all went down, I sold stock after it had gone down and it’s a complete rookie mistake that everyone makes. The reason that the mainstream investor, the reason that their returns don’t match a simple index fund is because people do that and they panic.
I’m in a way different mental position and a way different financial position this time. My hope is that no matter how bad it gets, I’m just kind of like, “Yeah, whatever. I don’t need to sell stock this point, to do anything and that that I’m able to just ride this out.” That’s how you’re going to do it. So I’m at the bottom is certainly not going to do it for you.
My last goal for 2019 is one that I want to do, I hope to do, but it will be the first to go if all of my focus is required to do what we need with Tiny Seed. This fourth goal is to either write or rewrite a book. By write I mean finish and publish, get something live. I continue to get feedback in a positive way.
There was a Hacker News thread when we announced Tiny Seed in October that went pretty bad. It was on the homepage for a day or something and it was crazy. Got a bunch of good conversation and comments around that. Part of that was like, “Hey, this is from the guy who wrote Start Small, Stay Small,” and someone like “Oh that would be great if we rewrote that,” something like that. That single heat, if he updated it for a second edition. That comment got upvoted 26 times or something and most comments get a couple upvotes. Then I chimed in like, “No, this is actually good feedback for me.” I know I hear this now and again but it is something that sold enough copies and that the mental or the high-level things in it are still applicable but kind of the tactics and a lot of the boots on the ground stuff has changed since 2010, in the last eight years.
It makes me really think about going back to that manuscript. I do have a different take, and I do have so much better examples, and I do have entire topics that I talk about now that are just not in a box. That would it be a lot less work to rewrite or not even rewrite. It’s like update, a second edition, basically, and expanded.
I think I would like to get that done and the nice part is it’s not a side thing or it’s like, “Oh, I need to steal time away from Tiny Seed.” It could be in service of that because a launch of another book and getting that into the hands of a bunch of new entrepreneurs or even founders who have read the old one, it continues to promote the idea of bootstrapping. It continues to push behind my brand and my brand is obviously attached to the Tiny Seed brand. I think it could be in service of my other goal, which is to grow Tiny Seed in prominence and respect.
Mike: There’s ways to cheat here a little bit was for me to take your old conference talks and have them transcribed and then put those in the book.
Rob: That’s a great idea. Obviously, it wouldn’t be just transcriptions. I would want to clean it up and stuff. There’s still some content in the Micropreneur Academy that I think never saw the light of day outside of the academy that I think could be modified and updated. Not like nuts and bolts, here’s how, and what to click in the Facebook interface but there’s still some kind of philosophical and high-level stuff that’s in there that I wrote. I can see that being a tractor that I didn’t put in the first one because either it wasn’t relevant or just cause I didn’t.
That’s the thing is to your point, there’s been so much content that we’ve kicked out on the podcast conference talks or through other means. Even that when I started writing the Drip book, the book I’m sort of writing this year, where I was kind of writing the story of Drip but then I started realizing there were these takeaways and there were mistakes and there were things I did right. Those are kind of essay right now and I could pull pieces of those into it. I think you and I get together every week and we talk for 30-40 minutes. We generate a lot of content that could be pulled from.
Mike: Yeah, for sure. I think we are about out of time for the goal episode. It went quite a bit longer than I had expected but good things, good takeaways for you?
Rob: Yeah, I think so. It was a good discussion and can kind of going to get these solidified. We’ll see. We should check-in in three or four months and see where we are.
Mike: Cool. Well, I think that wraps us up. If you have a question for us, you can 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, 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: And we’re to share our experiences to help you avoid the same mistakes we’ve made. What of this week, sir?
Mike: Well, it’s the middle of December so I’m just kind of working on MicroConf sponsorships and scholarships at the moment. I was just having various conversations with people about different options with things that are a little bit different for a sponsorship option for MicroConf. There’s a few different options that are on there that also include the scholarships.
Last year we kind of quietly and under the radar offered 14 scholarships to people for Starter Edition. I’m looking to expand that this year and talking to various people about it. I’ve already got some people who’ve committed funds and already actually put the money in and started sponsoring those. That’s good to see and we’ll just kind of see where things shake out at the end of it. I kind of have a mental goal in mind but I don’t want to shoot myself in the foot by sharing it.
Rob: Sure and if someone was interested in either sponsoring either the conferences or offering a scholarship ticket to Starter, how do they get in touch with you?
Mike: They can reach me at mike@micropeneur.com or I think sponsors@microconf.com also works. Either one of those and if you’re interested in just sponsoring one individual scholarship option, there’s a link for that right on the sales page for the MicroConf Sales or you can go to microconf.com, click on the link to buy a ticket, and there’s an option there to just purchase an individual ticket. The terms of the sponsorships, there’s kind of a mechanism for purchasing more than just one or two tickets. I think it starts at four and goes up from there.
Rob: Yeah and I knew part of the scholarships. I mean, this is something you really spearheaded and you kind of came under the radar a couple of years ago, and then you really started pushing on this program last year. But it helps folks get to Starter who otherwise can’t afford to or they don’t have an expendable cash to get out there and it can really make a difference for someone. I know that we interviewed some folks with the kind of video interviews after the fact or during the conference to share with the person or company who would sponsor them. You and I looked through those and they were pretty meaningful and people were really impacted by the conference. I think it was a transformative experience for them. It’s nice to be able to offer something like that.
Mike: Yeah, definitely. What’s up with you this week?
Rob: Well, I’ve long had an LLC in California, obviously because that’s where I’ve been running my businesses and I just entered a process, I believe it’s going to get finalized this week, of transferring that LLC to Minnesota. There’s a bunch of reasons for doing this: (a) it’s cheaper to do business here, but (b) I had to have basically a kind of a PO Box or an accountant or whatever, you have to have an address in California that they could send stuff to. I don’t need to file tax returns in California anymore. Even just that, it’s like an extra tax return my accountant charges me several hundred bucks for.
It feels kind of a nice piece of closure for me and it’s also an opportunity to rename the thing because I can name it whatever I wanted. The name that I picked in 2007 does not resonate with me. I picked a name that was so broad and esoteric that I could put whatever I wanted under it. At first, it was like a consulting firm so it had the name ‘Group’ in it. It’s called The Numa Group. It was a consulting firm but then I just put a bunch of software products under it and put my part of MicroConf under it. I don’t particularly love the name anymore and the domain name I have for it is clunky. So I just kind of consolidate the thing. I renamed it to Start Small LLC.
Mike: Oh nice.
Rob: Yeah. It took me a while. I’m not good at naming stuff and I was like, “What is something that for me is timeless? That in 10 years, I’m going to think back and say that was a good call?” and it’s not just because it’s the title of my book, or part of the title but I just feel like it fits into so much. It tells my story in two words and it fits in with the MicroConf ethos. It just said so many things.
Anyway, that’s been kind of a fun, cathartic process of just moving everything here, like The Numa Group redirects to my robwalling.com site which I had redone. I’m just kind of getting rid of a bunch of cruft. The Numa Group site was a landing page that was outdated and I just kept saying, “Oh, I’m going to get back to that,” but why it even have a landing page? Why even have that anymore? The company is not important. Frankly, at this point, it’s kind of about robwalling.com and then about Tiny Seed. It’s my personal site and the business site and everything else in MicroConf, of course. Anyway, that’s kind of been the process.
Mike: Yeah, I can imagine that’s a real pain in the neck and it’s something you probably want to get taken cared of before December 31st because if you don’t, you’ll have a file taxes again in California the following year.
Rob: That’s exactly what I’m doing. The only other thing is I’ve been coming out of the woodwork a little more and doing some interviews and even wrote a Q&A piece for a software execute magazine. That will be out in a couple of months and I’ll probably mentioned that again when it comes out. Have you heard of Hacker Noon?
Mike: Yeah.
Rob: Dave, the guy emailed me from there and did a little-written interview with me. It was kinda fun. It took a lot of work. I forget how easy voice interviews are compared to written interviews. I know that you know this because of the Indie Hacker one you did last year or earlier this year and you’re like, “Yeah, I spent two days on it.” So much effort.
Mike: Yeah. It was way more effort to do those. I think people’s expectations are different as well if you’re talking versus if it’s written, it seems like it should be carefully crafted, say exactly what you mean, and not anything else. When people are listening to you, you have a lot more leeway, I think, because people understand that you’re talking off-the-cuff and it’s not heavily scripted thing when you’ve memorized ever question and every answer.
Rob: Yeah, that’s right, and it feels less prepared whereas writing, it feels like you need to rewrite it, reread it, edit it, and do all that, which is exactly what I did. It took me 2-3 hours to answer the questions. What was cool was some of the questions at Hacker Noon interview, ones that I’ve really never been asked, which is always fun to think through but it’s also time-consuming, and it’s peaked.
It’s kind of peaked productivity stuff. I had to do it in the morning. I couldn’t in the afternoon there. I would just been too tired to really hammer something out. Then I came back to revised it, updated it, and stuff. I feel like it turned into a really good interview. I haven’t done a written interview in probably five years just because of the time that it takes. I just turn them down. But I kind of wanted to do this one. We’ll be sure to link that up in the show notes.
This week, we are diving into our goals for 2019. But first, Mike, the walk of shame. We get to look back at our 2018 goals. Episode 372, just a short 50 or so, 51 episodes ago, it looks like. We talked about our 2018 goals. Why don’t you roll into your first one? Are we going to do a 1-5 scale of one we completely flubbed the goal and five is we completely nailed it?
Mike: Oh I figure we talking about 1-5 is like my goals versus your goals.
Rob: Oh, no. No, no. This is how well we carried them out.
Mike: Well, I’ve been quite honestly we could put one on pretty much every single one of mine. We could kind of shorten it. I’ll go through them but this last year was just absolutely atrocious.
Rob: Let’s do it. Let’s roll through all yours right now then.
Mike: Sure. You want me to go through all five of them then?
Rob: Oh yeah, the agony. Let’s read them in slow motion so everyone can watch a trainwreck.
Mike: The first one was actually a carry-over goal from the previous year, which was login at least 100 days of exercise the coming year, and I fell way, way short of that. I probably got to 25 or 30 and that was just about it. The second one was making Blue Tech profitable including my time, which has also not happened.
And then the other three, I think at least one or two of these, about two or three months in, maybe March or so we decided, “Hey, these just don’t even look realistic. We should just can these to begin with.” One of them was speaking at six plus conferences or events because the idea was that, at first I thought, “Okay, well this can be a way to market Blue Tech,” but at the same time, you really have to have the right audience for that kind of thing anyway, and it felt like more of a distraction than anything else. So, I ended up canning that one.
Then the other one, reading at least one business book every two weeks. That seem to me like it was also a distraction. It was like a consumption thing. I also cut back on podcast listening just because of the same thing. It will just take up mental overhead that I just didn’t want to have. Then the last one of that list was hiring someone to take over Blue Tech development, which kind of requires that Blue Tech become profitable. If that doesn’t happen then it’s hard to fund that. So yeah, I would say pretty much one on all of those.
Rob: What does that tell us? Is it were you doing other things that you would say were accomplishments that were outside of this? Was it a focus thing or was there a better priority that came up? Or do you think our goals are stupid? That’s another. Should we not set goals?
Mike: I think a lot of it had to do with lack of focus. By lack of focus, I don’t mean I’m working on one thing and then working on another. I mean literally lack of focus. Inability to focus. Because I wasn’t sleeping. I mean, I’ve been kind of suffering through this for the past several years, like I got on a CPAP machine a couple of months ago and that thing has been working fantastically. I’m actually sleeping now. But I went back and before this episode, I looked at the sleep blog that I’ve kept for this sleep therapist that I saw. I was up anywhere from 3-8 times a night and I was only getting anywhere from 4-6 hours of sleep. There were times when I would get 1½-2 hours of sleep a night so I felt fuzzy.
It’s hard to describe the difference that it may swing. I felt that way. Yesterday, for example, I woke up and I had a fantastic night of sleep. It’s a world of difference between being able to think straight and just kind of going through the motions and getting things done but not really able to focus on any one thing and feeling like you’re shifting back and forth but not making any real progress.
Rob: Yeah. It’s easy to get distracted and your thoughts are fleeting. In addition, I don’t know if this happens to everyone but when I only get a few hours sleep, I am actually super pessimistic and I tend to look like someone with depression. I don’t technically have it because it’s not over a long period of time. I will wake up and just be like, “Oh this is all just shit. None of this is going to work. Oh my gosh. Why am I even starting startups? I can’t do any of it.” That will be my inner self-talk and I’ll catch myself now and be like, “Dude, you’re really tired. You should just go to sleep.”
I know that’s not easy for you but that’s what my inner monologue will be on those days of like, “You’re going to be better off not working today.” But for you, it was happening everyday, right?
Mike: Yeah, even on the weekends, too. That was the worst part is, I was exhausted and I couldn’t get to sleep. When I did go to sleep, I didn’t realize also the time because I was trying all these different things to just get to sleep. Or I’ll move my bedtime back earlier and I’ll go to sleep, or try to go to bed at 10:00 or 10:30, turn off all electronics, don’t answer emails after 7:00 or 8:00 o’clock at night, just turn all that stuff off. It works to a slight degree but not enough and I couldn’t figure out why and it kept happening.
Of course, come to find out through the sleep study, like, “Oh, my body is waking me up multiple times a night because I stopped breathing.” You can’t change habits and fix that. It just doesn’t happen. It didn’t matter what I did. Nothing was working.
Rob: Yeah, and that’s tough and it’s frustrating. Obviously, five goal set and zero goals achieved. Health issues were a major impact on that. It’s interesting. Sherry talks about this, that a lot of mental health issues in general, like people with depression or ADHD or other stuff, one cause of those, not for everyone, but one cause is a lack of sleep. Once people stop being able to sleep full nights, their minds start doing weird things.
She also talks about there’s some research studies that talk about the quite a bit the angst of being a teenager, how you turn 13 and you get all angsty from 13 to 18 or whatever kind of the thing is in high school. A lot of that could very well be too just a lack of sleep. The kids at that age need about 10 or 11 hours and most kids do not get that much and they’re tired all the time and it leads to the sadness or whatever. I’m no expert on this, so I don’t want to talk, but Sherry has talked to me multiple times about this and especially with our kids, because a couple of our kids at different times, they have behavioral issues, they have focus issues, and one of the first things that we will get is sleep and exercise every time instead of trying to medicate or whatever.
I’m not anti-medication but it’s like the first two resorts every time Sherry is like, “How has he been sleeping?” and, “Is he getting out and getting 20 minutes of hustle, hard exercise?” Not a 20 minutes walk but 20 minutes of running around playing dodgeball a day. I think that it’s interesting and it can have a huge impact on your mood and your ability to focus, which then has a huge impact on your productivity.
Mike: Yeah. For me, it was that vicious cycle of not being able to sleep and then it also affects my ability to go to the gym. If I don’t go to the gym first thing in the morning, it’s just not going to happen because I get busy in other things getting in the way. Not being able to sleep has a direct impact on my willingness and ability to go to the gym. It just puts me in this vicious cycle where I don’t get to sleep, so I don’t go to the gym, so I don’t feel good in any way, shape, or form, and then I go to bed and I’m stressed out, exhausted, and tired. And then my mind is wandering even before I get to sleep so I can’t get to sleep. When I do sleep, my body just – I guess I’m assuming because it’s physical problems. I just got the sleep apnea that wakes me up.
All of it combined. It just doesn’t end and there is no way for me to kind of break the cycle until I found out what it really was. I knew I wasn’t sleeping but that was a symptom. It wasn’t the underlying problem.
Rob: And you have that machine for the past couple of months. Dude, how’s your progress? Has it been night and day? Not just how you feel because I know that you feel is night and day but are you making substantially more measurable progress since then?
Mike: Yes. I can point to different things that I’ve done in the past, like two months or so. In the past two months, I have probably made more progress than I have in the past 10 or 15. It is night and day but I’m cautiously optimistic about how things are going to turn out but obviously at this point, I feel it’s more about execution that anything else. But I still have to make sure that I crack down on those health issues and make sure that they don’t get in the way.
Now that I know what the problem is or problem was, then I can try to do things to address it. But before, I was trying all these different things because I didn’t know what was going to work or what wasn’t and how to get around it. I remember pushing off on the sleep study a while back for my doctor, and she’s like, “Have you ever thought about having this done?” and I was like, “Well, I have but I don’t really want to go through it and have nothing come out of it,” because last time I ended up going in, she recommended that I go for a blood work. She’s like, “Oh your platelet count’s low and let’s check this out.” I go and she referred me to this doctor, go through that, and then $400 worth of test later, the doctor tells me, “Well, you don’t have leukemia,” and I’m like, “I never thought I did. I don’t know why I’m here for that test.” It kind of pissed me off but what do you do? The doctor’s are really just trying to figure out what’s going on here and they do it by process of elimination.
Part of it’s maybe my own fault for not doing it sooner because she had recommended it in the past but at the same time, I didn’t really want to have that done just because I didn’t know how much it was going to cost. My insurance barely covered any of it. It cost me several thousand dollars for between the machine and the tests and everything else anyway.
Rob: In looking back on obviously these goals, you said five of them are ones. This is a weird question but is there something that you’d accomplished in 2018 that you feel good about, that if it had been a goal, it would be a five? Something of note? I don’t know how you even rank that. I’m just trying to dig in to figure out is there anything there?
Mike: Like was 2018 a complete loss or were things you actually proud of?
Rob: Kind of, yeah. I mean, I just kind of digging into it because this sucks and there’s gonna be someone listening to this who thinks, “Oh, Mike should’ve sucked it up, accomplish stuff anyway, and push forward,” and then there are the majority of people I’m guessing are going to be like, “Wow, that totally sucks. I hope that never happens to me. I hope I never feel that way.” And then there are going to be people who like, “I’ve been through that.”
Whether it’s sleep issue, whether it’s your neck and back hurting so much that you can only work two hours a day, which has happened to me, whether some people get vertigo really bad so they get super dizzy, some people get depression, they get ADHD, there are all these debilitating things. They can be physical, they can be mental, they can be whatever, but it happens to a good chunk of us. Maybe not for a whole year in us since you’re saying on and off for a couple of years but I just think there’s a lot to think about with that. In terms of staying healthy, I think it’s probably the big takeaway, perhaps.
Mike: Yeah. The two things that I can point to is, the first one is the accomplishment, the scholarship program that I got, going last year at MicroConf. I think that, that was a good start and this year’s trying to take it to the next level. We’ll see how that goes but it was more about experimenting and trying to figure out what’s going to work, what’s not, and help work with the sponsors, figure out what works for them as well. I think that we did well with that.
Rob: I would agree with that and you basically spearheaded that and put in a bunch of time. That was something that was a little mini startup within MicroConf and I’m glad you called that out because that was something you did that was really cool. I think something else you may not call this up but you kind of crushed it on sponsorships this year with both the conferences so I would call that as a win for you. It’s weird to put a goal in there of like, “I want to increase sponsorships by X, Y, and Z,” because it’s more relevant to us, it’s an internal thing, and I don’t know that it’s that interesting to folks outside, but it is something you put time into and had success with.
Mike: Yeah but even the sponsorships themselves, they help us make Starter Edition possible because we, too, subsidize Starter Edition out from Growth Edition to some extent, and we have to because it costs the same to run both of the conferences. The stuff that we do there has a direct impact on Started Edition, which has a direct impact on people who are getting started with entrepreneurship and softwares. I think that all ties together is like a general kind of goal or direction that we both kind of always as long as this podcast has been going. But yeah, it’s a good thing to call those out. But I don’t know as I would probably have put those in exclusively as goals.
The only other thing I would say is, and I wouldn’t even call this a goal again, but I’ve started getting out with a group of friends here once a week and actually having some social contact outside of my office. It’s weird to say that because I don’t have an office that I go to. I don’t have employees or people that I meet with on a regular basis. I barely have any contractors at this point. It’s really just me, working on most stuff.
Like my social contacts, outside of my house is extremely limited. One of the things that I was trying to do is figure out in terms of the mood and you kind of talked about, if you don’t get sleep, you kind of feel depressed and why am I working on this and things aren’t working and you’re very pessimistic. I felt like that for a very long time because I wasn’t getting sleep. One of the things I tried to do was say, “Okay, well what can I do to fight this?” and one of them was getting out and be more social with people. So I kind of established that, Dungeons and Dragons group, then meeting with them on a weekly basis. Honestly, it was quite helpful but even now after getting sleep, it’s even more helpful because it’s not just me looking forward to it every week but everybody else is as well.
Rob: That makes sense. So some good things did come out of 2018 is what you’re saying.
Mike: Yeah, some, but I don’t know. I’m hoping 2019 will be substantially better.
Rob: Yeah. Sounds like a rough year. Looking at my 2018 goals, looks like I had three of them. One was to be in fewer meetings under 10 hours a week. You and I laughed, chuckled about this a few months back because the reason I was into so much meetings is because I was at fast-growing startup that was growing from, I don’t know, it was 20 or 30 people and it went up to 60-70 by the time I was leaving and that just requires a bunch of meetings to keep everybody apprised of what’s going on and all that. I was running a big team and non-senior leadership and there’s just a lot of stuff required with that.
When I left Drip in April, basically my meetings went to zero. We did this in November or December of last year so I didn’t have knowledge I was going to be leaving in April but I did achieve this in a way that I probably didn’t expect. I think the way I wanted to achieve it or would have thought about in November-December was to stay at the job but just change it so I was in fewer meetings but it turns out that leaving the job also did the trick. Frankly, my life’s been better for it, being in fewer meetings, that is.
Mike: Yeah. Add in six plus months of zero meetings a week, it tends to bring that average put down pretty far.
Rob: Yeah, I know. I am so much more chill and just content taking time off like this is something I’ve never done and it’s worth it.
My next goal was three days of exercise each week and so fewer meetings, but I give myself a five, a few days of exercise, I’m going to give myself a four. I basically crushed this goal from January until it got cold. I crushed it during last winter and then all through summer I was out doing stuff, I was riding my bike. Everything was built into my day and I was doing it.
Then it was probably around October, just a couple of months ago, that it got cold. We started homeschooling one of our kids and Tiny Seed started picking up. But what I let go was exercise and it’s what I always do and it’s always my lowest priority. So I did it for maybe 9 or 10 months of the year and there were weeks where I had five days of exercise. Way more than I even need in my opinion. Healthy by nature just by genetics or whatever. Even getting in three days of 20 or 30 minutes pop is enough. Mostly achieved, and I think it’s something that I want to certainly get back on the wagon here and the next few weeks as winter continues to bare down on us.
My last goal for 2018 and this one’s interesting. Let me read this whole thing. To ship something in 2018. Not sure what it’s going to be, yet. But I’ve been laying low for 18 months, 2017 was supposed to be a rest year and it was a hard year. First part of 2018 is going to continue to be rest but I need to start shipping, either consistent blog posts, a book, a new podcast, a course, software, something, and what is that something like?
Mike: I assume that that would be Tiny Seed.
Rob: It is and in 2017 November, I had no idea that that’s what I’d be doing. It’s interesting that it’s like knowing yourself. I figured I was going to need to do something and then I actually frankly started working on a book after I left Drip in April. I did write maybe 12,000-13,000 words, which is about a quarter of a book, 20%-25% of worth from a book. I did do that and then I eventually just slowed down on it and lost some interest and decided I just didn’t want to force it. There’s also that that’s in play and could feasibly come out sometime.
That’s what I had and I don’t know with me if goals are self-fulfilling prophecies or I make goals that I secretly, way in the back of my subconscious, know that I will achieve or something. This one strikes me as weird, honestly, because I remember the mindset I had at the time and I genuinely had no idea what I was going to do. I just know that I needed to put something out into the world and that something obviously has become Tiny Seed.
Mike: I think that generally, your goals tend to be, I wouldn’t necessarily call them self-fulfilling prophecies but more along the lines of you have this inkling in your head and in your subconscious that you know what direction you want to go or need to go but you’re not quite sure how you’re going to get there, and during our goals episode you put something down that has kind of surfaced but you’re not always certain of the specifics. But by the end of the year, something has solidified or something has come about.
For example, your fewer meetings. You probably weren’t thinking, “Oh, I’m going to leave Leadpages,” but at the end of the day, that was one of the ways that that came about. Maybe that partly influenced your decision because you wanted to have fewer meetings. And then the same thing with shipping something. That kind of goes back to leaving Leadpages as well but Tiny Seed kind of came out of that. You knew in the back of your mind, “I want to do something, not sure what that looks like.” I think your goals on a yearly basis tend to reflect that.
Rob: Yeah. That’s good insight. I also feel like I’m pretty methodical and I kind of know when it’s push year and maybe a rest year. I don’t know. I haven’t had many rest years per se but I don’t know. As we started Drip, I knew 2013 the goal had to be launch it and grow it to X, and then 2014, 2015, and 2016 at the beginning of them, I did make revenue goals for the end of the year.
This is an interesting conversation, actually, because some people don’t like goals, or they don’t believe in them, or they say they’re not worthwhile, or they say that they don’t fit them, they’re like, “Oh, how can you possibly plan 12 months out?” Maybe that’s a personality thing but I have had set goals for myself frankly since back in high school with Running Track.
I had goals to hit certain times at certain by certain meets or to make the state meet or whatever, and that to me was a motivator to strive to do that. I had goals to write certain amounts of things and then when I started blogging and started becoming a professional, I had a goal to make this much money by the time I was this old. I don’t know. I’ve been a goal to reverse it so maybe these goals fit my personality and am not something that everyone necessarily needs.
What I find is interesting is my wife, Sherry’s personality is quite a bit different than mine. But when she goes on a retreat, she also sets at least some, I don’t know if she calls them goals, but there’s things that she’s striving to do and she looks ahead a year and says, what are some things that I want to get done? Now I would call those goals but maybe you could call them a mind map. You could call them something different but it still is something and it may not have an exact time frame, it may not be, I want to make exactly this much money from this thing but it’s like I know that I need to kind of do this.
That’s how we do these episodes. I think we should probably call that out. Do you feel the same way? Are you a goal-driven person and does having goals, you think it helps you? Or do you think it’s a waste of time, I guess, to have these?
Mike: I’m definitely driven by goals but I feel like the further out those goals are, it’s harder for me to really conceptualize the entire path getting there, and unless I sit down and kind of do all the planning work of saying, “This is what it’s gonna take to get here. This is what’s it’s going to take to get here.” Unless I kind of do that whole process, I’m probably less likely to reach the end goal because I don’t necessarily have a map to follow. Part of having that map to follow it’s fun for me to build that but once I figure out the answer to a particular problem, I am not always the best at following through and actually implementing it.
That’s more of a personality thing than anything else but I can definitely buckle down and get things done, but it depends on kind of what is and what my interest level is. If there is a goal that I put down and I know exactly how to get there, if the hardest part is figuring out how to get there, then I probably weight less likely to actually do it.
Rob: Yeah. That makes sense and I think, to be honest, there were times when, I think back seven, eight, nine years ago for me, it was really hard to look ahead a year because I just didn’t know. These were years where I decided to write a book and wrote it in three months. There was no inclination that I was going to write a book that year. I just decided this is a new thing and I’m going to move on to it. We decided to launch MicroConf into that pretty quick and launched a podcast.
Those years, I think, if I had goals that I wrote down, probably completely went off the rails. But I was okay with that. There was a lot of stuff in flux in terms of my professional career and I was trying to figure stuff out and it’s not like I nailed these goals to my door and I could only do them when I etched them in cement and I could not veer from them. I veered from them because it was a better decision at the time.
What I find with goals I set now like we’re going to talk about in these episodes, these are a way for me to focus because I think most of us are presented with way more opportunities than we could possibly pursue and way more “good” ideas than we could ever implement, some of them good, some not. Having goals is at least some bumpers to keep me in a lane so that I don’t look around at every email I get offering for me to do this thing or this opportunity or whatever, and say, “Oh, of course that sounds like fun. I should do that.” But I come back to these goals and say, “Yeah, these are things that I really wanted to do and they made sense when I really thought about them,” and unless something amazing comes along that just blows my mind, I’m going to kind of stay on this track for this year and see things through.
I think that not having goals can lead to a shorter term perspective because again, shiny object syndrome. Opportunities come up so frequently that can be just derail you and you can get to the end of the year and be like, “What did I do the last 12 months?”
Mike: Yeah. It’s giving yourself permission to say no to things. There’s that idea that unless it’s a “Hell, yes,” it should be a no. But you’re right. There’s just so many things that we could do. It’s more about what do you want to do if you had all the time and resources in the world? But you only have so much time see in your lifetime to do anything.
It’s hard to figure out for each individual, I think. If you’ve got this unlimited list of options, what is it that you want to achieve? What are you going to be proud of? Eventually, you’re going to be gone and what do you have left behind?
Rob: Yeah. It’s an interesting thing to think about. It’s like a legacy. If you look at legacy and say, “All right. Mike, in 20 years, you and I will be in our 60s. We could still work, we’re still going to do stuff. But are our best days of accomplishment behind us?” This is a rhetorical question. We don’t have time to answer it here but do you have goals? Or a goal of when you look back, when you’re in your 60s or 70s, would you want to think, “Yeah, I did that.”
I think each of us should if we don’t. And how are we going to get there if we haven’t set some goals along the way? Do we just kind of wander our way and make it and in the end we’re like, “Hey, I’m glad all of that worked out.” Or does it have to be a deliberate decision every week, month, year to kind of make progress towards something bigger?
Mike: Yeah, but I don’t think you’ve always know what that’s going to be 20 years in advance. I mean, it’s hard to know what’s going to work and what’s not as you’re moving forward, and some things you’re going to do and be very proud of them. But in the grand scheme of things, they may be meaningless to, I will say, the greater world but to you, they meant something.
I think looking back, you’re going to want to have those things that meant something to you and yes, it would be really nice to have legacy where other people recognize the accomplishments that you’ve had. But at the end of the day, did you live the life that you’ve wanted to live?
Rob: That’s almost a great way to end this episode except for we haven’t covered our 2019 goals yet.
Mike: Damn you.
Rob: I know. I’m glad we talked to that through because I think the whole goals conversation is kind of been on my mind recently or every year or so, it just comes on my radar of why do we set these and what does all these mean? Maybe a separate episode we talk about legacy but for now, shall we dive into 2019 goals? Looks like you have two of them with multiple sub-parts. It’s like a tax. You’re like you’re an IRS document. One part D is, yeah. You let this roll into it.
Mike: All right. The two goals that I have for 2019, the first one is really just get my health back on track. With goals you really want to have some sort of definition around exactly what that goal means, so for me it means basically four different things. One of them is exercising, the second one is getting a regular sleep schedule going, and then the third one is losing some weight because I’ve put on probably about 25-30 pounds or so in the past couple of years, and it’s more because just lack of sleep and everything else is going into it.
Then the fourth one is regular in-person social contact, which I’ve got partially down at this point, I think, but think I probably need to expand that a little bit. Exercise a certain number of times a week. I wanted to get to it at least twice a week, and then the normal sleep schedule, I really need to be getting at least 6½-7 hours of sleep every night. Previously it was only maybe 4-5 on average, I think. Then obviously losing weight. I’d say 15 pounds to kind of start with for this coming year. Then regular in-person social contract. It’s kind of a nebulous thing, but I’ve got at least one scheduled night a week with people. Maybe I’ll go to two, but I’m not sure about that.
Rob: Yeah, that one’s tough because I don’t know that you want to commit yourself to two nights a week. It doesn’t necessarily always makes sense.
Mike: No, but I do notice that when I go to my gaming group and I come back, I tend to get a really good night of sleep that night every single time.
Rob: Interesting. Is it because you drink a lot?
Mike: I plead the fifth. It’s when I host, I don’t have to drive anywhere so that’s certainly helpful.
Rob: Less drinking disturbs your sleep, right?
Mike: Yeah, it does.
Rob: It helps you fall asleep but it doesn’t actually give you a good night sleep.
Mike: That’s true. Those are kind of the four subheadings under that first goal.
Rob: That makes sense. Let me do my first one. My first one, not surprisingly, is three days of exercise per week. It’s basically a continuation of something that I started a couple years ago, although I believe you started a whole exercise goal first, probably 3-4 years ago and eventually I was, “All right, I need to get on this.” It’s never something I’ve needed to do but I know it’s something I should do in all honesty, especially as I get older.
It’s kind of a boring goal, but it’s something that I need to have on my list or else I have no desire to do it and I will not make the time. Unless it’s written down and I know that I’m going to have to come back here and talk about it, it’s an interesting accountability thing. It’s not that I’d be terribly devastated if I came back and say, “Oh, I got a one.” I know it’s good for me, like eating my vegetables and I know that I will at least made some type of public commitment to it. For me, it’s helpful to say this as a goal.
My second goal is for Einar and I to build it into essentially the de facto brand when bootstrap has look for early-stage funding. This one is going to be tough to measure and this is where the 1-5 will help us out because I think by the end of 2019 frankly, that’s only 12 months away and it’s not a lot of time to do this.
I’m guessing this is this is a multi-year process. What I’m saying here is, I want to raise all the fund, kind of close the funding and have a batch that goes live. We get companies, they’re having success, and it’s just executing on the Tiny Seed vision. I don’t know exactly what to put to measure at the end of 12 months, but I have a feeling in my head of what I want it to be and I want it to feel successful. I want it to feel like it’s well-regarded and I want it to do right by both the founders and the investors who were involved with it. I want it to make a difference.
I feel like if we had said at the beginning of starting MicroConf, that the end of next year or the year after, we want it to be a prominent player in the conference space, which was not a foregone conclusion when we launched it by any stretch. That did happen. It didn’t probably happen in the first year. It took us a couple of years to get there but we knew it when we saw it. Once it happened, it was like, “Oh yeah. MicroConf is a thing now.”
That’s how I want. I want Tiny Seed to be a thing. That’s my long way of saying 2019 for me is definitely the year of Tiny Seed.
Mike: Yeah. I think for this one, I agree that for the way you kind of phrased it here is for it to be the de facto brand when bootstrappers are looking for early-stage funding. That is in and of itself as kind of a multi-year goal, but I think you could probably narrow that down a little bit to say you’ve got the first batch of people going through, however big that batch happen to be. Maybe you put goals around it, maybe you don’t, but at the end of the year, I think that you want to see that whoever has gone through that batch, has a reasonable looking chances for success based on where they started.
The exact definition of that is not going to be determinable right now, but you’re going to kind of know it when you see it six, eight, ten months afterwards. Maybe they’re at that point by the end of the year, maybe they’re not. It depends on kind of when you start that batch and get them started through the process, because if you start in January, then obviously you’ve got a lot more time than if you started in next October.
Rob: Yup. I made a note there, first batch of founders are in the batch and they have a good chance of success. I mean, in the back of my head, I really want this stuff to start moving in Q1, which is January, February, March, so we’ll see how close we can align to that, but it should give us a good chunk of the year to get people moving.
Mike: My second goal I have here on the list is specifically related to Blue Tech. First one is just getting my health back on track and then the second one is to establish some sort of traction for it or move on to something else. Maybe that sounds like a major shift, but at the same time I feel like with the focus starting to coming back to me and clarity and getting sleep, things need to move in a good direction or it’s just going to be meandering. If it’s still meandering at the end of next year, then chances are good that either I’m not committed to it or there’s something else going on.
Quite frankly, I just don’t want to be in a position where I’m making excuses at the end of next year. It’s got to move or not. If not, then fine. I don’t want that to happen but at the same time, as I said, I just don’t want to be in this position next year where I have to justify kind of what happened.
Rob: Yeah, I think that makes a lot of sense. I think it will be a tough decision. A lot of work easier to try to push it forward and then evaluate that.
Mike: Yeah. I don’t know exactly what the target is for that. I’m kind of fuzzy on what it means. Is it a revenue target? Is it customer base if I get to X-1 customers I plan to get to X? Do I kill things? I don’t think that’s really applicable. Did things shift substantially now that I feel like I’m able to focus or am I still in that position? Do I still feel like I’m not able to focus on it? If that’s the case then made it’s a motivation issue and maybe I’m just not really interested in it. But we’ll see.
Rob: Yeah. I feel like in my head it would be finding product-market fit. Having a product with that really is easy to grow because turn is so low and when people start using it, they stay and that you’re able to add enough customers that, like you said, it becomes profitable including your time, or it’s very close to that. It’s on a trajectory to hit that within a short amount of time, I guess. That’s all still amorphous but that’s what I think in my head it probably looks like.
Mike: Yeah, but that’s what I said, establish some sort of traction with it like the MU site trajectory and I think that’s exactly the same thing. Does it to appear to be on the right path, and you may not know exactly what that is right now but afterwards, you kind of know whether there’s a good difference between where it’s sat now versus where it is at that time.
Rob: Yeah. My last two goals. Again, my first one is three days of exercise a week, second one was about Tiny Seed, and my third one is do not panic when the stock market crashes. This is one of our predictions that we have every year. There’s going to be this correction or whatever.
Mike: Did you panic last week or the week before when the stock market dropped like 1000 points in a week?
Rob: Nah. I didn’t at all. No.
Mike: Okay.
Rob: Maybe this is an easy one. I mean, I kind of pay attention to it but I’m also so diversified and I don’t have so much in stocks that it matters. I don’t know. Maybe I’m just not going to panic. Maybe this is not a big one for me. But I’ve just been thinking about it. In 2008 when it all went down, I sold stock after it had gone down and it’s a complete rookie mistake that everyone makes. The reason that the mainstream investor, the reason that their returns don’t match a simple index fund is because people do that and they panic.
I’m in a way different mental position and a way different financial position this time. My hope is that no matter how bad it gets, I’m just kind of like, “Yeah, whatever. I don’t need to sell stock this point, to do anything and that that I’m able to just ride this out.” That’s how you’re going to do it. So I’m at the bottom is certainly not going to do it for you.
My last goal for 2019 is one that I want to do, I hope to do, but it will be the first to go if all of my focus is required to do what we need with Tiny Seed. This fourth goal is to either write or rewrite a book. By write I mean finish and publish, get something live. I continue to get feedback in a positive way.
There was a Hacker News thread when we announced Tiny Seed in October that went pretty bad. It was on the homepage for a day or something and it was crazy. Got a bunch of good conversation and comments around that. Part of that was like, “Hey, this is from the guy who wrote Start Small, Stay Small,” and someone like “Oh that would be great if we rewrote that,” something like that. That single heat, if he updated it for a second edition. That comment got upvoted 26 times or something and most comments get a couple upvotes. Then I chimed in like, “No, this is actually good feedback for me.” I know I hear this now and again but it is something that sold enough copies and that the mental or the high-level things in it are still applicable but kind of the tactics and a lot of the boots on the ground stuff has changed since 2010, in the last eight years.
It makes me really think about going back to that manuscript. I do have a different take, and I do have so much better examples, and I do have entire topics that I talk about now that are just not in a box. That would it be a lot less work to rewrite or not even rewrite. It’s like update, a second edition, basically, and expanded.
I think I would like to get that done and the nice part is it’s not a side thing or it’s like, “Oh, I need to steal time away from Tiny Seed.” It could be in service of that because a launch of another book and getting that into the hands of a bunch of new entrepreneurs or even founders who have read the old one, it continues to promote the idea of bootstrapping. It continues to push behind my brand and my brand is obviously attached to the Tiny Seed brand. I think it could be in service of my other goal, which is to grow Tiny Seed in prominence and respect.
Mike: There’s ways to cheat here a little bit was for me to take your old conference talks and have them transcribed and then put those in the book.
Rob: That’s a great idea. Obviously, it wouldn’t be just transcriptions. I would want to clean it up and stuff. There’s still some content in the Micropreneur Academy that I think never saw the light of day outside of the academy that I think could be modified and updated. Not like nuts and bolts, here’s how, and what to click in the Facebook interface but there’s still some kind of philosophical and high-level stuff that’s in there that I wrote. I can see that being a tractor that I didn’t put in the first one because either it wasn’t relevant or just cause I didn’t.
That’s the thing is to your point, there’s been so much content that we’ve kicked out on the podcast conference talks or through other means. Even that when I started writing the Drip book, the book I’m sort of writing this year, where I was kind of writing the story of Drip but then I started realizing there were these takeaways and there were mistakes and there were things I did right. Those are kind of essay right now and I could pull pieces of those into it. I think you and I get together every week and we talk for 30-40 minutes. We generate a lot of content that could be pulled from.
Mike: Yeah, for sure. I think we are about out of time for the goal episode. It went quite a bit longer than I had expected but good things, good takeaways for you?
Rob: Yeah, I think so. It was a good discussion and can kind of going to get these solidified. We’ll see. We should check-in in three or four months and see where we are.
Mike: Cool. Well, I think that wraps us up. If you have a question for us, you can 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, we’ll see you next time.
Episode 422 | Impact of GDPR on Mailing Lists, Keyword Stuffing, Shady Competition, and More Listener Questions
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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 impact of GDPR, pruning e-mail lists, TinySeed and more.
Items mentioned in this epiosode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about the impact of GDPR on mailing lists, keyword stuffing, shady competition, and more listener questions. This is Startups For The Rest Of Us Episode 422.
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: And we’re to share our experiences to help you avoid the same mistakes we’ve made. How did you like my announcer voice today?
Mike: It was great. It was very…
Rob: I was working on it.
Mike: Are you taking voice acting classes so you can announce movies and stuff?
Rob: A voice-over guy? I could be more annoying with it. I was trying not to sound like a radio DJ. What’s the word this week, man? What are you doing?
Mike: It occurred to me that last week you were giving me crap for forgetting the intro. I will remind you of the time in MicroConf Europe, we were on stage, you completely spaced on the intro.
Rob: I did, actually, and I can’t remember anything. That’s right.
Mike: It’s not just me. We’re both getting old.
Rob: Indeed.
Mike: Or not just you.
Rob: A couple of weeks back in episode 420 when Einar and I recorded it, we got on the mic, we recorded it, and after I hit stop he said, “Do you guys do one of these every week?” It’s super funny. I said, “Yeah, but it’s easier blah-blah-blah,” and I couldn’t tell if he was just saying, “What a slog this was.” It was just a funny question and I was like, “Well yeah, we do it every week. For the last four hundred 420 weeks we have done one every week.” It was just a realization. I don’t know. I think it may have taken a lot of energy or a lot of thought for him to kind of be there, to be on a podcast, for not used to doing it all the time, it can feel exhausting. Remember the first 20 or 30 of these? How hard they were? I would go take a nap after we record it because I was so stressed and so anxious and nervous and not knowing what to say.
Mike: For the four listeners that we had at the time.
Rob: Yup and then eventually that all goes away. That leaning into hard things and then doing things that scare you and getting better at them.
Mike: Yeah. I don’t know. I don’t really have a problem with just getting on and talking at this point. I’m not self-conscious about it but I also don’t think that there’s 300 or 3000 people staring at me while I talk.
Rob: Right. It’s definitely different than being up on stage. How about you? What’s going on this week?
Mike: Well, I got into a couple of extremely angry emails from people who are unsubscribing from a couple of my newsletters. I’ve gotten two separate ‘F off’ emails this week, so I think I’m doing something right.
Rob: Why do you think that is?
Mike: Well, one person I think—
Rob: You probably…
Mike: I think I have explanations for both of them. One of them, he said he unsubscribed three times. I looked and there was only one unsubscribe there. Either it just wasn’t working or he wasn’t actually unsubscribing but he thought he was. The way it’s set up is it takes you over to the unsubscribe page so you can manage your subscriptions but just clicking the link isn’t like a one-click unsubscribe. My suspicion is he didn’t actually do it right.
Rob: And there’s a big red button on that page that says, “It says you have not been unsubscribed,” and there’s a big red button that says, “Unsubscribe from all,” and you have to click that. Just so you know, there is a setting in Drip, you don’t need to do it but you could flip it so that the moment they click that one link in their email, it unsubscribes them from everything. We’d had people who want to do both ways which is why there is a setting. And I say we, I don’t work there anymore. But when we built it, I really tough time with that, dude. I still say ‘we’ all the time about Drip and it’s like, “How is it technically ‘we’ anymore if I’m not there?”
Mike: Usually, the way that I talk about it is, if it’s something that I want to “claim” responsibility for but somebody else is going to do it, it’s ‘we’ as in ‘those people. I totally understand that but I don’t know what the whole deal was there. And then the other one I’m still tracking it down. It looks like I got bad data in terms of the name and apparently he was extremely upset that I said the wrong name in the email. But the way I got it was that, so call them a completely different name.
Rob: Yeah, that’s weird. I mean, that’s the thing. You can’t please everybody and you get one or two of these out of thousands. Some people are just jerks or idiots or had a bad day. There’s a lot of bunch of different explanations for it.
Mike: Yeah, I’m not worried about it.
Rob: You bring up more to laugh about it than anything.
Mike: Yup.
Rob: You must be doing something right. We have some new iTunes reviews. We’ve got one in October from Will and he said, “Both inspirational and actionable. Most entrepreneurial podcast fall either in the inspirational bucket or the actionable bucket, but rarely is a podcast both. Startups For The Rest Of Us is an exception to this.” We’ve got another review from Greech Jay. Man, his mom must’ve not liked him, Greech Jay? “Top notch,” it says, “Wow. Clearly brilliant and useful info. Huge value.” You think Greech Jay is just an online handle? Or do you think I’m mispronouncing it and it’s Greech or something like that?
Mike: No idea.
Rob: No idea, don’t care, huh? But thanks for the amazing reviews.
Mike: I didn’t say that I didn’t care. I just have no idea. I don’t have it in front of me. I can’t see how it’s spelt.
Rob: Are you eating something while we are recording?
Mike: No.
Rob: Yes, you totally are. This is great. Ladies and gentlemen, Startups For The Rest—
Mike: …noon, so what do you want me to do?
Rob: That’s true, you’re starving. So, thanks for the iTunes reviews. If you have not left us a five-star review, I promise I will not make fun of your name and I will not say that Mike doesn’t care about you because I know that he cares about each and every listener. It would be great if you could log into the clunky iTunes interface, click the five star and leave us a sentence about, “Hey, these guys say things every week. Say something factual.” Even if you don’t like us, put five stars and be like, “Yeah, these guys really show every week.” That’s a thing, right? Five-star worthy.
Mike: I think the best five-star worthy, like you’re just showing up every single week for eight years. We’re going up on nine at this point, so that’s a lot of time, that’s dedication.
Rob: Yeah, stupidity.
Mike: And sandwiches.
Rob: There you go. We’re going to answer listener questions today. Our mailbag is full once again, which is nice. As usual, the voicemails went to the top of the stack. We’re going to start with a voice mail at the impact of GDPR on the value of mailing lists.
Paul: Hello, Mike. Hello, Rob. My name is Paul from Melbourne, Australia. Thanks for taking my question. You both espouse the value of developing and curating mailing lists. But I recently read an article from LeadPages, stating that, and I quote, “A required checkbox does not allow for freely given consent under the GDPR law. Therefore, it should be optional for a subscriber to consent to receiving marketing emails from you in order to receive a lead magnet, freebie, pay product, et cetera.” What do you think this means for the building of mailing lists going forward? And does this affect your view of the value of mailing lists in relation to the likely increase and effort required to develop enough traffic to make up for the loss of email signups due to this optionality? Thanks again and have a great day.
Rob: Thanks for the question, Paul. I appreciate that. I think you might be misunderstanding something. I just want to clarify that, “A required checkbox does not allow for freely given consent under the GDPR law.” That’s the quote you have and what that means is, if you force them to have the checkbox checked in order to proceed, you have not given them optionality. What that means is it needs to be an option when they submit your email for them. They put in their email, maybe their first name. But there is a checkbox there, I believe it has to be unchecked by default. That’s my understanding, not a lawyer, not a GDPR expert, but I believe it has to be unchecked by default, and you can’t force them to check it to submit the form. Does that makes sense? They should be able to submit that form. It doesn’t make any sense to me, but that’s how my understanding of the law is. If they check it and they submit it, then they have consented and now you can email them. If they don’t check it and submit it, then you need to figure out what to do with that customer because they have not consented to hear from you.
What they built in Drip—hey I just said ‘they’ finally—they’re kind of building it as I was leaving but I think they did a really elegant implementation and if that check, you can just add a GDPR checkbox. It’s a strongly-typed item in Drip’s settings and when you add it, if someone submits without that checkbox being checked, then they have a property on the subscriber that says, “GDPR permission given or something,” and that is either set to true, false, or unknown, and unknown is if they were added through other means, through an API or an import or maybe they were added before you enabled it or whatever.
But again, if they do check it and submit it, then it’s true and if they don’t, then it’s false. You as a Drip customer could just have a workflow or rule that says, “Anyone who’s added with it false, unsubscribe them from all, delete them, do something to get them out of your system.” Or you could keep them in your system, in the Drip account—I’m not sure why you would do that—and just make sure that when you send out an email to everybody that you exclude those subscribers from the segment.
Those are nuts and bolts that I’ll cover before. This question is not about that. It’s more about how do we think this is going to impact it but I kind of wanted to clarify that. I’m using Drip as an example because I know intimately the implementation. I think it’s a good one. I’m pretty sure MailChimp and ActiveCampaign and Infusionsoft have all done similar kind of related implementations.
Now, over to you, he actually had a question. What do you think this means for building of mailing list going forward?
Mike: I don’t think that it changes a whole lot in terms of building a mailing list but I do think it probably has an impact on what you do with it once you have those email addresses because you’re going to have to make a decision about whether or not you’re going to send them email or not. If they’re submitting it and they haven’t provided consent or anything like that, do you still email them anyway?
Rob: Isn’t it illegal if they’re in the EU? I mean, you’re breaking EU law if you do that, right?
Mike: Yeah, you are, or at least I believe that you are. The question is, do you care? I’m not saying that you should or should not, I’m not a lawyer here, you’ve got to make your own decisions here but at the same time, if they’re submitting that, what’s the instance your company want to take on this? Do you want to be hardline? You […] comfortably comply with GDPR and were going to take that extremely seriously and we won’t email you unless you click the check box? If you do that, it’s like organ donor cards. Whatever the default is, that’s what most people are going to tend to.
Me, I probably wouldn’t check it because I’ll be like, “Okay, it doesn’t apply to me. I’m not in the EU so I don’t have to click this checkbox and it doesn’t matter. I’ll just click and submit.” But does that mean that you shouldn’t send an email to me? And the answer would be, “No, because I live in the US. It’s not applicable.” But you as a marketer have to decide where does this person come in from? Can you figure that out technologically? And even if you can, where do they receive their email? Where are they actually based? Are they using a VPN? You don’t know any of that stuff.
I feel there’s still going to be some things that come down the line where some of these things are going to change a little bit, maybe GDPR is going to be modified to say that, “If you don’t get consent upfront, you can turn around and send them an email to ask for it,” and if you don’t get it then, okay fine. But that’s not really any different than double opt-in at that point.
I feel that with any laws that are written, inevitably they are never written by people who are technical enough to understand what they’re trying to implement. That kind of stuff is going to happen. Because this was the first pass of GDPR, expect there’s going to be many changes. I would hope that that’s one of them but I don’t know. Ultimately, it blows down to what is your risk tolerance moving forward with your company and how likely do you think you are to be brought to court for over something like that?
Rob: Yup, that’s it. There is a setting in many of the ESPs, and Drip is one as well, where you can show this checkbox but then there’s a setting, this is where I feel again, Drip point the extra mile. There’s a checkbox that you can check in your Drip console to only show the GDPR checkbox on your forms if client’s browser registers to the EU, meaning, it’s doing IP lookups, I’m assuming that’s what it’s doing and geolocating them.
You and I know as technologists that, that’s not 100% foolproof. Just like you said, maybe they’re on a trip, maybe they’re on a VPN, maybe whatever. There’s a bunch of ways that that could be spoofed or incorrect or whatever. But here’s the question. If GDPR or if the EU actually came after you, your little, small business which I just don’t think that they’re going to do and you said, “Look, we implemented all this stuff. (a) Are the auditors going to even be smart enough to realize that there’s this setting, they’re not smart enough is not the right thing but technical enough to understand it, and (b) if you say, “Look, I did this. I did the best I could.”
This is the kind of stuff that is such a gray area that I think fretting about it is, I don’t know. I think it’s been given a lot of wasted thought to GDPR that I think could have been spent doing productive things, I think is my opinion. Like you’re saying, it’s risk tolerance. It’s much like filing your taxes. You can go super conservative and you can go super liberal with your taxes. If you go liberal and liberally interpret things, yes, if you get audited, you may run the risk.
It depends on the auditor because it’s not black-and-white. As much as we want all these things to be black-and-white, they’re not. They’re shades of gray and there’s levels of interpretation and there’s precedents that’s here but not there. It’s kind of a tough thing because you have to make a judgment call on it but I don’t think that GDPR is going to really impact the ability to build email lists.
Kind of like what you said. Everyone kind of shrugs their shoulders. If I see the checkbox, I check it. Maybe it’s going to be really hard for B2C. Let’s say you are Verizon or some selling to consumers. They’re the ones that are gonna accidentally forget to check some checkbox and that you’re then going to miss out of half of your people. I think the more tech-savvy people that we deal with, they’re going to know it, they’re going to eyeroll, and they’re going to check the box when they need to.
Mike: You brought up taxes. That was actually the direction I was going to go in as well and mention that because I think if you’re filing your taxes, chances are really good that you’ve prolly violated the law in some way, shape, or form and can be theoretically be nailed to the wall. At that point when you are audited, it comes down to intent. Were you actively trying to evade the law or did you make a mistake?
If you make mistakes, technically ignorance is not a viable defense in the courts but at the same time, these government agencies realize that you got a lot of things going on and some things are going to slip through the cracks, mistakes that could be made. It’s not that big a deal. It’s not a criminal offense, so it doesn’t matter. If you are actively doing things that are trying to circumvent or subvert but the intent of their legislations or regulations, yeah, they’ll nail you to the wall and that’s what it comes down to.
Rob: Yeah. It’s the difference between a mistake and fraud. Fraud, they prosecute you for it, put you in jail, and the fines are tremendous, if you did it on purpose. If they think it’s an accidental miscalculation, that happens. They will still sometimes have leniency and sometimes they’ll do a penalty or they’ll certainly go back and say, “Well, you didn’t pay us 10 grand and then we’re going to add $1000 penalty, but still, it is 10 grand that you owed them anyway. I don’t know.
Mike: But this discussion is really why entrepreneurs hate legislations where people are making rules about stuff they don’t understand. It’s just like, “Please go away and let us do our thing.” I get why they’re trying to do it, I get the intent, and maybe it really does work that way in reverse. I’ve never had my business brought to the courts for stuff like that, and hopefully it will never happen, but I feel they take intent into account when they look at that stuff.
Rob: I’ll say it again, it’s my soapbox. This is my charge more. Patrick Pence has charged more, I have. GDPR should have excluded small businesses. In the US, there’s this lobby that excludes small businesses from tough regulations that will be hard for them to live up to. Typically, if it’s 25 employees or less, or 50 employees or less, there’s some number where you’re exempt from a lot of things because they know they put undue pressure on. GDPR, I believe, should have done that.
Mike: That’s 50 employees, I think, for most things.
Rob: Cool. That was a good question, Paul, thanks. Our next question is another voicemail. It’s actually a question about Tiny Seed, based on episode 420 from a couple of weeks ago.
Mike: Can I answer this one?
Rob: You get to answer this one.
Chris: Hi. My name is Chris and I’m from San Antonio. I have a question for Rob and Einar about Tiny Seed. I wanted to ask you about managing risk for both you the investors and the founders being invested in since obviously, both sides are assuming risk in such an investment. It seems to me that with your business model, where you invest in companies that already have some traction, that the biggest risk is instead of outright failure like a VC-backed company might have where they just run out of money, instead the biggest risk might just be mediocre growth, where the question of whether you keep investing or if you need to bail out or not, isn’t really black-and-white.
If you agree with that premise, I’m curious about what you think about the risk for the founder, rather than for the investors? Assuming you want the founder to work full-time in the product that’s being invested in, at what point are the founders allowed to explore other options if […] who wants out and do not really making enough to have a living salary like if they have a family? Are they allowed to freelance? Will they be expected for that freelance income to go into the company being invested in so you get a piece of that revenue? Or does the relationship simply end to that point? And even looking out past that runway, if the founder’s company is floundering two or three years later, what’s the responsibility that the founder has to you?
In other words, success is obviously a good problem to have for these companies that are investing in, but I’m really curious about the different ways that the companies or that the investment may fail, especially if it’s not a very black-and-white failure scenario. Thanks.
Rob: So, what do you think about this, Mike?
Mike: You could probably just confirm these for me.
Rob: Cool.
Mike: My inclination is to believe that obviously, there’s the ones that do well and those are successful. There’s the ones that burn out and they are shut down and close out. Neither are those are you really worried about. It’s the ones that are floundering for, I’ll say, extended periods of time. I think in those cases, not just Tiny Seed Fund but funds in general, are just going to say like, “Okay, well, we put money into it. It didn’t really go anywhere.” And until the business is legally shut down, it doesn’t make any difference because nothing changes. The investors do not have enough equity in the business to make any business decisions or force anything to happen. It’s kind of out of their hands, so why worry about it?
Until the business is shut down because when the business is legally shut down and the entity goes away, there’s probably close out conditions or things that are in the paperwork that say, “X, Y, and Z is going to happen,” but beyond that it kind of doesn’t matter. If it’s floundering that badly, their time is probably better spent working on the dozens or hundreds of other startups that were invested in, where some of them are being successful, and they’re going to take away the focus from those to put it on something that’s floundering, versus spending that time with a business that is doing well and could be doing substantially better by focusing on it, you’re basically going down the wrong path as an investor.
Rob: Yeah. I don’t think that’s a bad sentiment. To be honest, I have not thought about this, I’m glad he’s sending the voicemail so it’s totally off-the-cuff. I have not discuss this with Einar but what do most funds do? They do basically what you’ve said and there’s a reason for that. If the business is floundering and the founder wants to shut it down, then you let him shut it down. If they don’t want to shut it down and they want to keep it, I have an angel investment where the founder just took a full-time job to keep this startup alive. He’s taking some of his money and pumping it in there because he still believes it still has merit and he still thinks he can grow it, that it kind of hit product market fit now. What “responsibility” does he have to me or to the investors?
I mean, he has a responsibility to do his best but honestly, if he has said, “Look, I’m going to sell this for parts,” or if he said, “I just can’t do it anymore and it’s totally floundering and I’m going to shut it down,” then he should do that. I would honestly want to have heart-to-heart with him before that, like, “Is this really which wanted do you have built this to a certain point?” I mean, that’s the thing is, unless the relationship goes south, which most don’t, the investor-founder relationship.
I’m in touch with every founder I’ve ever invested in, our relationships are good. If they just told me honestly, like, “This sucks. I’m out,” and they don’t burn it to the ground and they don’t screw anybody, but they’re like, “Look, this isn’t growing. We’re going to have to shut it down,” it’s like, “Okay, it’s an angel investment.” That’s what I thought it might go to zero. The odds are decent that it’s going to go to zero.
I guess all I’m saying is, it’s kind of the same way that most investments are. Some founders will feel like they have more work to do on their product even if it hasn’t hit traction yet, and would I encourage a founder to go freelance and then try to keep a business alive that wasn’t working? If it’s not working, probably not, but it tends to be that weird gray area where it’s not working but the founder thinks it’s going to work in the next couple of months. They have this deal that’s going to close or they have this feature that’s going to go live or they have something game-changing, and In that case, I would just talk like each situation is going to be different, I guess is what I’m saying.
So it’s going to be hard to make a blank statement about what you’re going to do and allow or not allow. I don’t feel I’m going to not allow much. This is all seat-of-the-pants. “Building startups is building the parachute as you jump out of the plane on your way down,” as Reid Hoffman says, so each of these things is like, “Well, let’s have a conversation. What’s the actual situation here? And then, let’s troubleshoot this like smart people who gets things done.” Thanks for the question. I appreciate it.
Out next question is about iTunes keyword stuffing. Actually, it isn’t a question. It’s a statement. It’s from Chris Christiansen. He says, “In your last podcast, you made a comment, suggesting doing keyword stuffing in podcast descriptions for iTunes on the Libsyn podcast called The Feed. They’ve been talking a lot about all the different podcasts that have been banned from iTunes for doing keyword stuffing. Don’t try it.”
We should definitely clarify. We weren’t saying do keyword stuffing. We were saying it does work because the way that the algorithm is not very advanced. They fixed that longer term but you’ve been able to keyword stuff and rank for searches relatively easy on iTunes. Now whether you do that, because if you do it, you could get banned. If you are a successful podcast, and you’re driving users, and you’re do little bit of it, meaning, a little bit of SEO. I’m not saying your stuff in 20 keywords that have nothing to do with your podcast, try to rank for all these topics that you don’t relate to, but if you do intelligent SEO on your podcast.
We’re a show about startups. In the description, I want startups at least a couple of times in plain English, in essence it’s not startups-comma-business-comma, mix – all this stuff, but it’s an English flow that makes sense. I don’t feel like you’re even walking a line there. I feel like that’s a pretty reasonable approach to this. So, stuffing is not what I would recommend and it’s not what we do but it is thinking deliberately about how you write the description, the subtitle, and the title of your podcast.
Mike: I don’t remember whether it was you or me that said that but I probably would have referred to it as keyword stuffing and saying to do that but it’s not exactly right or at least it’s not an accurate description of it. What I mean by keyword stuffing when you’re doing a podcast is being very strategic about what you name it because the search algorithms and most of those podcast directories are really, really dumb. So, it’s not and I responded to this via email as well.
It’s not an accident that our podcast is named Startups For The Rest Of Us. We did some basic research and found it like those engines are just stupid. They’re not very good. They look at the title, they may look at the subtitle but those things count much higher than anything else. It made a lot of sense for us to call it Startups For The Rest Of Us and plus, we have the domain name, so it just worked out. But it is a good distinction to point out the difference between being strategic about that versus what is legitimately keyword stuffing where you’re just repeating the same words over and over again.
Rob: Yeah. There’s a reason we still rank high for that term even though there’s the Gimlet Media startup podcast and then there’s Mixergy, and there’s Jason Calacanis. There’s a lot of competition for that term and yet we’ve always ranked in the top whatever 7-10 of those, depending on what area of the world you’re in.
Our next question is about shady competition and how to handle it. It’s an anonymous email. It says, “Hi, Rob and Mike. First of all, thank you for all the work you guys do with the podcast and the community. Rob’s book, Start Small, Stay Small was the beginning of my life as an entrepreneur and your podcast made me quit my job and start to work full time on products.” Hey, we should add him to our list, Mike, right now our success list. “Right now, I’m one of the two co-founders of a profitable SaaS business.”
“Earlier this year, we did an AppSumo deal and during its promotion, a competitor spread false rumors about us in several private Facebook groups. He said that we had sold the business and that the app is going to close up shop right after the AppSumo deal was over. ‘Here’s some evidence,’ and he sent us a screenshot of the person saying this. This is crazy. We decided to completely ignore this and do nothing about it. In hindsight, this was a good move because in some Facebook discussions, it completely backfired on him and right now he has stopped this as far as we know. Im worried about facing this situation again now that we are growing bigger. What would you do in situations like these? Thanks for all your hard work.”
It’s a good question. It’s a tough question.
Mike: It is a tough question and I think it comes up as your business gets bigger and as you’ve been in business for longer, these situations come up more often just by virtue of being around. I think in most cases it comes back to like, what is likely the north star for your business and how do you conduct your business? Are you really shady about it or are you pretty honest with your customers, upfront, and transparent with them? Then, that has to be contrasted against who is making these types of claims, what people think of that person, and what they know about him versus what they think about you and what they know about you.
It boils down to the audience themselves and how much they like or trust the source of their information. I think in cases like this, most people are going to be pretty—at least—objective enough to say, “Yes, that’s true or false or that goes against my fundamental beliefs about what I’m hearing,” and that’s the way that they’re going to side.
If you know that you run your business on the up and up, I would totally not worry about that stuff. You might make one comment or response and say, “Hey, that’s totally not true,” or you could just ignore it. The people who know you well enough are going to ignore that and they’re probably not going to apply any credibility to it. There’s going to be people who don’t like that person already and is not going to take much for it to backfire in their faces, which will stain them basically in that person’s eyes forever.
I’ve seen this happen in a bunch of different cases. Some people get into fights on Twitter or Facebook or wherever. There were some of them are just personalities and they clash. The audience of one person’s side with that person. The other one’s side’s the other. It’s just going to happen because those audiences tend to be siloed. It’s based on their relationship to them and their trust. If you develop that trust over a long period of time, it’s not going to go away. I would not worry about it.
Rob: Yeah. I think you kind of have three options when this happens. You can do nothing. Intentionally decide, “Hey, I’m going to let this person burn themselves down and makes them look dumb.” Also, I would say most people who do this stuff don’t have very large audiences. You and I dealt with trolls over the years. I’ve had some pretty gnarly ones and all of them, except for maybe one or two, had 80 followers. I mean, there’s just nobody who cared what they were saying and they were trying to pull me into a fight because as soon as you engage with them when you have 13,000 or 14,000 followers, or 50,000 or 100,000, then you’re giving them attention.
That’s one thing, I would say is these folks tend to be to not have a big audience and then I totally lean towards completely ignoring because it just makes more sense to do that because no one’s hearing them anyway. But if they’re that rare exception and they are reaching people—in this case, probably Facebook groups—is tough because they are at least being heard. You can do nothing and if they’re being torn down in a group and people are saying, “I know that’s not true or whatever,” then I don’t need to say anything. You could just post one post and decide that you are not going to reply.
Someone like this is probably going to be a troll and is going to say things intentionally, that are going to try to make you respond because that’s a big thing that trolls do. That’s one of the good skills. If you have good troll game. You know what to say things to make people mad but you say things that make them want to respond, and you responding is actually losing. That’s how I think about it. That you’re giving in and you’re letting them have power over you, to make you respond to something that you probably know you shouldn’t.
Back to the three options, it’s do nothing, it’s post one thing that says, “No, this is not true, this is completely false or whatever,” and then don’t respond again. So you have come out, said it, been clear, and say nothing. Or the third one is to go on a full-on war with them right in. We’ve seen this on Twitter but you spend of time, you spend a bunch of energy, you just waste a bunch of things, and both of you look like idiots. People sit there, watching, and think, “What are these fools doing?”
You can obviously tell where I land. Its number one or number two, depending on the circumstance. But no, it sounds like in this case, you made the right call and then moving forward, I think you just got to use your judgment on that. But it’s a tough one, tough one when this happens because it feels crappy, especially when something is this false. It sounds just coming complete manufactured, something that wasn’t true. It’s bizarre.
Mike: Yeah. It’s very easy to take it personally, too, because it’s your business and then there’s making comments and you don’t want people to believe them. The reality is people are going to believe kind of what they want to and what they’re inclined to anyway. Interjecting yourself is not going to do yourself any favors in most cases.
I think Rob’s advice of either do nothing and ignore it, or one post and that’s it, do not re-engage. If any sort of protracted engagement, especially publicly, is never going to fall in your favor. I don’t know of anyone that has.
Rob: And our last question of the day is about pruning email lists. It’s from an anonymous emailer. He says, “Hi, Rob and Mike. We’ve got an email list focused on WordPress development. It’s currently around 6000 subscribers. It has a 20% open rate. I believe that we should regularly purge non-engagers. People who are not opening, has a Drip lead score of 0 or less, et cetera.”
“But my business partner disagrees. I think that pruning non-engagers helps our list health, which keeps us in the best hub of Gmail, et cetera. He thinks that non-engagers may reactivate and also pad our numbers for sounding impressive to prospective advertisers, et cetera. What are you think? Is there a right answer? What would you do?”
Mike: That’s tough because it sounds like there’s two different things going on. One is how are those subscribers impacting your business itself and the sales. Then there’s also the padding the numbers to sound impressive to advertisers. That’s a tough call there. I think that if you’re going down the route of purging them, I would put together a re-engagement campaign instead of outright purging them. That way, you reach out to them and say, “Hey, looks like you haven’t been engaged with our emails lately. Click here to stay on the list.” You can send a couple of those and if they re-engage, great, keep them on the list, and if not, then purge them.
I don’t think that I would go down the route of just blatantly getting rid of them. The other thing I would question is how got on your list and this is something for you to think about is, was it double opt-in or single opt-in? If it’s single opt-in, they submitted something or you got their email address from some place else, you just added them and they’re not opening the emails, then chances are good those are totally bogus and you’re not getting through them anyway, doesn’t matter. Those are the two things I would consider for that.
In terms of the trying to pad your numbers for advertisers, I don’t know if I could go down that path, either. You could give them the top line number and then caveat it. Your open rate is really what they’re going to be interested in anyway. You can just do the quick math on it and say, “Well, what’s the actual reach?” If you’ve got a 6000 subscribers and a 20% open rate, then you’re reach is actually 1200. It doesn’t matter how many of those subscribers you purge. You’re still going to have that 20% open rate and a 1200 reach. It doesn’t make a difference even if you purge half of them. You’re still going to end up with the same numbers.
I don’t know if I would worry about that too much. Just be honest enough and prompt with whoever your advertisers are and say, “Here’s what we’ve got for subscribers, here’s what our open rate is, and here’s what we believe our reach and impact is for you as an advertiser,” because if you aren’t doing justice to your advertisers, then they’re not going to come back. And that’s actually what you want? It’s hard enough to land an advertiser or a sponsor for your podcast or your email list or what have you. Don’t destroy your trust as well, because if you do, they won’t come back.
Reality is, the money that you get from any one email or podcast or whatever sponsorship, it’s not going to even compare to the trust that you lose and the potential revenue that you lose from them talking to other people and say, “Yeah, these guys screwed us.”
Rob: I think those are all good sentiments, Mike. I think that’s exactly what I’m going to say about re-engagement and if you search for Drip Workflow Re-engagement, there’s a one-click blueprint that is a fully-built out workflow. With one click, you can install it into your account. I believe it was designed by Anna way back in the day and it’s really good at re-engaging people. You can obviously add more emails to it or whatever.
We ran this on the Drip list, let’s say, it’s got to be 2015, because over time, open rates go down and down and we probably hit 25%. I was, “You know? I like to keep above 30%,” because it does. The lower your engagement rates, it will put you in the promotions tab. Sometimes it will get you in spam, but mostly it can impact your sending domain reputation as well, not the IP address that you send through.
This is a little bit of a tangent but we actually have customers come to us from MailChimp or Infusionsoft, and they would say, “Well, their deliverability wasn’t very good,” and I was always like, “That’s a little bit of a red flag. I know MailChimp’s deliverability is quite good.” It turns out the IP addresses stay with Infusionsoft and MailChimp but the domain you’re using, your ‘from address’ in essence, if you’ve kind of burned that domain by having really crappy open rates, then no matter where you go now with that domain, there is going to be a ding against you in the blacklist. That’s the real struggle. Once you lose that, it’s like bad credit. If your credit score drops, it takes a long, long time to get that back.
All that to say, I like to keep my open rates up. I mean we have customers come in with 3%, 5% open rates and they were trying to juice the numbers thing. My list is 100,000 people. But literally, there is 3000 or 4000 that would open emails and it was nuts. Eventually, you do have to intervene because if you’re on shared IPs, that can negatively impact other customers and such.
All that to say the re-engagement thing, I tried it and it had re-engagements for people who aren’t opening emails already, they’re very, very unlikely to open any additional emails. I remember the results were trivial and almost not worth doing. But you should totally try it and track it because you see in the workflow how many people get to certain steps, and you can just run the numbers.
I’m going to put in all 6000 or I guess not 6000 are unengaged. It’s only 4200 are unengaged. See how many get down to the bottom and re-engage. It tends to be, if I remember correctly, it’s between 5% and 10%. If that’s worth doing to you, then do it. Dump them on the workflow and when it gets to the bottom, poof, you just unsubscribe by default after a certain delay if they haven’t clicked anything. It’s really easy to do.
I agree with you, Mike. I don’t think you need to prune down only the 1200 who are opening—that’s ridiculous—but if someone hasn’t opened 10 of your last emails, very, very, very unlikely they’re going to open any email ever. I like more—thinking about it—if you’re going to do advertisers, instead of saying, “We have an email list of 6000,” you could say, “We have an email list of 4500,” if it does mean that’s what it is after your pruned. “We have an email list of 4500 and our engagement rates are 35% or 40%,” because that’s what will happen. It will send those numbers up.
If you’re talking to prospective advertisers, tell them that, “If you’re looking at other places to advertise, ask what their open rates are like.” Specifically, start pointing this out. I think people should pay more attention to this personally just across the board. If I were going to advertise on any site and they give me an email this size, first thing I would do is I would say, “Show me your open rates. I want to see a screenshot of your MailChimp account. I need you to prove to me that your engagement is not crap,” because again, I just seen too many people with 10%-15% open rates who say, again they have a list of 100,000 but that list might as well be 15,000 or 20,000 person list. It’s just not worth it.
I agree with you, Mike, I think that the results are going to carry the day. I would absolutely prune it. I wouldn’t prune all 70%. That’s not how it works. You kind of go into Drip or whatever email tool is and say, “We’ll have to open the last, what feels comfortable, 10, 12 emails, 15,” you can beyond that, it’s ridiculous. I mean, it’s just too big of a number that they’re never coming back. That would be my opinion on that.
Mike: Well, looks like we’re out of time. I think we’re going to wrap today’s episode up. If you have a question for us, you can 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 built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re to share our experiences to help you avoid the same mistakes we’ve made. How did you like my announcer voice today?
Mike: It was great. It was very…
Rob: I was working on it.
Mike: Are you taking voice acting classes so you can announce movies and stuff?
Rob: A voice-over guy? I could be more annoying with it. I was trying not to sound like a radio DJ. What’s the word this week, man? What are you doing?
Mike: It occurred to me that last week you were giving me crap for forgetting the intro. I will remind you of the time in MicroConf Europe, we were on stage, you completely spaced on the intro.
Rob: I did, actually, and I can’t remember anything. That’s right.
Mike: It’s not just me. We’re both getting old.
Rob: Indeed.
Mike: Or not just you.
Rob: A couple of weeks back in episode 420 when Einar and I recorded it, we got on the mic, we recorded it, and after I hit stop he said, “Do you guys do one of these every week?” It’s super funny. I said, “Yeah, but it’s easier blah-blah-blah,” and I couldn’t tell if he was just saying, “What a slog this was.” It was just a funny question and I was like, “Well yeah, we do it every week. For the last four hundred 420 weeks we have done one every week.” It was just a realization. I don’t know. I think it may have taken a lot of energy or a lot of thought for him to kind of be there, to be on a podcast, for not used to doing it all the time, it can feel exhausting. Remember the first 20 or 30 of these? How hard they were? I would go take a nap after we record it because I was so stressed and so anxious and nervous and not knowing what to say.
Mike: For the four listeners that we had at the time.
Rob: Yup and then eventually that all goes away. That leaning into hard things and then doing things that scare you and getting better at them.
Mike: Yeah. I don’t know. I don’t really have a problem with just getting on and talking at this point. I’m not self-conscious about it but I also don’t think that there’s 300 or 3000 people staring at me while I talk.
Rob: Right. It’s definitely different than being up on stage. How about you? What’s going on this week?
Mike: Well, I got into a couple of extremely angry emails from people who are unsubscribing from a couple of my newsletters. I’ve gotten two separate ‘F off’ emails this week, so I think I’m doing something right.
Rob: Why do you think that is?
Mike: Well, one person I think—
Rob: You probably…
Mike: I think I have explanations for both of them. One of them, he said he unsubscribed three times. I looked and there was only one unsubscribe there. Either it just wasn’t working or he wasn’t actually unsubscribing but he thought he was. The way it’s set up is it takes you over to the unsubscribe page so you can manage your subscriptions but just clicking the link isn’t like a one-click unsubscribe. My suspicion is he didn’t actually do it right.
Rob: And there’s a big red button on that page that says, “It says you have not been unsubscribed,” and there’s a big red button that says, “Unsubscribe from all,” and you have to click that. Just so you know, there is a setting in Drip, you don’t need to do it but you could flip it so that the moment they click that one link in their email, it unsubscribes them from everything. We’d had people who want to do both ways which is why there is a setting. And I say we, I don’t work there anymore. But when we built it, I really tough time with that, dude. I still say ‘we’ all the time about Drip and it’s like, “How is it technically ‘we’ anymore if I’m not there?”
Mike: Usually, the way that I talk about it is, if it’s something that I want to “claim” responsibility for but somebody else is going to do it, it’s ‘we’ as in ‘those people. I totally understand that but I don’t know what the whole deal was there. And then the other one I’m still tracking it down. It looks like I got bad data in terms of the name and apparently he was extremely upset that I said the wrong name in the email. But the way I got it was that, so call them a completely different name.
Rob: Yeah, that’s weird. I mean, that’s the thing. You can’t please everybody and you get one or two of these out of thousands. Some people are just jerks or idiots or had a bad day. There’s a lot of bunch of different explanations for it.
Mike: Yeah, I’m not worried about it.
Rob: You bring up more to laugh about it than anything.
Mike: Yup.
Rob: You must be doing something right. We have some new iTunes reviews. We’ve got one in October from Will and he said, “Both inspirational and actionable. Most entrepreneurial podcast fall either in the inspirational bucket or the actionable bucket, but rarely is a podcast both. Startups For The Rest Of Us is an exception to this.” We’ve got another review from Greech Jay. Man, his mom must’ve not liked him, Greech Jay? “Top notch,” it says, “Wow. Clearly brilliant and useful info. Huge value.” You think Greech Jay is just an online handle? Or do you think I’m mispronouncing it and it’s Greech or something like that?
Mike: No idea.
Rob: No idea, don’t care, huh? But thanks for the amazing reviews.
Mike: I didn’t say that I didn’t care. I just have no idea. I don’t have it in front of me. I can’t see how it’s spelt.
Rob: Are you eating something while we are recording?
Mike: No.
Rob: Yes, you totally are. This is great. Ladies and gentlemen, Startups For The Rest—
Mike: …noon, so what do you want me to do?
Rob: That’s true, you’re starving. So, thanks for the iTunes reviews. If you have not left us a five-star review, I promise I will not make fun of your name and I will not say that Mike doesn’t care about you because I know that he cares about each and every listener. It would be great if you could log into the clunky iTunes interface, click the five star and leave us a sentence about, “Hey, these guys say things every week. Say something factual.” Even if you don’t like us, put five stars and be like, “Yeah, these guys really show every week.” That’s a thing, right? Five-star worthy.
Mike: I think the best five-star worthy, like you’re just showing up every single week for eight years. We’re going up on nine at this point, so that’s a lot of time, that’s dedication.
Rob: Yeah, stupidity.
Mike: And sandwiches.
Rob: There you go. We’re going to answer listener questions today. Our mailbag is full once again, which is nice. As usual, the voicemails went to the top of the stack. We’re going to start with a voice mail at the impact of GDPR on the value of mailing lists.
Paul: Hello, Mike. Hello, Rob. My name is Paul from Melbourne, Australia. Thanks for taking my question. You both espouse the value of developing and curating mailing lists. But I recently read an article from LeadPages, stating that, and I quote, “A required checkbox does not allow for freely given consent under the GDPR law. Therefore, it should be optional for a subscriber to consent to receiving marketing emails from you in order to receive a lead magnet, freebie, pay product, et cetera.” What do you think this means for the building of mailing lists going forward? And does this affect your view of the value of mailing lists in relation to the likely increase and effort required to develop enough traffic to make up for the loss of email signups due to this optionality? Thanks again and have a great day.
Rob: Thanks for the question, Paul. I appreciate that. I think you might be misunderstanding something. I just want to clarify that, “A required checkbox does not allow for freely given consent under the GDPR law.” That’s the quote you have and what that means is, if you force them to have the checkbox checked in order to proceed, you have not given them optionality. What that means is it needs to be an option when they submit your email for them. They put in their email, maybe their first name. But there is a checkbox there, I believe it has to be unchecked by default. That’s my understanding, not a lawyer, not a GDPR expert, but I believe it has to be unchecked by default, and you can’t force them to check it to submit the form. Does that makes sense? They should be able to submit that form. It doesn’t make any sense to me, but that’s how my understanding of the law is. If they check it and they submit it, then they have consented and now you can email them. If they don’t check it and submit it, then you need to figure out what to do with that customer because they have not consented to hear from you.
What they built in Drip—hey I just said ‘they’ finally—they’re kind of building it as I was leaving but I think they did a really elegant implementation and if that check, you can just add a GDPR checkbox. It’s a strongly-typed item in Drip’s settings and when you add it, if someone submits without that checkbox being checked, then they have a property on the subscriber that says, “GDPR permission given or something,” and that is either set to true, false, or unknown, and unknown is if they were added through other means, through an API or an import or maybe they were added before you enabled it or whatever.
But again, if they do check it and submit it, then it’s true and if they don’t, then it’s false. You as a Drip customer could just have a workflow or rule that says, “Anyone who’s added with it false, unsubscribe them from all, delete them, do something to get them out of your system.” Or you could keep them in your system, in the Drip account—I’m not sure why you would do that—and just make sure that when you send out an email to everybody that you exclude those subscribers from the segment.
Those are nuts and bolts that I’ll cover before. This question is not about that. It’s more about how do we think this is going to impact it but I kind of wanted to clarify that. I’m using Drip as an example because I know intimately the implementation. I think it’s a good one. I’m pretty sure MailChimp and ActiveCampaign and Infusionsoft have all done similar kind of related implementations.
Now, over to you, he actually had a question. What do you think this means for building of mailing list going forward?
Mike: I don’t think that it changes a whole lot in terms of building a mailing list but I do think it probably has an impact on what you do with it once you have those email addresses because you’re going to have to make a decision about whether or not you’re going to send them email or not. If they’re submitting it and they haven’t provided consent or anything like that, do you still email them anyway?
Rob: Isn’t it illegal if they’re in the EU? I mean, you’re breaking EU law if you do that, right?
Mike: Yeah, you are, or at least I believe that you are. The question is, do you care? I’m not saying that you should or should not, I’m not a lawyer here, you’ve got to make your own decisions here but at the same time, if they’re submitting that, what’s the instance your company want to take on this? Do you want to be hardline? You […] comfortably comply with GDPR and were going to take that extremely seriously and we won’t email you unless you click the check box? If you do that, it’s like organ donor cards. Whatever the default is, that’s what most people are going to tend to.
Me, I probably wouldn’t check it because I’ll be like, “Okay, it doesn’t apply to me. I’m not in the EU so I don’t have to click this checkbox and it doesn’t matter. I’ll just click and submit.” But does that mean that you shouldn’t send an email to me? And the answer would be, “No, because I live in the US. It’s not applicable.” But you as a marketer have to decide where does this person come in from? Can you figure that out technologically? And even if you can, where do they receive their email? Where are they actually based? Are they using a VPN? You don’t know any of that stuff.
I feel there’s still going to be some things that come down the line where some of these things are going to change a little bit, maybe GDPR is going to be modified to say that, “If you don’t get consent upfront, you can turn around and send them an email to ask for it,” and if you don’t get it then, okay fine. But that’s not really any different than double opt-in at that point.
I feel that with any laws that are written, inevitably they are never written by people who are technical enough to understand what they’re trying to implement. That kind of stuff is going to happen. Because this was the first pass of GDPR, expect there’s going to be many changes. I would hope that that’s one of them but I don’t know. Ultimately, it blows down to what is your risk tolerance moving forward with your company and how likely do you think you are to be brought to court for over something like that?
Rob: Yup, that’s it. There is a setting in many of the ESPs, and Drip is one as well, where you can show this checkbox but then there’s a setting, this is where I feel again, Drip point the extra mile. There’s a checkbox that you can check in your Drip console to only show the GDPR checkbox on your forms if client’s browser registers to the EU, meaning, it’s doing IP lookups, I’m assuming that’s what it’s doing and geolocating them.
You and I know as technologists that, that’s not 100% foolproof. Just like you said, maybe they’re on a trip, maybe they’re on a VPN, maybe whatever. There’s a bunch of ways that that could be spoofed or incorrect or whatever. But here’s the question. If GDPR or if the EU actually came after you, your little, small business which I just don’t think that they’re going to do and you said, “Look, we implemented all this stuff. (a) Are the auditors going to even be smart enough to realize that there’s this setting, they’re not smart enough is not the right thing but technical enough to understand it, and (b) if you say, “Look, I did this. I did the best I could.”
This is the kind of stuff that is such a gray area that I think fretting about it is, I don’t know. I think it’s been given a lot of wasted thought to GDPR that I think could have been spent doing productive things, I think is my opinion. Like you’re saying, it’s risk tolerance. It’s much like filing your taxes. You can go super conservative and you can go super liberal with your taxes. If you go liberal and liberally interpret things, yes, if you get audited, you may run the risk.
It depends on the auditor because it’s not black-and-white. As much as we want all these things to be black-and-white, they’re not. They’re shades of gray and there’s levels of interpretation and there’s precedents that’s here but not there. It’s kind of a tough thing because you have to make a judgment call on it but I don’t think that GDPR is going to really impact the ability to build email lists.
Kind of like what you said. Everyone kind of shrugs their shoulders. If I see the checkbox, I check it. Maybe it’s going to be really hard for B2C. Let’s say you are Verizon or some selling to consumers. They’re the ones that are gonna accidentally forget to check some checkbox and that you’re then going to miss out of half of your people. I think the more tech-savvy people that we deal with, they’re going to know it, they’re going to eyeroll, and they’re going to check the box when they need to.
Mike: You brought up taxes. That was actually the direction I was going to go in as well and mention that because I think if you’re filing your taxes, chances are really good that you’ve prolly violated the law in some way, shape, or form and can be theoretically be nailed to the wall. At that point when you are audited, it comes down to intent. Were you actively trying to evade the law or did you make a mistake?
If you make mistakes, technically ignorance is not a viable defense in the courts but at the same time, these government agencies realize that you got a lot of things going on and some things are going to slip through the cracks, mistakes that could be made. It’s not that big a deal. It’s not a criminal offense, so it doesn’t matter. If you are actively doing things that are trying to circumvent or subvert but the intent of their legislations or regulations, yeah, they’ll nail you to the wall and that’s what it comes down to.
Rob: Yeah. It’s the difference between a mistake and fraud. Fraud, they prosecute you for it, put you in jail, and the fines are tremendous, if you did it on purpose. If they think it’s an accidental miscalculation, that happens. They will still sometimes have leniency and sometimes they’ll do a penalty or they’ll certainly go back and say, “Well, you didn’t pay us 10 grand and then we’re going to add $1000 penalty, but still, it is 10 grand that you owed them anyway. I don’t know.
Mike: But this discussion is really why entrepreneurs hate legislations where people are making rules about stuff they don’t understand. It’s just like, “Please go away and let us do our thing.” I get why they’re trying to do it, I get the intent, and maybe it really does work that way in reverse. I’ve never had my business brought to the courts for stuff like that, and hopefully it will never happen, but I feel they take intent into account when they look at that stuff.
Rob: I’ll say it again, it’s my soapbox. This is my charge more. Patrick Pence has charged more, I have. GDPR should have excluded small businesses. In the US, there’s this lobby that excludes small businesses from tough regulations that will be hard for them to live up to. Typically, if it’s 25 employees or less, or 50 employees or less, there’s some number where you’re exempt from a lot of things because they know they put undue pressure on. GDPR, I believe, should have done that.
Mike: That’s 50 employees, I think, for most things.
Rob: Cool. That was a good question, Paul, thanks. Our next question is another voicemail. It’s actually a question about Tiny Seed, based on episode 420 from a couple of weeks ago.
Mike: Can I answer this one?
Rob: You get to answer this one.
Chris: Hi. My name is Chris and I’m from San Antonio. I have a question for Rob and Einar about Tiny Seed. I wanted to ask you about managing risk for both you the investors and the founders being invested in since obviously, both sides are assuming risk in such an investment. It seems to me that with your business model, where you invest in companies that already have some traction, that the biggest risk is instead of outright failure like a VC-backed company might have where they just run out of money, instead the biggest risk might just be mediocre growth, where the question of whether you keep investing or if you need to bail out or not, isn’t really black-and-white.
If you agree with that premise, I’m curious about what you think about the risk for the founder, rather than for the investors? Assuming you want the founder to work full-time in the product that’s being invested in, at what point are the founders allowed to explore other options if […] who wants out and do not really making enough to have a living salary like if they have a family? Are they allowed to freelance? Will they be expected for that freelance income to go into the company being invested in so you get a piece of that revenue? Or does the relationship simply end to that point? And even looking out past that runway, if the founder’s company is floundering two or three years later, what’s the responsibility that the founder has to you?
In other words, success is obviously a good problem to have for these companies that are investing in, but I’m really curious about the different ways that the companies or that the investment may fail, especially if it’s not a very black-and-white failure scenario. Thanks.
Rob: So, what do you think about this, Mike?
Mike: You could probably just confirm these for me.
Rob: Cool.
Mike: My inclination is to believe that obviously, there’s the ones that do well and those are successful. There’s the ones that burn out and they are shut down and close out. Neither are those are you really worried about. It’s the ones that are floundering for, I’ll say, extended periods of time. I think in those cases, not just Tiny Seed Fund but funds in general, are just going to say like, “Okay, well, we put money into it. It didn’t really go anywhere.” And until the business is legally shut down, it doesn’t make any difference because nothing changes. The investors do not have enough equity in the business to make any business decisions or force anything to happen. It’s kind of out of their hands, so why worry about it?
Until the business is shut down because when the business is legally shut down and the entity goes away, there’s probably close out conditions or things that are in the paperwork that say, “X, Y, and Z is going to happen,” but beyond that it kind of doesn’t matter. If it’s floundering that badly, their time is probably better spent working on the dozens or hundreds of other startups that were invested in, where some of them are being successful, and they’re going to take away the focus from those to put it on something that’s floundering, versus spending that time with a business that is doing well and could be doing substantially better by focusing on it, you’re basically going down the wrong path as an investor.
Rob: Yeah. I don’t think that’s a bad sentiment. To be honest, I have not thought about this, I’m glad he’s sending the voicemail so it’s totally off-the-cuff. I have not discuss this with Einar but what do most funds do? They do basically what you’ve said and there’s a reason for that. If the business is floundering and the founder wants to shut it down, then you let him shut it down. If they don’t want to shut it down and they want to keep it, I have an angel investment where the founder just took a full-time job to keep this startup alive. He’s taking some of his money and pumping it in there because he still believes it still has merit and he still thinks he can grow it, that it kind of hit product market fit now. What “responsibility” does he have to me or to the investors?
I mean, he has a responsibility to do his best but honestly, if he has said, “Look, I’m going to sell this for parts,” or if he said, “I just can’t do it anymore and it’s totally floundering and I’m going to shut it down,” then he should do that. I would honestly want to have heart-to-heart with him before that, like, “Is this really which wanted do you have built this to a certain point?” I mean, that’s the thing is, unless the relationship goes south, which most don’t, the investor-founder relationship.
I’m in touch with every founder I’ve ever invested in, our relationships are good. If they just told me honestly, like, “This sucks. I’m out,” and they don’t burn it to the ground and they don’t screw anybody, but they’re like, “Look, this isn’t growing. We’re going to have to shut it down,” it’s like, “Okay, it’s an angel investment.” That’s what I thought it might go to zero. The odds are decent that it’s going to go to zero.
I guess all I’m saying is, it’s kind of the same way that most investments are. Some founders will feel like they have more work to do on their product even if it hasn’t hit traction yet, and would I encourage a founder to go freelance and then try to keep a business alive that wasn’t working? If it’s not working, probably not, but it tends to be that weird gray area where it’s not working but the founder thinks it’s going to work in the next couple of months. They have this deal that’s going to close or they have this feature that’s going to go live or they have something game-changing, and In that case, I would just talk like each situation is going to be different, I guess is what I’m saying.
So it’s going to be hard to make a blank statement about what you’re going to do and allow or not allow. I don’t feel I’m going to not allow much. This is all seat-of-the-pants. “Building startups is building the parachute as you jump out of the plane on your way down,” as Reid Hoffman says, so each of these things is like, “Well, let’s have a conversation. What’s the actual situation here? And then, let’s troubleshoot this like smart people who gets things done.” Thanks for the question. I appreciate it.
Out next question is about iTunes keyword stuffing. Actually, it isn’t a question. It’s a statement. It’s from Chris Christiansen. He says, “In your last podcast, you made a comment, suggesting doing keyword stuffing in podcast descriptions for iTunes on the Libsyn podcast called The Feed. They’ve been talking a lot about all the different podcasts that have been banned from iTunes for doing keyword stuffing. Don’t try it.”
We should definitely clarify. We weren’t saying do keyword stuffing. We were saying it does work because the way that the algorithm is not very advanced. They fixed that longer term but you’ve been able to keyword stuff and rank for searches relatively easy on iTunes. Now whether you do that, because if you do it, you could get banned. If you are a successful podcast, and you’re driving users, and you’re do little bit of it, meaning, a little bit of SEO. I’m not saying your stuff in 20 keywords that have nothing to do with your podcast, try to rank for all these topics that you don’t relate to, but if you do intelligent SEO on your podcast.
We’re a show about startups. In the description, I want startups at least a couple of times in plain English, in essence it’s not startups-comma-business-comma, mix – all this stuff, but it’s an English flow that makes sense. I don’t feel like you’re even walking a line there. I feel like that’s a pretty reasonable approach to this. So, stuffing is not what I would recommend and it’s not what we do but it is thinking deliberately about how you write the description, the subtitle, and the title of your podcast.
Mike: I don’t remember whether it was you or me that said that but I probably would have referred to it as keyword stuffing and saying to do that but it’s not exactly right or at least it’s not an accurate description of it. What I mean by keyword stuffing when you’re doing a podcast is being very strategic about what you name it because the search algorithms and most of those podcast directories are really, really dumb. So, it’s not and I responded to this via email as well.
It’s not an accident that our podcast is named Startups For The Rest Of Us. We did some basic research and found it like those engines are just stupid. They’re not very good. They look at the title, they may look at the subtitle but those things count much higher than anything else. It made a lot of sense for us to call it Startups For The Rest Of Us and plus, we have the domain name, so it just worked out. But it is a good distinction to point out the difference between being strategic about that versus what is legitimately keyword stuffing where you’re just repeating the same words over and over again.
Rob: Yeah. There’s a reason we still rank high for that term even though there’s the Gimlet Media startup podcast and then there’s Mixergy, and there’s Jason Calacanis. There’s a lot of competition for that term and yet we’ve always ranked in the top whatever 7-10 of those, depending on what area of the world you’re in.
Our next question is about shady competition and how to handle it. It’s an anonymous email. It says, “Hi, Rob and Mike. First of all, thank you for all the work you guys do with the podcast and the community. Rob’s book, Start Small, Stay Small was the beginning of my life as an entrepreneur and your podcast made me quit my job and start to work full time on products.” Hey, we should add him to our list, Mike, right now our success list. “Right now, I’m one of the two co-founders of a profitable SaaS business.”
“Earlier this year, we did an AppSumo deal and during its promotion, a competitor spread false rumors about us in several private Facebook groups. He said that we had sold the business and that the app is going to close up shop right after the AppSumo deal was over. ‘Here’s some evidence,’ and he sent us a screenshot of the person saying this. This is crazy. We decided to completely ignore this and do nothing about it. In hindsight, this was a good move because in some Facebook discussions, it completely backfired on him and right now he has stopped this as far as we know. Im worried about facing this situation again now that we are growing bigger. What would you do in situations like these? Thanks for all your hard work.”
It’s a good question. It’s a tough question.
Mike: It is a tough question and I think it comes up as your business gets bigger and as you’ve been in business for longer, these situations come up more often just by virtue of being around. I think in most cases it comes back to like, what is likely the north star for your business and how do you conduct your business? Are you really shady about it or are you pretty honest with your customers, upfront, and transparent with them? Then, that has to be contrasted against who is making these types of claims, what people think of that person, and what they know about him versus what they think about you and what they know about you.
It boils down to the audience themselves and how much they like or trust the source of their information. I think in cases like this, most people are going to be pretty—at least—objective enough to say, “Yes, that’s true or false or that goes against my fundamental beliefs about what I’m hearing,” and that’s the way that they’re going to side.
If you know that you run your business on the up and up, I would totally not worry about that stuff. You might make one comment or response and say, “Hey, that’s totally not true,” or you could just ignore it. The people who know you well enough are going to ignore that and they’re probably not going to apply any credibility to it. There’s going to be people who don’t like that person already and is not going to take much for it to backfire in their faces, which will stain them basically in that person’s eyes forever.
I’ve seen this happen in a bunch of different cases. Some people get into fights on Twitter or Facebook or wherever. There were some of them are just personalities and they clash. The audience of one person’s side with that person. The other one’s side’s the other. It’s just going to happen because those audiences tend to be siloed. It’s based on their relationship to them and their trust. If you develop that trust over a long period of time, it’s not going to go away. I would not worry about it.
Rob: Yeah. I think you kind of have three options when this happens. You can do nothing. Intentionally decide, “Hey, I’m going to let this person burn themselves down and makes them look dumb.” Also, I would say most people who do this stuff don’t have very large audiences. You and I dealt with trolls over the years. I’ve had some pretty gnarly ones and all of them, except for maybe one or two, had 80 followers. I mean, there’s just nobody who cared what they were saying and they were trying to pull me into a fight because as soon as you engage with them when you have 13,000 or 14,000 followers, or 50,000 or 100,000, then you’re giving them attention.
That’s one thing, I would say is these folks tend to be to not have a big audience and then I totally lean towards completely ignoring because it just makes more sense to do that because no one’s hearing them anyway. But if they’re that rare exception and they are reaching people—in this case, probably Facebook groups—is tough because they are at least being heard. You can do nothing and if they’re being torn down in a group and people are saying, “I know that’s not true or whatever,” then I don’t need to say anything. You could just post one post and decide that you are not going to reply.
Someone like this is probably going to be a troll and is going to say things intentionally, that are going to try to make you respond because that’s a big thing that trolls do. That’s one of the good skills. If you have good troll game. You know what to say things to make people mad but you say things that make them want to respond, and you responding is actually losing. That’s how I think about it. That you’re giving in and you’re letting them have power over you, to make you respond to something that you probably know you shouldn’t.
Back to the three options, it’s do nothing, it’s post one thing that says, “No, this is not true, this is completely false or whatever,” and then don’t respond again. So you have come out, said it, been clear, and say nothing. Or the third one is to go on a full-on war with them right in. We’ve seen this on Twitter but you spend of time, you spend a bunch of energy, you just waste a bunch of things, and both of you look like idiots. People sit there, watching, and think, “What are these fools doing?”
You can obviously tell where I land. Its number one or number two, depending on the circumstance. But no, it sounds like in this case, you made the right call and then moving forward, I think you just got to use your judgment on that. But it’s a tough one, tough one when this happens because it feels crappy, especially when something is this false. It sounds just coming complete manufactured, something that wasn’t true. It’s bizarre.
Mike: Yeah. It’s very easy to take it personally, too, because it’s your business and then there’s making comments and you don’t want people to believe them. The reality is people are going to believe kind of what they want to and what they’re inclined to anyway. Interjecting yourself is not going to do yourself any favors in most cases.
I think Rob’s advice of either do nothing and ignore it, or one post and that’s it, do not re-engage. If any sort of protracted engagement, especially publicly, is never going to fall in your favor. I don’t know of anyone that has.
Rob: And our last question of the day is about pruning email lists. It’s from an anonymous emailer. He says, “Hi, Rob and Mike. We’ve got an email list focused on WordPress development. It’s currently around 6000 subscribers. It has a 20% open rate. I believe that we should regularly purge non-engagers. People who are not opening, has a Drip lead score of 0 or less, et cetera.”
“But my business partner disagrees. I think that pruning non-engagers helps our list health, which keeps us in the best hub of Gmail, et cetera. He thinks that non-engagers may reactivate and also pad our numbers for sounding impressive to prospective advertisers, et cetera. What are you think? Is there a right answer? What would you do?”
Mike: That’s tough because it sounds like there’s two different things going on. One is how are those subscribers impacting your business itself and the sales. Then there’s also the padding the numbers to sound impressive to advertisers. That’s a tough call there. I think that if you’re going down the route of purging them, I would put together a re-engagement campaign instead of outright purging them. That way, you reach out to them and say, “Hey, looks like you haven’t been engaged with our emails lately. Click here to stay on the list.” You can send a couple of those and if they re-engage, great, keep them on the list, and if not, then purge them.
I don’t think that I would go down the route of just blatantly getting rid of them. The other thing I would question is how got on your list and this is something for you to think about is, was it double opt-in or single opt-in? If it’s single opt-in, they submitted something or you got their email address from some place else, you just added them and they’re not opening the emails, then chances are good those are totally bogus and you’re not getting through them anyway, doesn’t matter. Those are the two things I would consider for that.
In terms of the trying to pad your numbers for advertisers, I don’t know if I could go down that path, either. You could give them the top line number and then caveat it. Your open rate is really what they’re going to be interested in anyway. You can just do the quick math on it and say, “Well, what’s the actual reach?” If you’ve got a 6000 subscribers and a 20% open rate, then you’re reach is actually 1200. It doesn’t matter how many of those subscribers you purge. You’re still going to have that 20% open rate and a 1200 reach. It doesn’t make a difference even if you purge half of them. You’re still going to end up with the same numbers.
I don’t know if I would worry about that too much. Just be honest enough and prompt with whoever your advertisers are and say, “Here’s what we’ve got for subscribers, here’s what our open rate is, and here’s what we believe our reach and impact is for you as an advertiser,” because if you aren’t doing justice to your advertisers, then they’re not going to come back. And that’s actually what you want? It’s hard enough to land an advertiser or a sponsor for your podcast or your email list or what have you. Don’t destroy your trust as well, because if you do, they won’t come back.
Reality is, the money that you get from any one email or podcast or whatever sponsorship, it’s not going to even compare to the trust that you lose and the potential revenue that you lose from them talking to other people and say, “Yeah, these guys screwed us.”
Rob: I think those are all good sentiments, Mike. I think that’s exactly what I’m going to say about re-engagement and if you search for Drip Workflow Re-engagement, there’s a one-click blueprint that is a fully-built out workflow. With one click, you can install it into your account. I believe it was designed by Anna way back in the day and it’s really good at re-engaging people. You can obviously add more emails to it or whatever.
We ran this on the Drip list, let’s say, it’s got to be 2015, because over time, open rates go down and down and we probably hit 25%. I was, “You know? I like to keep above 30%,” because it does. The lower your engagement rates, it will put you in the promotions tab. Sometimes it will get you in spam, but mostly it can impact your sending domain reputation as well, not the IP address that you send through.
This is a little bit of a tangent but we actually have customers come to us from MailChimp or Infusionsoft, and they would say, “Well, their deliverability wasn’t very good,” and I was always like, “That’s a little bit of a red flag. I know MailChimp’s deliverability is quite good.” It turns out the IP addresses stay with Infusionsoft and MailChimp but the domain you’re using, your ‘from address’ in essence, if you’ve kind of burned that domain by having really crappy open rates, then no matter where you go now with that domain, there is going to be a ding against you in the blacklist. That’s the real struggle. Once you lose that, it’s like bad credit. If your credit score drops, it takes a long, long time to get that back.
All that to say, I like to keep my open rates up. I mean we have customers come in with 3%, 5% open rates and they were trying to juice the numbers thing. My list is 100,000 people. But literally, there is 3000 or 4000 that would open emails and it was nuts. Eventually, you do have to intervene because if you’re on shared IPs, that can negatively impact other customers and such.
All that to say the re-engagement thing, I tried it and it had re-engagements for people who aren’t opening emails already, they’re very, very unlikely to open any additional emails. I remember the results were trivial and almost not worth doing. But you should totally try it and track it because you see in the workflow how many people get to certain steps, and you can just run the numbers.
I’m going to put in all 6000 or I guess not 6000 are unengaged. It’s only 4200 are unengaged. See how many get down to the bottom and re-engage. It tends to be, if I remember correctly, it’s between 5% and 10%. If that’s worth doing to you, then do it. Dump them on the workflow and when it gets to the bottom, poof, you just unsubscribe by default after a certain delay if they haven’t clicked anything. It’s really easy to do.
I agree with you, Mike. I don’t think you need to prune down only the 1200 who are opening—that’s ridiculous—but if someone hasn’t opened 10 of your last emails, very, very, very unlikely they’re going to open any email ever. I like more—thinking about it—if you’re going to do advertisers, instead of saying, “We have an email list of 6000,” you could say, “We have an email list of 4500,” if it does mean that’s what it is after your pruned. “We have an email list of 4500 and our engagement rates are 35% or 40%,” because that’s what will happen. It will send those numbers up.
If you’re talking to prospective advertisers, tell them that, “If you’re looking at other places to advertise, ask what their open rates are like.” Specifically, start pointing this out. I think people should pay more attention to this personally just across the board. If I were going to advertise on any site and they give me an email this size, first thing I would do is I would say, “Show me your open rates. I want to see a screenshot of your MailChimp account. I need you to prove to me that your engagement is not crap,” because again, I just seen too many people with 10%-15% open rates who say, again they have a list of 100,000 but that list might as well be 15,000 or 20,000 person list. It’s just not worth it.
I agree with you, Mike, I think that the results are going to carry the day. I would absolutely prune it. I wouldn’t prune all 70%. That’s not how it works. You kind of go into Drip or whatever email tool is and say, “We’ll have to open the last, what feels comfortable, 10, 12 emails, 15,” you can beyond that, it’s ridiculous. I mean, it’s just too big of a number that they’re never coming back. That would be my opinion on that.
Mike: Well, looks like we’re out of time. I think we’re going to wrap today’s episode up. If you have a question for us, you can 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 421 | The “Science” of Why “Charge More” Works
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Show Notes
In this episode of Startups For The Rest Of Us inspired by a Patrick McKenzie tweet, Rob and Mike talk about the science of why charging more works.
Items mentioned in this episode:
- Patrick McKenzie Tweet
- MicroConf
- FounderCafe
- TinySeed
- Joel Spolsky ” Camels and Rubber Duckies”
- Joel Spolsky ” Price as Signal”
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about the science of why charge more works. This is Startups For The Rest Of Us episode 421.
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 the guy that knows the intro.
Mike: Oh, be quiet! And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Rob?
Rob: I’m doing good. By my calculation, you’ve done the intro 210 times because we tend to trade off back and forth. How is it that you haven’t memorized it yet?
Mike: I was distracted. You know what, the thing is, I missed last episode. It was episode 420. Marijuana just became legal in Massachusetts. I must have been high.
Rob: That’s what we’re doing? Alright. This is going to be a good show today folks. For me, weeks are going well. MicroConf tickets are on sale inside Founder Café and then when this goes live, it will be on sale to our email launch list.
Mike: Yes.
Rob: Head over to microconf.com if you are interested, get on that launch list. You may have missed the first email, but they’ll get a subsequent one I suppose if they get on the list today.
Mike: Yeah. I think that the episode that comes out today, the people who will be getting that email for MicroConf tickets are going to be previous attendees and then next Tuesday it’s going to be going out to the rest of the list.
Rob: There you go. Growth Edition sales out every year so you want to get on that email list if you’re interested in it. How about you?
Mike: Well, I received my Scotch Advent Calendar yesterday. December is looking fantastic at the moment.
Rob: It’s a family tradition isn’t it?
Mike: Well, it just started last year.
Rob: Two years? In this day and age, I think that’s a tradition.
Mike: Sure. Aside from that, just working on the MicroConf sponsorship. That’s in the works. If you’re interested in any of the MicroConf sponsorship options, drop me an email at sponsors@microconf.com and I’ll send you over the break card and we’ll schedule a time to chat about it and see if it’s a good fit for you.
Rob: Other than that, I am continuing to push forward on TinySeed. Did you listen to the episode last week?
Mike: I have not had a chance to. I was high, remember?
Rob: Yeah, that’s right. All week. That was fun. Einar and I just talked it through, talked about what we’re up to, and why we’re up to it, and just the course we take on the funding landscape and even the landscape of what it takes to bootstrap a SaaS these days. Continuing to move it forward. There’s not so much I can talk about publicly but definitely meeting with a lot of founders and just discussing ideas, and thoughts, and stuff.
It’s a fun time. You know how it is. It’s like the early days of anything. This is literally a startup and we’re kind of bootstrapping it even though it’s weird. It’s like we don’t have any funding for Einar Vollset and I at this point. Eventually, once we raise the fund to actually back TinySeed, we’ll have a small stipend or something coming out of it. But it’s not like, “Oh, yeah. You’re doing a startup and you’re going to raise 5 or 10 million and crank it up.” It really is that, it’s the ethos of everything I’ve ever done where you’re capital-efficient, and you’re scrappy, and you’re just trying to hack your way through it. It’s fun.
I enjoy these days of it. There’s just so much creativity involved. It’s a problem that we’re looking at from a new angle and we so there aren’t overt solutions that others have tried and so we’re really trying to figure it out and to innovate on something that I think we believe needs some innovation.
Mike: You know why I think it’s so fun? It’s because you’re so early on that you haven’t actually run into any real problems yet.
Rob: That’s exactly it. It’s like any startup. It’s fun until you have to actually start writing code or you have to actually start selling to customers or supporting them in whatever. All the headaches crop up.
Mike: I do want to point out that you and I had an “argument” over whether or not it was a startup that you kept denying it and you’ve referred to it as a startup several times already.
Rob: Dang it. Right. Because I said I’d never do another startup again and then I was like, “Well, I’ll never do another SaaS app again from scratch.” and then I have all these caveats. Just never say never—that’s my advice.
Mike: I should get you a new bike so you can backpedal faster.
Rob: That’s right. That’s exactly right. What are we talking about this week?
Mike: Today’s podcast episode is inspired by a tweet that I saw on Twitter from Patrick McKenzie. The episode is titled, The Science of Why Charge More Works. Obviously, we’ll link this up in the show notes exactly where that tweet was.
Patrick has been talking about essentially, charging more for as long as I can remember. His tweet said, “Hacker News comment: I moved into a low-wage area and started freelancing. My clients likely think I’m too cheap, but I’m making double what I did before and overwhelmed with work. Suggestions?” and the second commenter said, “patio11 would tell you to charge more.” and he says, “Well, my work for today is done.”
It’s just interesting to see and I even commented on this that it’s funny how just repeating the same two words over and over could practically make you a career for the rest of your life and just say charge more, that’s your advice in almost any situation. Inevitably, in a lot of them, it’s going to work. I thought we’ve talked through a little bit about, one, why does it work? But also we talked through the science and mindset of this as well.
Rob: Yeah, talk through some specifics because you can’t always just charge more, eventually it stops working. There’s ways to charge more and do you grandfather. There’s specifics on that and that’s what we’ll talk about today.
I hear you, he’s developed the brand. He just said it so much because there are other people saying it. If you look back at MicroConf talks for example, really early on it was like Jason Cohen said it, Hiten Shah said it, I said it in two of my talks, but Patrick McKenzie has said it over and over and over and it becomes a brand and I think it’s a cool thing to have. Each of us develops our own little corners of the startup ecosystem I think.
Mike: The other comment that he had made in that tweet stream was that, “I think that Gmail folder where I keep my thank you for a salary negotiation post is in the upper seven figures in mostly $25,000 chunks, and given that salary is a vector not a scalar and compounds, that blog post has probably moved $X0 million around.” Basically, eight figures.
Rob: He’s saying eight figures.
Mike: Yup which is huge. To be able to have solid data that you can point to that has shown that you have been able to increase personal revenue for salaries for people is just amazing. But there’s also correlations between what he said in terms of charge more, not just as a person who’s employed for a company, but also in terms of raising prices for your software products.
Rob: Yeah, it’s like charge more for your skills. Charge more if you’re salaried employ by negotiating and I liked that post is really good. We should find it and link to it, but he writes a really good post about negotiation. It’s stuff that I had done intuitively, but I hadn’t put it into words in a framework like he did.
I negotiated every job I ever had. I made more money than the people around me. I was just doing it because I was like, “Well, I know that I’m valuable.” It was this internal thing of, “I know that I have chops at whatever it was” being a developer, or project manager, or a tech leader, whatever the role was. I tend to be, in these environments, a little better than the people around me.
Salary negotiation is something that you should do if you have not. And then when you become a contractor then you’ll learn you can just ratchet that rate up especially once you have referrals coming in. When you launch any type of product or service then you’ll learn to do the same thing. It’s all in line with the same idea of it’s not even charging what you’re worth. No, really figure out how to maximize this and charge based on the value that you or your product provides.
Mike: Yeah and that leads to a blogpost that I recalled reading years and years ago, it’s more than a decade ago from Joel Spolsky. We’ll link this up in the show notes as well, but it’s called, “Camels and Rubber Duckies”. In this blogpost, he essentially talks a little bit about economic theory and how to identify pricing for a product and how do you maximize revenue.
Of course, it has a bunch of different charge and as matrix there says, “If you charge this you’re going to make X amount of money and if you charge this other thing over here you’re going to make Y amount of money. It’s that more or less and are you more profitable as a result.” It’s like, “Well, it depends on whether or not you are able to sell just as many as you where before if you’re charging more.” If you charge more and you’re selling more then, if the math works out, yes, you’ll make more money. But at some point you’re going to raise the prices and the number of units that you sell starts dropping as a result and at some point further than that you’re going to start making less money. Where is that point? How do you figure that out?
One of the interesting pieces of Patrick’s charge more philosophy is just the fact that it forces you into situations where you are price testing. You’re checking to see if charging that higher amount of money is going to make you more or if you’re not going to get as many sales.
Rob: Here’s the thing, there are multiple stages of startups. We’ve talk about this over and over. There’s super early days and then there’s right before product market fit, and there’s after product market fit, and then there’s the growth stage. In each of those, you have to approach things differently, your thought process is a little different. In the very, very early days literally, your first 5 or 10 customers, I don’t know that you want to charge more but you should charge something.
I’ve seen startup founders be like, “Yeah, I’m going to comp the first 10 early access users just as thanks for whatever and they get lifetime account.” And I’m like, “That is a terrible idea.” Because those ten people are the people that are most eager to use your product and they’re going to get value from it. Why should they get that for free? Maybe give them a discount, maybe. Maybe. Maybe not.
As you’re getting to product market fit, you should be trying to push that price up. Once you’ve hit it, then that’s where you go every six months or every year your product is getting better. It’s SaaS app, I’m going to assume or something that you’re developing. People are using on-going that you’re developing features for, and it’s becoming more valuable to them, so they should pay more. Unless, the only time you can’t necessarily do that all the time is if you have a bunch of competitors and you’re kind of commoditized or they’re implementing these features that have similar rate to what you are, and you don’t have enough differentiation to basically be able to raise prices for that. Someone’s saying, “Well, I can just switch over here.” Switching customer involve then.
As you scale up, you’ll see these companies once you do become, you’ll look at HubSpot or Salesforce, someone who goes beyond that, their pricing just gets crazy where it’s crazy from our little B to SMB perspective when we typically think, “Yeah, we’ll charge someone $50 or $100 a month.” And they’re charging $5,000, $10,000, $20,000 a month that depending on plans.
All that to say, I like this as a sentiment. I think most people, especially early stages, especially beginners, they just don’t charge enough. I think we’re going to talk about a little perspective here of how to do this or how to increase prices without just making that your default because at a certain point—as you’ve said from Camel’s and Rubber Duckies—it’s a losing proposition.
Mike: I think one of the reasons why see larger companies like HubSpot charging so much more and in amounts that founders of smaller companies look at and say that’s just a ridiculous and absurd amount of money to charge, we’re a little disconnected from large companies purchasing decisions. Me, personally, I’ve worked at an extremely large company that’s 25,000 employees—that was almost 20 years ago at this point—and I was not in any way shape or form involved with any purchasing decision ever at the company.
By the time I’ve moved on, I’ve never really worked for what I would say a large company or been in this position where I’m involved in those purchasing decisions. I don’t have the experience or the mindset of how those decisions are made, and I think that contributes to why we don’t necessarily understand it as well.
If you try to put that in perspective, how big is the company and how much money do they make on an annual basis? If you’re a one-person or two-person company, you’re probably making less than $500,000 a year. If you are a 300-person company or 500-person company, you’re making a heck of a lot more than that, probably talking $50 million or $100 million a year.
For them to spend a couple of $1000 a month is not that big a deal, to you it is because that’s a huge chunk of your budget. To them, it’s a really super tiny percentage and they, for the most part, just don’t care.
Rob: That’s right. Especially if you’re going up market into companies of any kind of size, they’re not price comparing nearly as much as we think they are because they’re not consumers and they’re not anywhere closer. Further you move up the chain from consumers, the less price comparison that goes on, the more I don’t know–it’s like politics in getting this person on board and convincing this whole team to do things and there’s just so many other factors in it. Their price is one but there’s many others. But when you’re working with consumers, price tends to be the highest factors. A lot of price sensitivity selling that.
I met with someone who’s selling software to PC gamers and it’s like, “Ouch.” If someone comes in offering that is $1 less than yours, you’re going to lose people. They will go to the pain of switching to save a dollar or two a month. It’s just a totally different ball game when you’re dealing that.
Mike: I think that the mistake a lot of people make is when you say consumer I would almost lump in like freelancers and companies with less than two or three employees. I know that’s not a direct comparison because if you’re selling consumer products versus business products there, is a very big difference between the actual person who’s purchasing it. But in terms of mindset, those very small business owners have a very close mindset to the consumer. It’s not about what they do, it’s about how they approach their buying decisions.
Rob: I would agree with that. I was talking with Einar the other day and I have the mental classifications for business type or customer type and obviously B2C is one a lot of us think of. Literally, it’s Verizon or if you’re selling software, FTP software to the masses, and then I was like, “You know, there’s this B to Prosumer which is kind of hobbyist.” Let’s say you’re selling to photographers who do it on the side or most or not full time, but it’s this hobby they do on the weekend and they most to it to pay for their gear. They charge people so that they can afford more gear because there’s not so much money in it. It’s a B to Prosumer.
Then there’s B to A. It’s B to Aspirational folks. Frankly, it’s the smart passive in [00:15:08] or it’s folks who aspire to be something. People negatively used the term ‘wannapreneur’ which I feel like it’s a negative thing to say about someone, but it’s folks who want to be entrepreneurs. They’re really aspiring so they are willing to spend some money, but the churn is really high, and they definitely are consumer, but their behavior is different than someone buying a cellphone or cable service because they are trying to invest in a business. I actually think the behaviors of those three are different.
I like what you’re saying, there’s this B to VSB—very small business—which is basically the one that one- or two- or three-person company. They’re still going to have price sensitivity, but I don’t think as much as a consumer. Then there’s B to probably just regular small business and then B to Enterprise. There’s a mid-market in there so you can go all types of categories in there but each of those going to have their own pros and cons in terms of price sensitivity as well as churn, sale cycle, all that stuff.
Mike: I think you can debate all day about exactly where the different levels are whether it’s five employees or ten employees or whatever, but the reality is, as you move from the general consumer upmarket you traverse through that spectrum of purchasers, price sensitivity is a lot less. Going back to the Camel’s and Rubber Duckies trying to optimize your revenue is about doing price testing to see where the different breaking points are.
The simple explanation for charge more is, you increase prices, you’ve measured the total revenue and you repeat doing that until revenue starts to climb. Then you find out why it declined and try to solve that particular problem because it could be that you got your revenue to a certain point and then you try to charge more, and you come to find out that, “Oh! There’s a credit card limit for a maximum purchase on a monthly basis from a single vendor.” Maybe it’s $500 or $1000. Joel talks about in his blogpost, but they’re not just allowed to purchase something that costs more than that without a signature and maybe that’s why your revenue decline. It may not necessarily be directly because your price bar them from, but it could be something ancillary to that. You just have to figure out, why is that? Are you not provided the value? Or is there some other external factor. Once you’ve find out those, see if you can try to solve the problem and if you can raise prices and charge more.
Rob: Again, the mistakes some founders make is people will cancel especially in the early days. You’re trying to find product market fit. I’m trying to get people to use it. People are cancelling saying, “Ah! It’s not worth the money.” That’s not to say it’s too expensive. What they’re saying is you haven’t built something that they actually want to use. If you built something killer that they really need in their day-to-day or really change their workflow, it would be worth that money plus more. This is something I talk about—it’s aspirational pricing.
In the early days of Drip, Drip was very simple. It was before it was really an ESP, and automation, and all that stuff and people are cancelling saying, “Yeah, it’s just not worth the money or I can switch to Mailchimp and this and that.” I said, “Okay! It was $49 a month.” I said, “How can we make this into a product that people don’t say that about? That they say, “Oh! It’s totally worth $49 a month.” and that’s is the thread that I kept pulling to get us to product market fit is, “I don’t want to lower my prices because I don’t want another app that starts at $10 or $20 a month because the churn is high.” It’s so hard to find enough customers to make something worthwhile.
This is one of the big things when I looked at starting Drip, I had these lists of things I wanted with my next idea, it was after HitTail. My next app I want it to be $99 a month was the initial aspiration, but I want it to be in $49 by the time we launch. That was the most important one to be honest. I just wanted to move up market because I wanted to build an app that didn’t have the struggles and tap out because if your lowest plan is $10 a month it’s hard. People are moving up often to the higher plans. It’s hard to grow a SaaS app to the levels that I think a lot of us want to get to, the mid-six and seven figure levels.
Mike: The other blogpost that struck me has been highly relevant to this was also another one from Joel Spolsky that he wrote about a year later in 2005, it’s called, Price as a Signal. In this post, he basically talks about how the price that you put on something sends a signal to people about what the quality of it. Low price in relation to other things that are on the market that do the same type of thing, says that it’s a low quality. If it’s a much higher price, it signals that it’s a higher quality and it’s a better product, that does not necessarily mean it’s true. It’s simply the perception that you are putting forth as to why the pricing would be that way. Because there’s going to be some justification for the pricing and to the buyer, they don’t really have any of the inside knowledge so their natural assumption is, “Oh! Well, it must be better.”
They would really have to dig in and try your product and almost do a side-by-side comparison against other products. Not every customers’ going to have that kind of time on their hands. Some of them just need to make a decision and move on and they’re like, “I just want a better product so I’m just going to pay the higher price point for it.” That’s especially true when you get into the higher pricing tiers where those people are less price sensitive and they’re like, “I don’t care what the price is. We just need something. We need it to work, we need it to be good, so we’ll just buy the highest price thing we can find or something that’s reasonably high priced.” You don’t want to spend $50,000 a month when you can spend $5000, but if the pricing is listed on the website and its $300 a month, and you find something else that’s $900 a month, what are going to do? If you don’t care about price, you’d probably go with $900 a month because you’ve got the funds to spare. It’s probably not your money anyway and you need something to work. You don’t want to go to your boss and say, “Hey, this didn’t work because we went with the $300 product.”
Rob: Yup. I think it’s good. I think price signaling is definitely a real thing that folks should consider and being the premium offering. It’s an interesting marketing play; an interesting positioning play. I think WP Engine did this really well in the early days. They just said, “We’re going to be the expensive solution but we’re going to deliver on it.” You have to deliver on that.
Mike: The interesting about what you just said was that I think the price could send the opposite signal as well. If you price too low, it can tell people that your product is not just any good. You can look at a bunch of different industries for that. But I think one that pops-out of my head is the App Store. You look on there and there’s tons and tons of apps that are either free or for 0.99 cents. I personally look at them and say, “Well, if it’s 0.99 cents, how great can it be at this point?” because there’s a lot of things that charge more than 0.99 cents. There was kind of a standard thing to charge and now, it’s not. There’s a bunch of apps that I pay $10 for.
Rob: I still buy apps. I think the App Store is kind of a… How do you say?
Mike: Crap factory?
Rob: It is a crap factory. No. I was going to say it’s not a true market because Apple has artificially incentivized having cheaper apps. You know this thing, you want your complement to be free. Whatever product you have, if your complement is free then you become very valuable. Or you want your complement to be commoditized and as low priced as possible.
You think about Microsoft with Windows, what is their complement? What is the thing you need to use in order to use Microsoft Windows? Well, you need hardware, you need a box to run it on, and it was great for them that there wasn’t just one other provider. There was HP and there was Dell and there’s all these other providers now. It was like, “That’s the way to be.” And if you are a hardware maker, what you want is to have a specific hardware that no one else can use and you want basically the operating system to be commoditized. Your complement is free.
That’s where Apple with its App Store, what is the complement to an iPhone or an iPad? Well, the software component is obviously the operating system which they control, and then there’s apps. They want apps to be as cheap as possible because they want there to be a bazillion of them and they want to have the big ecosystem that everyone comes to. It’s same thing that Amazon has done with Kindles, with Kindles and Kindle books. They artificially depressed the pricing and they’ve had lawsuits about this where there’s class action lawsuits.
If you sell a Kindle book, I think you know, you can make it between 0.99 cents and is it $9.99 and they give you 70% of that. But if you make it $10 or $10.01 then they keep 70% of that. You only get 30% so in order to get the same amount, you have to jack your price up to whatever the math on that is—$30 or $25 bucks or something and it pissed people off because traditionally books have been, when they’re hardback, they’re $25 or $30, then soft cover $15 or $20. Amazon basically came in and said’ “Nope, we want the complement of the Kindle which is the content, which are the books, we want them to be inexpensive.” It’s not something I’m saying in theory, we see this happening.
Mike: But I think that’s a little bit different just because of the ecosystem of–somebody else really kind of controls the pricing in the marketplace. You’d have to go through somebody else. I think that’s the issue versus if you are selling a SaaS app where a book from your own website, you can price it whatever you want. There’s no outside influencers to essentially anchor your pricing or artificially influence it. I would say that it feels like that’s a little different. But I agree that that’s what they do.
Rob: It is different and that’s what I was saying about the App Store. You were saying, if I see an App Store app that’s 0.99 cents, I’d think this is probably crap, and I don’t because I know that’s artificially low because of what Apple has done. If that makes sense. Yes, on the open market, you don’t typically buy FTP apps or whatever it is for 0.99 cents. Before the App Store, they were $10, $20, $30 and then the Apps Store has driven a bunch of them down. That’s what I was saying is I think you can have artificially low pricing if there’s someone manipulating it.
Mike: Yeah. What I was saying was like, that’s my inclination to feel that way, but I also objectively know that it’s not true—is really what it comes down to. Because you can recognize something and feel a certain way, and that’s how I feel when I look at those things, but I objectively know that that’s also not true.
Rob: Right. Because I have plenty of 0.99 cent apps that I use all the time that are good apps
Mike: I do think this kind of brings about the question of, “How do you go about raising your prices if you’re already, I’ll say, entrenched in some customer base where you have traffic, sources coming in, and they’re already accustomed to seeing prices in a certain range?” Let me reframe that a little bit just because I want to be very clear on what I’m trying to say here. If you’re marketing to a certain demographic of people who are anywhere of that prosumer range that we talked about to like four or five employees in the company, how do you then increase your prices such that you can do this type of testing and still be attracting the right types of people? Because at some point, if you start changing your pricing enough, you’re going to put yourself in a position where the only people who would buy it is in this different demographic, but you don’t have the incoming traffic sources from that different demographic. Do you see what I’m saying?
Rob: Yeah. That’d be the hard part if you really want to double, triple, quadruple prices or something. That would be hard. Obviously, if you’re going to incrementally go up, let’s say 20% or 30%, you can email your whole customer base and you can say, “Look, we’re going to grandfather you for a certain amount of time,” and you can email all your trial users and go on social and promote it and say, “Hey, we are about to raise prices. If you’ve been waiting on this then sign-up now.” We did that with Drip a couple of times because we raised prices every 9-12 months. Then you’d get this big influx, you’re going to suck all the air out of the room and you’d get this you’d get this big influx of new trials and hopefully the convert because then it’s like, “Hey, you’re grandfathered in for this amount of time.”
But what you’re saying is different than that. You’re saying you’re going to double prices and the traffic that’s coming isn’t even associated with that. I would almost say if I really wanted to do that, oh, man, that’s be tough. If you’re going to do that, you’re almost pivoting or you’re repositioning as something different.
Mike: Yeah, that’s what I’m saying is like, yeah, you almost have to reposition yourself. If you’re changing pricing dramatically enough that you’re going into that, it’s a 5%, 10%, 20% increase is not a big deal, but when you’re doubling or tripling, if you’re anywhere within halfway to the point where it no longer makes sense for them to buy, you can really hurt yourself.
Rob: Yup, you could. I think it has to be very calculated. You can’t just go and do that one day. You have to probably need a new positioning, you need a new marketing message, you need to justify like, “What’s your reasoning that this is now worth twice what it was last week?” I would drill into that fact like, “It’s worth that because we are now built for plumbers and they should pay a lot of money for software.” Or, “We are now the most premium. We have this feature that no one else has.” You got to drill on what is the factor that is differentiating you that allows you to do that.
Mike: But do you have to justify it? Because if presumably the new market that we’re going into is not a current traffic source and they haven’t really seen your product or pricing before, then they wouldn’t necessarily know. There’s plenty of stories out there and actually it’s what people are saying, “Oh, I doubled my prices and I doubled my profit.” And people were like, “Why don’t you double your prices again or 10X them?” I think Jason Cohen talked about that at MicroConf one day where he was like, “Oh yeah, they 10X their prices.” He’s like, “Sales did not change where we make 10X more money.” He’s like, “Do it again.” They’re like, “What?” I definitely think it’s possible to do it, it’s just a question of do you have a plan for backing off if that goes wrong?
Rob: Yeah, that makes sense. I mean, you can always roll it back. I remember Intercom did this maybe three years ago. I believe they were either doubling or quadrupling. Pricing was huge jump. People got so mad that they just [29:08] it and then just backed away from it and they said, “we’re not going to do that.” Then recently, I think aren’t they doubling prices again? I had heard they’re going up 2 or 3X. I think they’re having the same backlash but they’re so big now, I don’t know if it matters.
Mike: Or they’re just measuring the response and saying, “Well, we’re going to double the pricing but only a quarter of our customer base is going to leave so, we have less strain on our servers and we don’t need to deal with as many customers and we’re making more money.”
Rob: I think they’re grandfathering for a year. I think they may just do it and hope they don’t lose as many.
Mike: That seems like the Netflix tragedy. They’ve announced it and then they grandfathered everybody in for two years and there was an initial uproar but they’re like, “Hey, but your price isn’t going to change for two years.” And then like, “Oh, okay.” And then two years later, it silently went up, and nobody cared.
Rob: Yeah. Was it two years? I think it was a year.
Mike: It might have been one year and then they changed it to two, I don’t remember. It seemed like a while.
Rob: Here’s the thing with Netflix though that’s different than most SaaS apps we would run across is, Netflix has—whatever it is, what is it—30-40 million subscribers? I don’t know. It’s tens of millions of subscribers for sure. They add new subscriber each quarter. Let’s say, “Hey, we have 1 or 2 or 3 million new.” But if they grandfathered everyone permanently that would seriously debilitate their business. This is where that B2C comes in. You’re dealing with such a volume play and you already have such a huge customer base that raising it by that $1 a month is again, let’s say, they have 30 million customers, that’s $30 million a month that they are making. If they piss a few people off and they leave, it’s worth it to them because they already have such a huge user base. It’s worth it to them to raise it upwards.
If you’re a SaaS app and you have 1000 customers and you plan to add another 500 this year or something, you got to think about the calculus there.
Mike: Yeah, totally. When you were saying there’s a difference between Netflix and the types of business we run, I was like, “Oh, it’s what, 30 million, 40 million customers.”
Rob: Totally. That’s the difference.
Mike: That’s the difference.
Rob: Our customer numbers are a rounding error to them.
Mike: Yup, basically. On this topic, we talked a little bit about it in terms of the App Store and low pricing, but what is charge more really mean for freemium? Does that mean get rid of freemium? I think you and I are probably in agreement that, “No, that’s not what that means.” Freemium is a distribution strategy not a pricing model.
Rob: That’s right. It’s a marketing approach.
Mike: Right. You’re not going to be able to sell at a zero which is technically a loss if you’re using server resources and be able to make it up on volume. It’s just not going to happen. But if you’re relying on converting people and using that as a way to attract attention to your app in order to acquire those people, that’s a totally different thing.
Rob: Yep, I would agree with that. By the way, the title of this episode is, The “Science” of Why “Charge More” Works. Science is in air quotes because it’s not true. It’s scientific but there’s a lot of data to back up the observations that we’ve made on this episode. Patrick Mackenzie has been saying it for six or seven years. First time I ever heard him say that was on MicroConf stage.
Mike: I think that’s the first time I had met him in person.
Rob: Yeah, 2011.
Mike: Well, special thanks to Patrick Mackenzie for speaking at MicroConf for all these years and also attending and for being part of the community. Also, thanks for the inspiration for this episode.
Rob: I think that wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s 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 the guy that knows the intro.
Mike: Oh, be quiet! And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Rob?
Rob: I’m doing good. By my calculation, you’ve done the intro 210 times because we tend to trade off back and forth. How is it that you haven’t memorized it yet?
Mike: I was distracted. You know what, the thing is, I missed last episode. It was episode 420. Marijuana just became legal in Massachusetts. I must have been high.
Rob: That’s what we’re doing? Alright. This is going to be a good show today folks. For me, weeks are going well. MicroConf tickets are on sale inside Founder Café and then when this goes live, it will be on sale to our email launch list.
Mike: Yes.
Rob: Head over to microconf.com if you are interested, get on that launch list. You may have missed the first email, but they’ll get a subsequent one I suppose if they get on the list today.
Mike: Yeah. I think that the episode that comes out today, the people who will be getting that email for MicroConf tickets are going to be previous attendees and then next Tuesday it’s going to be going out to the rest of the list.
Rob: There you go. Growth Edition sales out every year so you want to get on that email list if you’re interested in it. How about you?
Mike: Well, I received my Scotch Advent Calendar yesterday. December is looking fantastic at the moment.
Rob: It’s a family tradition isn’t it?
Mike: Well, it just started last year.
Rob: Two years? In this day and age, I think that’s a tradition.
Mike: Sure. Aside from that, just working on the MicroConf sponsorship. That’s in the works. If you’re interested in any of the MicroConf sponsorship options, drop me an email at sponsors@microconf.com and I’ll send you over the break card and we’ll schedule a time to chat about it and see if it’s a good fit for you.
Rob: Other than that, I am continuing to push forward on TinySeed. Did you listen to the episode last week?
Mike: I have not had a chance to. I was high, remember?
Rob: Yeah, that’s right. All week. That was fun. Einar and I just talked it through, talked about what we’re up to, and why we’re up to it, and just the course we take on the funding landscape and even the landscape of what it takes to bootstrap a SaaS these days. Continuing to move it forward. There’s not so much I can talk about publicly but definitely meeting with a lot of founders and just discussing ideas, and thoughts, and stuff.
It’s a fun time. You know how it is. It’s like the early days of anything. This is literally a startup and we’re kind of bootstrapping it even though it’s weird. It’s like we don’t have any funding for Einar Vollset and I at this point. Eventually, once we raise the fund to actually back TinySeed, we’ll have a small stipend or something coming out of it. But it’s not like, “Oh, yeah. You’re doing a startup and you’re going to raise 5 or 10 million and crank it up.” It really is that, it’s the ethos of everything I’ve ever done where you’re capital-efficient, and you’re scrappy, and you’re just trying to hack your way through it. It’s fun.
I enjoy these days of it. There’s just so much creativity involved. It’s a problem that we’re looking at from a new angle and we so there aren’t overt solutions that others have tried and so we’re really trying to figure it out and to innovate on something that I think we believe needs some innovation.
Mike: You know why I think it’s so fun? It’s because you’re so early on that you haven’t actually run into any real problems yet.
Rob: That’s exactly it. It’s like any startup. It’s fun until you have to actually start writing code or you have to actually start selling to customers or supporting them in whatever. All the headaches crop up.
Mike: I do want to point out that you and I had an “argument” over whether or not it was a startup that you kept denying it and you’ve referred to it as a startup several times already.
Rob: Dang it. Right. Because I said I’d never do another startup again and then I was like, “Well, I’ll never do another SaaS app again from scratch.” and then I have all these caveats. Just never say never—that’s my advice.
Mike: I should get you a new bike so you can backpedal faster.
Rob: That’s right. That’s exactly right. What are we talking about this week?
Mike: Today’s podcast episode is inspired by a tweet that I saw on Twitter from Patrick McKenzie. The episode is titled, The Science of Why Charge More Works. Obviously, we’ll link this up in the show notes exactly where that tweet was.
Patrick has been talking about essentially, charging more for as long as I can remember. His tweet said, “Hacker News comment: I moved into a low-wage area and started freelancing. My clients likely think I’m too cheap, but I’m making double what I did before and overwhelmed with work. Suggestions?” and the second commenter said, “patio11 would tell you to charge more.” and he says, “Well, my work for today is done.”
It’s just interesting to see and I even commented on this that it’s funny how just repeating the same two words over and over could practically make you a career for the rest of your life and just say charge more, that’s your advice in almost any situation. Inevitably, in a lot of them, it’s going to work. I thought we’ve talked through a little bit about, one, why does it work? But also we talked through the science and mindset of this as well.
Rob: Yeah, talk through some specifics because you can’t always just charge more, eventually it stops working. There’s ways to charge more and do you grandfather. There’s specifics on that and that’s what we’ll talk about today.
I hear you, he’s developed the brand. He just said it so much because there are other people saying it. If you look back at MicroConf talks for example, really early on it was like Jason Cohen said it, Hiten Shah said it, I said it in two of my talks, but Patrick McKenzie has said it over and over and over and it becomes a brand and I think it’s a cool thing to have. Each of us develops our own little corners of the startup ecosystem I think.
Mike: The other comment that he had made in that tweet stream was that, “I think that Gmail folder where I keep my thank you for a salary negotiation post is in the upper seven figures in mostly $25,000 chunks, and given that salary is a vector not a scalar and compounds, that blog post has probably moved $X0 million around.” Basically, eight figures.
Rob: He’s saying eight figures.
Mike: Yup which is huge. To be able to have solid data that you can point to that has shown that you have been able to increase personal revenue for salaries for people is just amazing. But there’s also correlations between what he said in terms of charge more, not just as a person who’s employed for a company, but also in terms of raising prices for your software products.
Rob: Yeah, it’s like charge more for your skills. Charge more if you’re salaried employ by negotiating and I liked that post is really good. We should find it and link to it, but he writes a really good post about negotiation. It’s stuff that I had done intuitively, but I hadn’t put it into words in a framework like he did.
I negotiated every job I ever had. I made more money than the people around me. I was just doing it because I was like, “Well, I know that I’m valuable.” It was this internal thing of, “I know that I have chops at whatever it was” being a developer, or project manager, or a tech leader, whatever the role was. I tend to be, in these environments, a little better than the people around me.
Salary negotiation is something that you should do if you have not. And then when you become a contractor then you’ll learn you can just ratchet that rate up especially once you have referrals coming in. When you launch any type of product or service then you’ll learn to do the same thing. It’s all in line with the same idea of it’s not even charging what you’re worth. No, really figure out how to maximize this and charge based on the value that you or your product provides.
Mike: Yeah and that leads to a blogpost that I recalled reading years and years ago, it’s more than a decade ago from Joel Spolsky. We’ll link this up in the show notes as well, but it’s called, “Camels and Rubber Duckies”. In this blogpost, he essentially talks a little bit about economic theory and how to identify pricing for a product and how do you maximize revenue.
Of course, it has a bunch of different charge and as matrix there says, “If you charge this you’re going to make X amount of money and if you charge this other thing over here you’re going to make Y amount of money. It’s that more or less and are you more profitable as a result.” It’s like, “Well, it depends on whether or not you are able to sell just as many as you where before if you’re charging more.” If you charge more and you’re selling more then, if the math works out, yes, you’ll make more money. But at some point you’re going to raise the prices and the number of units that you sell starts dropping as a result and at some point further than that you’re going to start making less money. Where is that point? How do you figure that out?
One of the interesting pieces of Patrick’s charge more philosophy is just the fact that it forces you into situations where you are price testing. You’re checking to see if charging that higher amount of money is going to make you more or if you’re not going to get as many sales.
Rob: Here’s the thing, there are multiple stages of startups. We’ve talk about this over and over. There’s super early days and then there’s right before product market fit, and there’s after product market fit, and then there’s the growth stage. In each of those, you have to approach things differently, your thought process is a little different. In the very, very early days literally, your first 5 or 10 customers, I don’t know that you want to charge more but you should charge something.
I’ve seen startup founders be like, “Yeah, I’m going to comp the first 10 early access users just as thanks for whatever and they get lifetime account.” And I’m like, “That is a terrible idea.” Because those ten people are the people that are most eager to use your product and they’re going to get value from it. Why should they get that for free? Maybe give them a discount, maybe. Maybe. Maybe not.
As you’re getting to product market fit, you should be trying to push that price up. Once you’ve hit it, then that’s where you go every six months or every year your product is getting better. It’s SaaS app, I’m going to assume or something that you’re developing. People are using on-going that you’re developing features for, and it’s becoming more valuable to them, so they should pay more. Unless, the only time you can’t necessarily do that all the time is if you have a bunch of competitors and you’re kind of commoditized or they’re implementing these features that have similar rate to what you are, and you don’t have enough differentiation to basically be able to raise prices for that. Someone’s saying, “Well, I can just switch over here.” Switching customer involve then.
As you scale up, you’ll see these companies once you do become, you’ll look at HubSpot or Salesforce, someone who goes beyond that, their pricing just gets crazy where it’s crazy from our little B to SMB perspective when we typically think, “Yeah, we’ll charge someone $50 or $100 a month.” And they’re charging $5,000, $10,000, $20,000 a month that depending on plans.
All that to say, I like this as a sentiment. I think most people, especially early stages, especially beginners, they just don’t charge enough. I think we’re going to talk about a little perspective here of how to do this or how to increase prices without just making that your default because at a certain point—as you’ve said from Camel’s and Rubber Duckies—it’s a losing proposition.
Mike: I think one of the reasons why see larger companies like HubSpot charging so much more and in amounts that founders of smaller companies look at and say that’s just a ridiculous and absurd amount of money to charge, we’re a little disconnected from large companies purchasing decisions. Me, personally, I’ve worked at an extremely large company that’s 25,000 employees—that was almost 20 years ago at this point—and I was not in any way shape or form involved with any purchasing decision ever at the company.
By the time I’ve moved on, I’ve never really worked for what I would say a large company or been in this position where I’m involved in those purchasing decisions. I don’t have the experience or the mindset of how those decisions are made, and I think that contributes to why we don’t necessarily understand it as well.
If you try to put that in perspective, how big is the company and how much money do they make on an annual basis? If you’re a one-person or two-person company, you’re probably making less than $500,000 a year. If you are a 300-person company or 500-person company, you’re making a heck of a lot more than that, probably talking $50 million or $100 million a year.
For them to spend a couple of $1000 a month is not that big a deal, to you it is because that’s a huge chunk of your budget. To them, it’s a really super tiny percentage and they, for the most part, just don’t care.
Rob: That’s right. Especially if you’re going up market into companies of any kind of size, they’re not price comparing nearly as much as we think they are because they’re not consumers and they’re not anywhere closer. Further you move up the chain from consumers, the less price comparison that goes on, the more I don’t know–it’s like politics in getting this person on board and convincing this whole team to do things and there’s just so many other factors in it. Their price is one but there’s many others. But when you’re working with consumers, price tends to be the highest factors. A lot of price sensitivity selling that.
I met with someone who’s selling software to PC gamers and it’s like, “Ouch.” If someone comes in offering that is $1 less than yours, you’re going to lose people. They will go to the pain of switching to save a dollar or two a month. It’s just a totally different ball game when you’re dealing that.
Mike: I think that the mistake a lot of people make is when you say consumer I would almost lump in like freelancers and companies with less than two or three employees. I know that’s not a direct comparison because if you’re selling consumer products versus business products there, is a very big difference between the actual person who’s purchasing it. But in terms of mindset, those very small business owners have a very close mindset to the consumer. It’s not about what they do, it’s about how they approach their buying decisions.
Rob: I would agree with that. I was talking with Einar the other day and I have the mental classifications for business type or customer type and obviously B2C is one a lot of us think of. Literally, it’s Verizon or if you’re selling software, FTP software to the masses, and then I was like, “You know, there’s this B to Prosumer which is kind of hobbyist.” Let’s say you’re selling to photographers who do it on the side or most or not full time, but it’s this hobby they do on the weekend and they most to it to pay for their gear. They charge people so that they can afford more gear because there’s not so much money in it. It’s a B to Prosumer.
Then there’s B to A. It’s B to Aspirational folks. Frankly, it’s the smart passive in [00:15:08] or it’s folks who aspire to be something. People negatively used the term ‘wannapreneur’ which I feel like it’s a negative thing to say about someone, but it’s folks who want to be entrepreneurs. They’re really aspiring so they are willing to spend some money, but the churn is really high, and they definitely are consumer, but their behavior is different than someone buying a cellphone or cable service because they are trying to invest in a business. I actually think the behaviors of those three are different.
I like what you’re saying, there’s this B to VSB—very small business—which is basically the one that one- or two- or three-person company. They’re still going to have price sensitivity, but I don’t think as much as a consumer. Then there’s B to probably just regular small business and then B to Enterprise. There’s a mid-market in there so you can go all types of categories in there but each of those going to have their own pros and cons in terms of price sensitivity as well as churn, sale cycle, all that stuff.
Mike: I think you can debate all day about exactly where the different levels are whether it’s five employees or ten employees or whatever, but the reality is, as you move from the general consumer upmarket you traverse through that spectrum of purchasers, price sensitivity is a lot less. Going back to the Camel’s and Rubber Duckies trying to optimize your revenue is about doing price testing to see where the different breaking points are.
The simple explanation for charge more is, you increase prices, you’ve measured the total revenue and you repeat doing that until revenue starts to climb. Then you find out why it declined and try to solve that particular problem because it could be that you got your revenue to a certain point and then you try to charge more, and you come to find out that, “Oh! There’s a credit card limit for a maximum purchase on a monthly basis from a single vendor.” Maybe it’s $500 or $1000. Joel talks about in his blogpost, but they’re not just allowed to purchase something that costs more than that without a signature and maybe that’s why your revenue decline. It may not necessarily be directly because your price bar them from, but it could be something ancillary to that. You just have to figure out, why is that? Are you not provided the value? Or is there some other external factor. Once you’ve find out those, see if you can try to solve the problem and if you can raise prices and charge more.
Rob: Again, the mistakes some founders make is people will cancel especially in the early days. You’re trying to find product market fit. I’m trying to get people to use it. People are cancelling saying, “Ah! It’s not worth the money.” That’s not to say it’s too expensive. What they’re saying is you haven’t built something that they actually want to use. If you built something killer that they really need in their day-to-day or really change their workflow, it would be worth that money plus more. This is something I talk about—it’s aspirational pricing.
In the early days of Drip, Drip was very simple. It was before it was really an ESP, and automation, and all that stuff and people are cancelling saying, “Yeah, it’s just not worth the money or I can switch to Mailchimp and this and that.” I said, “Okay! It was $49 a month.” I said, “How can we make this into a product that people don’t say that about? That they say, “Oh! It’s totally worth $49 a month.” and that’s is the thread that I kept pulling to get us to product market fit is, “I don’t want to lower my prices because I don’t want another app that starts at $10 or $20 a month because the churn is high.” It’s so hard to find enough customers to make something worthwhile.
This is one of the big things when I looked at starting Drip, I had these lists of things I wanted with my next idea, it was after HitTail. My next app I want it to be $99 a month was the initial aspiration, but I want it to be in $49 by the time we launch. That was the most important one to be honest. I just wanted to move up market because I wanted to build an app that didn’t have the struggles and tap out because if your lowest plan is $10 a month it’s hard. People are moving up often to the higher plans. It’s hard to grow a SaaS app to the levels that I think a lot of us want to get to, the mid-six and seven figure levels.
Mike: The other blogpost that struck me has been highly relevant to this was also another one from Joel Spolsky that he wrote about a year later in 2005, it’s called, Price as a Signal. In this post, he basically talks about how the price that you put on something sends a signal to people about what the quality of it. Low price in relation to other things that are on the market that do the same type of thing, says that it’s a low quality. If it’s a much higher price, it signals that it’s a higher quality and it’s a better product, that does not necessarily mean it’s true. It’s simply the perception that you are putting forth as to why the pricing would be that way. Because there’s going to be some justification for the pricing and to the buyer, they don’t really have any of the inside knowledge so their natural assumption is, “Oh! Well, it must be better.”
They would really have to dig in and try your product and almost do a side-by-side comparison against other products. Not every customers’ going to have that kind of time on their hands. Some of them just need to make a decision and move on and they’re like, “I just want a better product so I’m just going to pay the higher price point for it.” That’s especially true when you get into the higher pricing tiers where those people are less price sensitive and they’re like, “I don’t care what the price is. We just need something. We need it to work, we need it to be good, so we’ll just buy the highest price thing we can find or something that’s reasonably high priced.” You don’t want to spend $50,000 a month when you can spend $5000, but if the pricing is listed on the website and its $300 a month, and you find something else that’s $900 a month, what are going to do? If you don’t care about price, you’d probably go with $900 a month because you’ve got the funds to spare. It’s probably not your money anyway and you need something to work. You don’t want to go to your boss and say, “Hey, this didn’t work because we went with the $300 product.”
Rob: Yup. I think it’s good. I think price signaling is definitely a real thing that folks should consider and being the premium offering. It’s an interesting marketing play; an interesting positioning play. I think WP Engine did this really well in the early days. They just said, “We’re going to be the expensive solution but we’re going to deliver on it.” You have to deliver on that.
Mike: The interesting about what you just said was that I think the price could send the opposite signal as well. If you price too low, it can tell people that your product is not just any good. You can look at a bunch of different industries for that. But I think one that pops-out of my head is the App Store. You look on there and there’s tons and tons of apps that are either free or for 0.99 cents. I personally look at them and say, “Well, if it’s 0.99 cents, how great can it be at this point?” because there’s a lot of things that charge more than 0.99 cents. There was kind of a standard thing to charge and now, it’s not. There’s a bunch of apps that I pay $10 for.
Rob: I still buy apps. I think the App Store is kind of a… How do you say?
Mike: Crap factory?
Rob: It is a crap factory. No. I was going to say it’s not a true market because Apple has artificially incentivized having cheaper apps. You know this thing, you want your complement to be free. Whatever product you have, if your complement is free then you become very valuable. Or you want your complement to be commoditized and as low priced as possible.
You think about Microsoft with Windows, what is their complement? What is the thing you need to use in order to use Microsoft Windows? Well, you need hardware, you need a box to run it on, and it was great for them that there wasn’t just one other provider. There was HP and there was Dell and there’s all these other providers now. It was like, “That’s the way to be.” And if you are a hardware maker, what you want is to have a specific hardware that no one else can use and you want basically the operating system to be commoditized. Your complement is free.
That’s where Apple with its App Store, what is the complement to an iPhone or an iPad? Well, the software component is obviously the operating system which they control, and then there’s apps. They want apps to be as cheap as possible because they want there to be a bazillion of them and they want to have the big ecosystem that everyone comes to. It’s same thing that Amazon has done with Kindles, with Kindles and Kindle books. They artificially depressed the pricing and they’ve had lawsuits about this where there’s class action lawsuits.
If you sell a Kindle book, I think you know, you can make it between 0.99 cents and is it $9.99 and they give you 70% of that. But if you make it $10 or $10.01 then they keep 70% of that. You only get 30% so in order to get the same amount, you have to jack your price up to whatever the math on that is—$30 or $25 bucks or something and it pissed people off because traditionally books have been, when they’re hardback, they’re $25 or $30, then soft cover $15 or $20. Amazon basically came in and said’ “Nope, we want the complement of the Kindle which is the content, which are the books, we want them to be inexpensive.” It’s not something I’m saying in theory, we see this happening.
Mike: But I think that’s a little bit different just because of the ecosystem of–somebody else really kind of controls the pricing in the marketplace. You’d have to go through somebody else. I think that’s the issue versus if you are selling a SaaS app where a book from your own website, you can price it whatever you want. There’s no outside influencers to essentially anchor your pricing or artificially influence it. I would say that it feels like that’s a little different. But I agree that that’s what they do.
Rob: It is different and that’s what I was saying about the App Store. You were saying, if I see an App Store app that’s 0.99 cents, I’d think this is probably crap, and I don’t because I know that’s artificially low because of what Apple has done. If that makes sense. Yes, on the open market, you don’t typically buy FTP apps or whatever it is for 0.99 cents. Before the App Store, they were $10, $20, $30 and then the Apps Store has driven a bunch of them down. That’s what I was saying is I think you can have artificially low pricing if there’s someone manipulating it.
Mike: Yeah. What I was saying was like, that’s my inclination to feel that way, but I also objectively know that it’s not true—is really what it comes down to. Because you can recognize something and feel a certain way, and that’s how I feel when I look at those things, but I objectively know that that’s also not true.
Rob: Right. Because I have plenty of 0.99 cent apps that I use all the time that are good apps
Mike: I do think this kind of brings about the question of, “How do you go about raising your prices if you’re already, I’ll say, entrenched in some customer base where you have traffic, sources coming in, and they’re already accustomed to seeing prices in a certain range?” Let me reframe that a little bit just because I want to be very clear on what I’m trying to say here. If you’re marketing to a certain demographic of people who are anywhere of that prosumer range that we talked about to like four or five employees in the company, how do you then increase your prices such that you can do this type of testing and still be attracting the right types of people? Because at some point, if you start changing your pricing enough, you’re going to put yourself in a position where the only people who would buy it is in this different demographic, but you don’t have the incoming traffic sources from that different demographic. Do you see what I’m saying?
Rob: Yeah. That’d be the hard part if you really want to double, triple, quadruple prices or something. That would be hard. Obviously, if you’re going to incrementally go up, let’s say 20% or 30%, you can email your whole customer base and you can say, “Look, we’re going to grandfather you for a certain amount of time,” and you can email all your trial users and go on social and promote it and say, “Hey, we are about to raise prices. If you’ve been waiting on this then sign-up now.” We did that with Drip a couple of times because we raised prices every 9-12 months. Then you’d get this big influx, you’re going to suck all the air out of the room and you’d get this you’d get this big influx of new trials and hopefully the convert because then it’s like, “Hey, you’re grandfathered in for this amount of time.”
But what you’re saying is different than that. You’re saying you’re going to double prices and the traffic that’s coming isn’t even associated with that. I would almost say if I really wanted to do that, oh, man, that’s be tough. If you’re going to do that, you’re almost pivoting or you’re repositioning as something different.
Mike: Yeah, that’s what I’m saying is like, yeah, you almost have to reposition yourself. If you’re changing pricing dramatically enough that you’re going into that, it’s a 5%, 10%, 20% increase is not a big deal, but when you’re doubling or tripling, if you’re anywhere within halfway to the point where it no longer makes sense for them to buy, you can really hurt yourself.
Rob: Yup, you could. I think it has to be very calculated. You can’t just go and do that one day. You have to probably need a new positioning, you need a new marketing message, you need to justify like, “What’s your reasoning that this is now worth twice what it was last week?” I would drill into that fact like, “It’s worth that because we are now built for plumbers and they should pay a lot of money for software.” Or, “We are now the most premium. We have this feature that no one else has.” You got to drill on what is the factor that is differentiating you that allows you to do that.
Mike: But do you have to justify it? Because if presumably the new market that we’re going into is not a current traffic source and they haven’t really seen your product or pricing before, then they wouldn’t necessarily know. There’s plenty of stories out there and actually it’s what people are saying, “Oh, I doubled my prices and I doubled my profit.” And people were like, “Why don’t you double your prices again or 10X them?” I think Jason Cohen talked about that at MicroConf one day where he was like, “Oh yeah, they 10X their prices.” He’s like, “Sales did not change where we make 10X more money.” He’s like, “Do it again.” They’re like, “What?” I definitely think it’s possible to do it, it’s just a question of do you have a plan for backing off if that goes wrong?
Rob: Yeah, that makes sense. I mean, you can always roll it back. I remember Intercom did this maybe three years ago. I believe they were either doubling or quadrupling. Pricing was huge jump. People got so mad that they just [29:08] it and then just backed away from it and they said, “we’re not going to do that.” Then recently, I think aren’t they doubling prices again? I had heard they’re going up 2 or 3X. I think they’re having the same backlash but they’re so big now, I don’t know if it matters.
Mike: Or they’re just measuring the response and saying, “Well, we’re going to double the pricing but only a quarter of our customer base is going to leave so, we have less strain on our servers and we don’t need to deal with as many customers and we’re making more money.”
Rob: I think they’re grandfathering for a year. I think they may just do it and hope they don’t lose as many.
Mike: That seems like the Netflix tragedy. They’ve announced it and then they grandfathered everybody in for two years and there was an initial uproar but they’re like, “Hey, but your price isn’t going to change for two years.” And then like, “Oh, okay.” And then two years later, it silently went up, and nobody cared.
Rob: Yeah. Was it two years? I think it was a year.
Mike: It might have been one year and then they changed it to two, I don’t remember. It seemed like a while.
Rob: Here’s the thing with Netflix though that’s different than most SaaS apps we would run across is, Netflix has—whatever it is, what is it—30-40 million subscribers? I don’t know. It’s tens of millions of subscribers for sure. They add new subscriber each quarter. Let’s say, “Hey, we have 1 or 2 or 3 million new.” But if they grandfathered everyone permanently that would seriously debilitate their business. This is where that B2C comes in. You’re dealing with such a volume play and you already have such a huge customer base that raising it by that $1 a month is again, let’s say, they have 30 million customers, that’s $30 million a month that they are making. If they piss a few people off and they leave, it’s worth it to them because they already have such a huge user base. It’s worth it to them to raise it upwards.
If you’re a SaaS app and you have 1000 customers and you plan to add another 500 this year or something, you got to think about the calculus there.
Mike: Yeah, totally. When you were saying there’s a difference between Netflix and the types of business we run, I was like, “Oh, it’s what, 30 million, 40 million customers.”
Rob: Totally. That’s the difference.
Mike: That’s the difference.
Rob: Our customer numbers are a rounding error to them.
Mike: Yup, basically. On this topic, we talked a little bit about it in terms of the App Store and low pricing, but what is charge more really mean for freemium? Does that mean get rid of freemium? I think you and I are probably in agreement that, “No, that’s not what that means.” Freemium is a distribution strategy not a pricing model.
Rob: That’s right. It’s a marketing approach.
Mike: Right. You’re not going to be able to sell at a zero which is technically a loss if you’re using server resources and be able to make it up on volume. It’s just not going to happen. But if you’re relying on converting people and using that as a way to attract attention to your app in order to acquire those people, that’s a totally different thing.
Rob: Yep, I would agree with that. By the way, the title of this episode is, The “Science” of Why “Charge More” Works. Science is in air quotes because it’s not true. It’s scientific but there’s a lot of data to back up the observations that we’ve made on this episode. Patrick Mackenzie has been saying it for six or seven years. First time I ever heard him say that was on MicroConf stage.
Mike: I think that’s the first time I had met him in person.
Rob: Yeah, 2011.
Mike: Well, special thanks to Patrick Mackenzie for speaking at MicroConf for all these years and also attending and for being part of the community. Also, thanks for the inspiration for this episode.
Rob: I think that wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s 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 420 | An Alternative Form of Startup Funding
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Einar Vollset talk about their alternative form of startup funding, Tiny Seed. They talk about why they started an accelerator, and some of the key differentiators that separates them from typical accelerators.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest of Us, Einar Vollset and I talk about an alternative form of startup funding as well as run through the history of startup funding as we see it. This is Startups For The Rest of Us episode 420.
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.
Einar: And I’m Einar.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Nice job catching that man. I didn’t brief you in advance that you had to say your name, huh?
Einar: […] is Mike supposed to say something on or not?
Rob: Mike’s not on. For listeners out there, who don’t know you. Your name is E-Y-N-A-R. I call you A-Y-N-A-R.
Einar: It’s close as my wife gets. I think that’s fair.
Rob: Good. You and I have started–we’ve co-founded Tiny Seed together. That’s at tinyseed.com. But folks may not have heard of you. I know that you are a multi-time founder. You went through YCombinator in 2009. You’re a developer as well. You’re a CS professor at Cornell. You’ve done quite a bit of stuff and you, these days, you kind of work in private equity, right? You’re like a private equity scout?
Einar: Yeah, kind of. I sort of got into that space after my last exit and actually have what I jokingly call a service startup investment banker. Most of the stuff I do is help fund their exits when they’ve got a SaaS business or a tech-enabled service business between […], $2 million, and $15 million as ARR, something like that.
Rob: Right. That’s where you and I have connected on Tiny Seed. Folks listening to the podcast kind of already know a little bit of Tiny Seed, it’s the first startup accelerator designed for bootstrappers. We try to give founders a year of runway, it’s a remote accelerator. It’s an idea that has been floating around for years and I never wanted to do a lot of the investor side and didn’t really have the expertise to raise a funding round and that kind of stuff. And then you and I connected back in April at MicroConf in Vegas and this was something that intrigued you to start what became Tiny Seed.
I think folks who listened know why I’m doing it. This is just a continuation of everything I’ve done for the past 15 years or whatever, it’s me putting more money where my mouth has been. But for you, what’s your interest in being part of something like Tiny Seeds?
Einar: I think there’s just a gap in the market there for those kinds of companies. I think in terms of funding structure and in terms of support. The way that I think about this base is it’s very similar to where companies like Y Combinator or First Round were in 2005, 2006. It’s becoming more and more clear to me that there are incredible businesses to be built which can be super profitable and sort of take care of their investors, and their founders, and their employees and everything that sort of fall outside the traditional VC sort of funding structure with a series of pre-seeds, and seed, and A, and B, and C.
I really think that given what you’ve built on MicroConf and your community and the fact that the institutional capital is coming in or interested in buying those kinds of companies potentially, I think that’s an exciting opportunity, and honestly, yeah, I just want to help people be able to take their business from just a sidebar project to something they can dedicate their time, full-time toward.
Rob: Yeah. You came up with a really good example early on. You said, “How many founders do meet at MicroConf or at other conferences who are basically trying to do it on the side?” A lot of folks have a spouse, they have house, they might have a kid, they have a full-time job, they have responsibilities…
Einar: Mortgage.
Rob: …and they have mortgage, yup. They just can’t—I say, can’t—but it’s really, really hard to offset that and either move to the Bay area with some other tech center for three months to do an accelerator or to try to raise a round of funding in the side or they’re tooling away on an idea and three months later, it’s no better off when they started.
Einar: I think the standard pro-typical YC startup founder—at least that’s the way it used to be, maybe it’s a little bit different now—but it’s like, you’ve got to be 23, willing to work 80-, 90-hour weeks and just give up everything else. Of course, I don’t think that’s the only way to build a profitable business and I’d really like to support that.
Rob: That makes sense. I kind of jokingly have called what we’re starting with Tiny Seed, I’ve been calling it Startup Funding For The Rest of Us because it kind of fits in the model. Startups For The Rest of Us, the whole point of the name of this podcast is that folks who listen to it want to build startups but we aren’t in that mainstream, “Let’s raise venture funding.” Like you said, 90-hour weeks, series A, series B, $100 million or $100 billion valuation, some of us don’t want to do that, and it’s that alternative.
I think the key thing is, a lot of us have noticed, you noticed, I’ve noticed, we have other folks that are launching similar things that are similar to Tiny Seeds. It’s like we’re all noticing this tectonic shift in both bootstrapping in that bootstrapping is getting harder especially SaaS because it’s getting more competitive. It’s not impossible but it’s harder than it was two, three, four, five years ago, so it’s getting harder. Funding sources are becoming more prevalent. There’s more money being thrown at things and in fact, so much money being thrown into venture capital and private equity that it’s spilling over and looking for either places to go, where is the opportunity for that money to go. I’ll speak for myself here, I believe this is a great opportunity, a great place for it to go that is virtually untapped today.
Einar: Yeah, I think so. I think I get super hard if you have a SaaS business that’s doing $2000-$3000, $4000-$5000 a month, it’s not enough to live on in most places. Certainly not where I live, in the Bay area. But going out and raising funding for those kinds of businesses is also impossible if you’re not giving it the time of the day from a traditional VC because they’ll look at the business and say, “Oh, it’s a nice lifestyle business you have there.” Your other sources of funding tend to be, “Okay, friends and family.” If you have wealthy friends and family that’s great but on the other end you often end up with kind of a ad hoc set of angels and it’s hard to do. That’s actually aligned incentives for founders and investors that are trying to operate in the space.
Rob: Yeah, that’s right. What’s interesting is that something I don’t think, if you’re not in the space, then you don’t realize how quickly things have changed and that they are constantly changing. I grew up in the Bay area until—I’m trying to think—it was the mid-90s and then I went to college in Sacramento and I still have ties to the place, I never did a startup there, but I very much know how the Bay area works.
I remember, in the 90s, when I was, let’s say, late teens, early 20s, and just thirsting to do a startup it was like, you could have friends and family contribute money and I had no friends and family with any money so that was off the plate for me. You could try to find angels and of course, there was no angel list back then, so it was literally going to meetings. There was meetings and such and there were angel groups and then there was venture capital obviously, because a lot of cheques were written in the late ‘90s. But as far as I know that was kind of it.
If you wanted to start a software startup at the time, there were no accelerators until 2005, that’s only 13 years ago, and we were just talking, there was no debt financing for SaaS until maybe two years ago. There was Lidar Capital, Bigfoot Capital and a few others, but you couldn’t get freaking debt financing from a bank.
Einar: No, you couldn’t go to a bank and say, “Hey, I have this SaaS business. It’s maybe making freaking $20,000, $30,000 a year. Can you lend me enough money to do anything?” that was never going to work. I did YC in 2008 and even then, people were still like, at the time, the original terms were like $5000 + $5000 x the number of founders for 6% or 7%, something like that.
The people who were in the angel and VC investing world, they laughed at that. They were like, “What are you talking about? Of course, that’s nowhere near enough money to do anything with. What are you even bothering about?” But I think YC really proved that that model that, “You know what, yeah, with a little bit of money and some grit you can go after this.” I sort of think the opportunity is similar but in a different place where what we’re going after is not the next Facebook or Instagram or whatever, it is the next $20-$50 million SaaS business that you probably haven’t heard of unless you work in the industry where it’s prevalent or is being used.
Rob: Even in our financial models, having SaaS apps grow into a $3-, $4-, $5-million business is still a pretty nice win. It’s a nice win from an investor perspective but it’s also really good win for the founder or founders themselves because they can either, they’re given the profit margin. You’re experienced with quite a few SaaS apps, the next profit on these things is substantial, and so whether a founder decides to exit and sell the business or whether they decide to just pull distributions off of it, there’s a lot of—I think there’s rewards to be had that would almost be laughed at or at least chuckled at in the Bay area because it’s like, “Oh, lifestyle business right? $5 million a year?” But man, if you’re pulling $2 million off that, that’s life-changing for a lot of us.
Einar: I think the margins, once you get to a certain size and you decide to focus on cash flow instead of necessarily growing at all cost, again, the margins will be at 30%-50%. I think the fundamental shift that we’re seeing and trying to leave behind is you can align both investors and founders in a better way. Instead of saying, “Okay, the only way anyone gets paid is by exits.” In that case, the VC or whatever who’s private funding you will sort of try to push you to try to grow as quickly as possible and have a biggest exit as possible. But if you could have a bigger structure that’s supported by the fact that this SaaS app business often throw off this kind of cash then you could do a profit share as well as an equity piece. It sort of aligns the founders and the investors and I think in a good, nice way.
Rob: I think all that to say, while we are talking about Tiny Seed today, you and I both think we foresee that as the future moves forward that this is a shift and that there will obviously, there’ll still be venture capital and accelerators the way we know it today but it’s like this new market opens up and this alternative funding where we’ve traditionally had bootstrapping, and venture capital, and there was angel along the way, and you could self-fund. We did talk about how self-funding is different or the same as bootstrapping but there’s this new kind of third option that I believe has viability. Half of my angel investments are essentially in startups like this. They’re in these SaaS apps that I never thought or hoped would become unicorns but if they get to 5 million, 10 million ARR—annual run rate or annual recurring revenue, whichever you prefer—it’s a win for all of us.
Einar: Yeah, absolutely. I think there’s are just a lot more business like that out there. I think, even just from United States but even worldwide, there are industries that has so many things left to automate and basically turn into a SaaS process that they could be an order of magnitude more of this kind of businesses than there are fees […] firms and business ideas.
Rob: Yeah, it’s like the long tail of startup funding, isn’t it?
Einar: Yeah.
Rob: Totally interesting.
Einar: It’s not like people aren’t raising money to go out and build these kinds of businesses, they are, it’s just that certainly, the way I think this can be done in the Valley now is you basically, towards the end of your decks, throw up, “Oh,” you know, and two slides that says, “And now when we go to the moon, we’d become $1 billion company.” Even if you don’t necessarily believe it. For the founder that can raise money that way, that’s great. But it doesn’t necessarily then align with the investor. Because the investor, in the traditional structure, if you put in $500,000 in the say, non-cap safe or something, then you’ll end up, even if the company gets to say, $10 million and they’re starting at $5 million in cash every year, and the founder just decide to hold on to it then as an investor you get nothing. Even in acquisition you might just get your $500,000 back with interest. It’s easy to look at it from the founder side and say, “These are founder family terms.” But in order to make this really a growth market, you need to align both the investors and the founders in a good way.
Rob: That’s a good point you bring up. I think we’re seeing different models. [12:56] VC has their model in the way they structure it. You see the debt financing, like I said, Lidar Capital and Bigfoot Capital, I think there’s a few others, and that’s different and those require a personal guarantee on the part of the founder.
Einar: In some cases, yeah. I don’t want to speak for every single debt financing deal but a lot of them do, yeah.
Rob: Alright. What you and I have arrived at through conversations with both investor side and the founder side is this model is really pioneered by Rand Fishkin with SparkToro. He essentially open sourced the terms. If you search SparkToro fundraising terms. I’m an angel investor in SparkToro, full disclosure, but we adopted those or something very close to it because it makes sense from an investor perspective. The return is there and you’re not going to have that safe situation you just talked about where you put in $500k and you get nothing back if they hold onto it. But at the same time, it’s almost by definition is founder-friendly because Rand came up with it. Maybe he and his cofounder but it’s like, he wouldn’t have accomplished something that wasn’t in his interest.
Einar: Exactly. I think the model that he came up with is pretty brilliant. It’s sort of what we were looking for and trying to structure and it’s been super helpful to talk to him and talk why he did it and get his thoughts on it. But I think fundamentally, what it does is, it essentially allows the founder to decide to reinvest upgrade operating cost into the company as it’s growing if that’s what they want to do. Then only when they decide, “Okay, I’m going to start taking cash distributions and taking more capital off the company, only at that point does the investor start to dissipate. I think that aligns investor and founder incentives really well.
Rob: That makes sense. One question I have for you, I know the answer but I’m going to ask it, so we can talk it through. You and I could’ve just started a seed fund which is, for the listeners, you raise some money and you write some cheques to some founders, to some companies and maybe you fund one this month and one in three months. You build a portfolio but that’s kind of how a fund works but we have opted to start an accelerator which is having a cohort or a group of companies that come together and they go through it. It’s similar to the YC or the Tech Stars or 500 Startups model and there’s a lot more mentorship and it’s like a program.
Typical accelerator, you move to a location and it’s three months long. We’re going to do a remote accelerator and it’s going to be 12 months long, assuming that you hit some milestones and such, but why did we do that? Why are you interested in doing that instead of just doing the traditional kind of seed fund approach?
Einar: I think the key difference is that having done YC, I know how powerful it is to have a cohort that can support you, that are basically going through the same stuff that you’re doing, and I think that it and of itself is super valuable. Of course, there’s always some bound to be some sort of an internal competition among the founders which that’s also helpful in some way. I think having a defined structure around it and saying, “Okay, we’re also going to come in and provide world-class mentorship.” that’s honestly, probably pretty opinionated about, “This is the best way how to do 80% of what you need to do with content. This is how you do 80% of what you need to do with paid advertising or SEO or whatever.” I think that sort of structure adds more value to the founders themselves and make them more likely to succeed which is ultimately what we’re looking for.
As you know, we’ve had inbound interest from founders which have probably companies that are too big to really make sense in the current structure and they just wanted mostly for the mentorship. I think that’s valuable in and of itself and just makes the companies more likely to succeed.
Rob: Yep, good answer. It’s like you’ve been asked that question before or something.
Einar: It’s almost like I’ve been on the phone and told that story a number of times already.
Rob: Yeah, it’s well-rehearsed at this point. Obviously, we’ve talked about how—I guess we haven’t said this explicitly—but I don’t think something like Tiny Seed would have worked or could have worked 10 years ago. I don’t think SaaS […] true enough and I think the community was there, I don’t think there are other places for the money to go. I think there’s a bunch of reasons, oftentimes we hear about three or four startups all going after the same thing at once, like when Fitbit and, what was the watch, Pebble was on Kickstarter, and the Apple watch—why is everyone coming up with watches? Because it was a confluence of factors. It was, finally, the stuff was cheap enough; the hardware, finally the screens were good enough. There’s stuff that comes together where suddenly it’s like, “You couldn’t have done this three years ago.” I don’t know if Tiny Seed would have been successful a few years back, but I feel like the reception and the response we’ve gotten so far both from investors and companies, it kind of indicates to me that hopefully, this is the right time for this.
Einar: Yeah, I think so. I mean, obviously […].
Rob: I know. That’s the thing I’ve been trying to be careful with is, I certainly want to blog or when I talk in the podcast, I don’t want to sound like, “Hey,” I’m just tooting my own horn and saying, “Yeah, this is a tectonic shift, so you should buy into this.” But the whole reason that you and I are basically going all in on this thing when we have a bunch of other things we could be doing, is that we believe, by definition, we believe it’s a tectonic shift, that this is what’s happening. That’s how we can justify going all in on it, right?
Einar: Yup, yup.
Rob: One question that I’ve been asked about Tiny Seed is how it’s different than a typical accelerator. Why would they go with Tiny Seed versus any of the others 500 Startups or YCombinator, any of the others you could find, and we have six here—I’m guessing over time there’d be more—but one I mentioned already is that we’re going to be remote by default. We’ve talked about doing probably three in-person gathering where we get everybody together. Imagine we do one early on because having that facetime with people kind of starts to solidify a cohort. It is remote.
The advantage that it has—obviously, it’s advantages and disadvantages. Because the disadvantage is you don’t have that face-to-face time all the time like you would with a typical accelerator, the advantage is much like starting your fully-remote company is our talent pull and our essentially, the companies we can back are much more far reaching. It’s folks that you and I run into at MicroConf that perhaps can’t…
Einar: I think in part is it’s a more scalable model. Not to disparage accelerators but to be honest with you, some accelerators are in part seem to be more geared towards being a booster for the city they’re in rather than trying to help the companies in an optimal fashion. Really, I think with a remote model, basically, you keep the social support network that you need for founders going through this anyway. They already have that in place with their family and friends. You also keep expenses low, that’s a big part of it as you go through it. If you have the years’ worth of runway, it’s better to not have to move somewhere, or not to have to uproot your family and friends and your expenses to have a journey […].
Rob: You touched on differentiator number two is that, unlike most accelerators that are three months long, we look to do it for a year basically, to have this cohort and this community built over the course of a year. You get 10 companies or 12 companies or whatever and they’re on 2-4 calls a month, there’s some office hour calls, it’s all Zoom video stuff, but they build that mastermind relationship, that friendly competition or even just that friendly, the you-have-my-back kind of relationship. It gives you runway to quit that day job because that’s what the funding is for, but it gives you that 12 months, we know how long SaaS takes.
I was just talking to someone, and I realized that venture capitalist gives you a lot of money and then they want your timetable to compress. They want you to do more in a shorter amount of time, but they can get fed up by saying, “Well you have a bunch of money. Go do that.” If you’re running Instagram or Twitter or whatever else, maybe that can happen but SaaS, traditionally doesn’t work like that. Slack, it works like that. There’s a couple of other SaaS apps. Most SaaS apps, we’ve seen it over and over, years and years and years. It takes 6 months, 12 months to get traction and then it takes years over time to compound and grow. Our view is that the longer we are able to allow people to build this, the better off the results will be.
Einar: I think it also ties into, “What is the nature of most accelerators? What is the goal that comes out of it?” The goal on […] YC is that you raise your next funding and that takes about three months and you have enough things to show that you can raise the next series of funding versus what we’re hoping to do is you don’t necessarily have to step on that venture track. You can basically build a profitable, sustainable business. We think 12 months is probably what it takes to go from something small to something that potentially can cover your expenses, so you don’t have to go back to your day job or start consulting.
Rob: Yup. The third differentiator really is this lack of series A pressure. Series A is the first venture round people raise. We’re giving multiple options. These founders, as we’ve said, can pull dividends out and they’ll get a percentage and the investors are going to get a percentage. Over time, I’m sure some will exit at some point, it’s not something that we’re going to force or push people into but sometimes getting […] event is really the right choice for the founder. Obviously, they and the investors would make out there.
Einar: I think it’s probably misunderstood by people who aren’t in sort of the Silicon Valley VC world. Like, how much a part of the founder’s job on the venture track is to raise money? There’s is series A, but now there’s a series pre-seed and then a series seed, and then a series A, and then series B, and the series whatever. Essentially, most of the time, you raise just enough money so that you run out of money in 18 months. Then once you’re done fundraising, you maybe have six months, and then you have to start fundraising again for the next round because you’re trying, like you said, to compress as much as possible and go as fast as possible in order to grow as fast as you probably can. Because that is the only model that works for that kind of venture investment.
Rob: Yep. As I was saying. Tiny Seed companies, they just have to pay dividends, they could exit, or some may decide that they could raise another round. This is not something that we would say, “No, don’t do that.” It’s going to be the right option for some companies. But it’s just having the optionality to do it or not do it. It’s like, “Make a good choice.”
Einar: Exactly. Probably maybe six months in you’re like, “Oh, holy crap. This is a much bigger opportunity than I thought.” in which case, okay, we’ll be supportive. We will say, “Okay. We’ll help you re-enter the VCs. We’re excited about being part of the next round.” That’s fine too but there’s no expectation about you wither do that or die trying.
Rob: Yup. I have six investments that I would essentially call this model, this more sustainable, sane, startup model and one of them has done exactly that. They have raised subsequent round because the opportunity got big really quick and it was unexpected at the start. Certainly, the right choice for them.
The fourth key differentiator is, this one’s interesting. I’m wondering if this going to be controversial, but I don’t have a bias against single founders and I know that a lot of accelerators do. I think the phrase I’ve heard is like, “The journey is hard. The journey is long to get to $1 billion. Most single founders aren’t able to do it.” In my experience, I’ve seen a lot of single founders be very successful at sustainably building these seven and low eight figure businesses.
Einar: I think that’s true. I think in part, it’s sort of a historical artifact because of what happened in ’05, ’06. Basically, it was YCombinator and Paul Graham really there, who sort of espoused this almost hard-plan rule that you had to be two at least. You are never going to make it without being two founders. That actually, I think, impacted every single subsequent accelerator and seed investment around. But I’m with you. The people I see that are successful in the space are usually, it’s one person, at least one lead person then maybe later a cofounder that comes on board.
Rob: Yeah, it’s pretty interesting. The fifth differentiator is release seven-figure ARR, so millions, multiple millions and low eight-figures, so let’s say, 10 million to 20 million. I think you and I have kind of talked about, “Hey, if we think SaaS company has a potential and even non-SaaS,” We’re not going to be 100% SaaS, I bet we’ll have others that are not, but that is definitely an area of our expertise, if they can get between $1 and $20 million, that’s a win for a lot of people. It can be a win for the founders, it can be a win for employees if they have equity and certainly, it can be a win from our perspective as well.
Einar: I think that makes sense, that’s the key differentiator. You have to have an investment structure which I don’t think really fundamentally exist. Currently, you have to have an investment structure that can support those kinds of success.
Rob: Yeah, that’s right. That’s where we’ve had to go, I’ll say, go back to first principle and say, “What is founder-friendly? What also works from a financial model perspective?” Because we won’t get investors. The fund will not exist if we can show that, “Hey, there’s a good likelihood that there will be a really good return for you.” and for us, we’re putting in time, we’re putting in money, we have to believe that ourselves or else it’s not worth doing.
Einar: It’s a risk-reward thing. It’s easy to look at from the founder side and say, “Oh, this is the percentage. I’m giving up too much, too little,” whatever. But fundamentally, for most investors, the question isn’t like, “Do I do this or nothing?” It is, “Do I do this, or do I put this in my buddy’s real estate investment trust where okay, the return isn’t this high, or the potential return isn’t this high but it’s much less risky than backing a basically a small SaaS business?”
Rob: The last differentiator we’ll talk about today as we’re coming close on time. I’ve been talking with my wife, Sherry, for quite some time. A lot of folks know her as Zen founder and she’s a psychologist and also now, essentially a consultant to startup founders and executives and entrepreneurs about staying sane while building a company.
We’ve been throwing around this idea of the sane startup. It’s a startup that values people over results. It has reasonable work hours expectations, so it’s not 90-hour weeks. It’s a startup that allows you to build something interesting and fun and profitable and lucrative, but you avoid burnout while doing that. You maintain your family relationships, your friend relationships, that you grow at a healthy clip instead on a […]. Some startups out there, they grow at an unhealthy clip to the point where they’re doing shady things, they’re doing unlicensed insurance sales or they’re sacrificing their employees. Something a sane startup, I think has ample vacation time, and it just cares about people on general.
We’ve seen these, there’s examples up in Baremetrics I would say, Buffer, that’s how we grew Drip, SparkToro I imagine is going to be that way, Basecamp, Balsamiq. I love this idea, whatever we call it, whether we call it Sane Startup or not, it’s a company that cares about its people over the results but can be a successful and profitable company.
Einar: On top of that, it can do it in sort of the non-traditional places. It can do it in a mid-sized town somewhere that isn’t coastal. I think that’s a big part of it too is, you don’t have to be in Silicon Valley in order to have this kind of success from a business.
Rob: Yup. That’s a big piece to it. I think that’s where we’ve talked about is the untapped potential of this. There is a lot about location and then there’s a lot about kind of quality of life that I think we can have the best of both worlds. That’s our hypothesis here is, we can have the best of these worlds and yet still build profitable businesses that are interesting, fund to work on, and all that stuff.
Thanks so much, Einar, for joining me today. If folks want to keep up with you online, aside from going to tinyseed.com where they can follow you and I, where would they hit you up online?
Einar: You should check out @einarvolsett on Twitter. It’s probably the easiest. I sort of went off that for a bit but I’m seemingly back on now. That’s my […].
Rob: Oh, goodie. You can do that, and I will not argue with people on Twitter. That’s kind of my status quo. Your name is Einar Vollset and we will link that up on the show notes as well.
Einar: Cool.
Rob: If you have a question for us, you can call our voicemail number 1-888-801-9690 or you can email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s 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.
Einar: And I’m Einar.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Nice job catching that man. I didn’t brief you in advance that you had to say your name, huh?
Einar: […] is Mike supposed to say something on or not?
Rob: Mike’s not on. For listeners out there, who don’t know you. Your name is E-Y-N-A-R. I call you A-Y-N-A-R.
Einar: It’s close as my wife gets. I think that’s fair.
Rob: Good. You and I have started–we’ve co-founded Tiny Seed together. That’s at tinyseed.com. But folks may not have heard of you. I know that you are a multi-time founder. You went through YCombinator in 2009. You’re a developer as well. You’re a CS professor at Cornell. You’ve done quite a bit of stuff and you, these days, you kind of work in private equity, right? You’re like a private equity scout?
Einar: Yeah, kind of. I sort of got into that space after my last exit and actually have what I jokingly call a service startup investment banker. Most of the stuff I do is help fund their exits when they’ve got a SaaS business or a tech-enabled service business between […], $2 million, and $15 million as ARR, something like that.
Rob: Right. That’s where you and I have connected on Tiny Seed. Folks listening to the podcast kind of already know a little bit of Tiny Seed, it’s the first startup accelerator designed for bootstrappers. We try to give founders a year of runway, it’s a remote accelerator. It’s an idea that has been floating around for years and I never wanted to do a lot of the investor side and didn’t really have the expertise to raise a funding round and that kind of stuff. And then you and I connected back in April at MicroConf in Vegas and this was something that intrigued you to start what became Tiny Seed.
I think folks who listened know why I’m doing it. This is just a continuation of everything I’ve done for the past 15 years or whatever, it’s me putting more money where my mouth has been. But for you, what’s your interest in being part of something like Tiny Seeds?
Einar: I think there’s just a gap in the market there for those kinds of companies. I think in terms of funding structure and in terms of support. The way that I think about this base is it’s very similar to where companies like Y Combinator or First Round were in 2005, 2006. It’s becoming more and more clear to me that there are incredible businesses to be built which can be super profitable and sort of take care of their investors, and their founders, and their employees and everything that sort of fall outside the traditional VC sort of funding structure with a series of pre-seeds, and seed, and A, and B, and C.
I really think that given what you’ve built on MicroConf and your community and the fact that the institutional capital is coming in or interested in buying those kinds of companies potentially, I think that’s an exciting opportunity, and honestly, yeah, I just want to help people be able to take their business from just a sidebar project to something they can dedicate their time, full-time toward.
Rob: Yeah. You came up with a really good example early on. You said, “How many founders do meet at MicroConf or at other conferences who are basically trying to do it on the side?” A lot of folks have a spouse, they have house, they might have a kid, they have a full-time job, they have responsibilities…
Einar: Mortgage.
Rob: …and they have mortgage, yup. They just can’t—I say, can’t—but it’s really, really hard to offset that and either move to the Bay area with some other tech center for three months to do an accelerator or to try to raise a round of funding in the side or they’re tooling away on an idea and three months later, it’s no better off when they started.
Einar: I think the standard pro-typical YC startup founder—at least that’s the way it used to be, maybe it’s a little bit different now—but it’s like, you’ve got to be 23, willing to work 80-, 90-hour weeks and just give up everything else. Of course, I don’t think that’s the only way to build a profitable business and I’d really like to support that.
Rob: That makes sense. I kind of jokingly have called what we’re starting with Tiny Seed, I’ve been calling it Startup Funding For The Rest of Us because it kind of fits in the model. Startups For The Rest of Us, the whole point of the name of this podcast is that folks who listen to it want to build startups but we aren’t in that mainstream, “Let’s raise venture funding.” Like you said, 90-hour weeks, series A, series B, $100 million or $100 billion valuation, some of us don’t want to do that, and it’s that alternative.
I think the key thing is, a lot of us have noticed, you noticed, I’ve noticed, we have other folks that are launching similar things that are similar to Tiny Seeds. It’s like we’re all noticing this tectonic shift in both bootstrapping in that bootstrapping is getting harder especially SaaS because it’s getting more competitive. It’s not impossible but it’s harder than it was two, three, four, five years ago, so it’s getting harder. Funding sources are becoming more prevalent. There’s more money being thrown at things and in fact, so much money being thrown into venture capital and private equity that it’s spilling over and looking for either places to go, where is the opportunity for that money to go. I’ll speak for myself here, I believe this is a great opportunity, a great place for it to go that is virtually untapped today.
Einar: Yeah, I think so. I think I get super hard if you have a SaaS business that’s doing $2000-$3000, $4000-$5000 a month, it’s not enough to live on in most places. Certainly not where I live, in the Bay area. But going out and raising funding for those kinds of businesses is also impossible if you’re not giving it the time of the day from a traditional VC because they’ll look at the business and say, “Oh, it’s a nice lifestyle business you have there.” Your other sources of funding tend to be, “Okay, friends and family.” If you have wealthy friends and family that’s great but on the other end you often end up with kind of a ad hoc set of angels and it’s hard to do. That’s actually aligned incentives for founders and investors that are trying to operate in the space.
Rob: Yeah, that’s right. What’s interesting is that something I don’t think, if you’re not in the space, then you don’t realize how quickly things have changed and that they are constantly changing. I grew up in the Bay area until—I’m trying to think—it was the mid-90s and then I went to college in Sacramento and I still have ties to the place, I never did a startup there, but I very much know how the Bay area works.
I remember, in the 90s, when I was, let’s say, late teens, early 20s, and just thirsting to do a startup it was like, you could have friends and family contribute money and I had no friends and family with any money so that was off the plate for me. You could try to find angels and of course, there was no angel list back then, so it was literally going to meetings. There was meetings and such and there were angel groups and then there was venture capital obviously, because a lot of cheques were written in the late ‘90s. But as far as I know that was kind of it.
If you wanted to start a software startup at the time, there were no accelerators until 2005, that’s only 13 years ago, and we were just talking, there was no debt financing for SaaS until maybe two years ago. There was Lidar Capital, Bigfoot Capital and a few others, but you couldn’t get freaking debt financing from a bank.
Einar: No, you couldn’t go to a bank and say, “Hey, I have this SaaS business. It’s maybe making freaking $20,000, $30,000 a year. Can you lend me enough money to do anything?” that was never going to work. I did YC in 2008 and even then, people were still like, at the time, the original terms were like $5000 + $5000 x the number of founders for 6% or 7%, something like that.
The people who were in the angel and VC investing world, they laughed at that. They were like, “What are you talking about? Of course, that’s nowhere near enough money to do anything with. What are you even bothering about?” But I think YC really proved that that model that, “You know what, yeah, with a little bit of money and some grit you can go after this.” I sort of think the opportunity is similar but in a different place where what we’re going after is not the next Facebook or Instagram or whatever, it is the next $20-$50 million SaaS business that you probably haven’t heard of unless you work in the industry where it’s prevalent or is being used.
Rob: Even in our financial models, having SaaS apps grow into a $3-, $4-, $5-million business is still a pretty nice win. It’s a nice win from an investor perspective but it’s also really good win for the founder or founders themselves because they can either, they’re given the profit margin. You’re experienced with quite a few SaaS apps, the next profit on these things is substantial, and so whether a founder decides to exit and sell the business or whether they decide to just pull distributions off of it, there’s a lot of—I think there’s rewards to be had that would almost be laughed at or at least chuckled at in the Bay area because it’s like, “Oh, lifestyle business right? $5 million a year?” But man, if you’re pulling $2 million off that, that’s life-changing for a lot of us.
Einar: I think the margins, once you get to a certain size and you decide to focus on cash flow instead of necessarily growing at all cost, again, the margins will be at 30%-50%. I think the fundamental shift that we’re seeing and trying to leave behind is you can align both investors and founders in a better way. Instead of saying, “Okay, the only way anyone gets paid is by exits.” In that case, the VC or whatever who’s private funding you will sort of try to push you to try to grow as quickly as possible and have a biggest exit as possible. But if you could have a bigger structure that’s supported by the fact that this SaaS app business often throw off this kind of cash then you could do a profit share as well as an equity piece. It sort of aligns the founders and the investors and I think in a good, nice way.
Rob: I think all that to say, while we are talking about Tiny Seed today, you and I both think we foresee that as the future moves forward that this is a shift and that there will obviously, there’ll still be venture capital and accelerators the way we know it today but it’s like this new market opens up and this alternative funding where we’ve traditionally had bootstrapping, and venture capital, and there was angel along the way, and you could self-fund. We did talk about how self-funding is different or the same as bootstrapping but there’s this new kind of third option that I believe has viability. Half of my angel investments are essentially in startups like this. They’re in these SaaS apps that I never thought or hoped would become unicorns but if they get to 5 million, 10 million ARR—annual run rate or annual recurring revenue, whichever you prefer—it’s a win for all of us.
Einar: Yeah, absolutely. I think there’s are just a lot more business like that out there. I think, even just from United States but even worldwide, there are industries that has so many things left to automate and basically turn into a SaaS process that they could be an order of magnitude more of this kind of businesses than there are fees […] firms and business ideas.
Rob: Yeah, it’s like the long tail of startup funding, isn’t it?
Einar: Yeah.
Rob: Totally interesting.
Einar: It’s not like people aren’t raising money to go out and build these kinds of businesses, they are, it’s just that certainly, the way I think this can be done in the Valley now is you basically, towards the end of your decks, throw up, “Oh,” you know, and two slides that says, “And now when we go to the moon, we’d become $1 billion company.” Even if you don’t necessarily believe it. For the founder that can raise money that way, that’s great. But it doesn’t necessarily then align with the investor. Because the investor, in the traditional structure, if you put in $500,000 in the say, non-cap safe or something, then you’ll end up, even if the company gets to say, $10 million and they’re starting at $5 million in cash every year, and the founder just decide to hold on to it then as an investor you get nothing. Even in acquisition you might just get your $500,000 back with interest. It’s easy to look at it from the founder side and say, “These are founder family terms.” But in order to make this really a growth market, you need to align both the investors and the founders in a good way.
Rob: That’s a good point you bring up. I think we’re seeing different models. [12:56] VC has their model in the way they structure it. You see the debt financing, like I said, Lidar Capital and Bigfoot Capital, I think there’s a few others, and that’s different and those require a personal guarantee on the part of the founder.
Einar: In some cases, yeah. I don’t want to speak for every single debt financing deal but a lot of them do, yeah.
Rob: Alright. What you and I have arrived at through conversations with both investor side and the founder side is this model is really pioneered by Rand Fishkin with SparkToro. He essentially open sourced the terms. If you search SparkToro fundraising terms. I’m an angel investor in SparkToro, full disclosure, but we adopted those or something very close to it because it makes sense from an investor perspective. The return is there and you’re not going to have that safe situation you just talked about where you put in $500k and you get nothing back if they hold onto it. But at the same time, it’s almost by definition is founder-friendly because Rand came up with it. Maybe he and his cofounder but it’s like, he wouldn’t have accomplished something that wasn’t in his interest.
Einar: Exactly. I think the model that he came up with is pretty brilliant. It’s sort of what we were looking for and trying to structure and it’s been super helpful to talk to him and talk why he did it and get his thoughts on it. But I think fundamentally, what it does is, it essentially allows the founder to decide to reinvest upgrade operating cost into the company as it’s growing if that’s what they want to do. Then only when they decide, “Okay, I’m going to start taking cash distributions and taking more capital off the company, only at that point does the investor start to dissipate. I think that aligns investor and founder incentives really well.
Rob: That makes sense. One question I have for you, I know the answer but I’m going to ask it, so we can talk it through. You and I could’ve just started a seed fund which is, for the listeners, you raise some money and you write some cheques to some founders, to some companies and maybe you fund one this month and one in three months. You build a portfolio but that’s kind of how a fund works but we have opted to start an accelerator which is having a cohort or a group of companies that come together and they go through it. It’s similar to the YC or the Tech Stars or 500 Startups model and there’s a lot more mentorship and it’s like a program.
Typical accelerator, you move to a location and it’s three months long. We’re going to do a remote accelerator and it’s going to be 12 months long, assuming that you hit some milestones and such, but why did we do that? Why are you interested in doing that instead of just doing the traditional kind of seed fund approach?
Einar: I think the key difference is that having done YC, I know how powerful it is to have a cohort that can support you, that are basically going through the same stuff that you’re doing, and I think that it and of itself is super valuable. Of course, there’s always some bound to be some sort of an internal competition among the founders which that’s also helpful in some way. I think having a defined structure around it and saying, “Okay, we’re also going to come in and provide world-class mentorship.” that’s honestly, probably pretty opinionated about, “This is the best way how to do 80% of what you need to do with content. This is how you do 80% of what you need to do with paid advertising or SEO or whatever.” I think that sort of structure adds more value to the founders themselves and make them more likely to succeed which is ultimately what we’re looking for.
As you know, we’ve had inbound interest from founders which have probably companies that are too big to really make sense in the current structure and they just wanted mostly for the mentorship. I think that’s valuable in and of itself and just makes the companies more likely to succeed.
Rob: Yep, good answer. It’s like you’ve been asked that question before or something.
Einar: It’s almost like I’ve been on the phone and told that story a number of times already.
Rob: Yeah, it’s well-rehearsed at this point. Obviously, we’ve talked about how—I guess we haven’t said this explicitly—but I don’t think something like Tiny Seed would have worked or could have worked 10 years ago. I don’t think SaaS […] true enough and I think the community was there, I don’t think there are other places for the money to go. I think there’s a bunch of reasons, oftentimes we hear about three or four startups all going after the same thing at once, like when Fitbit and, what was the watch, Pebble was on Kickstarter, and the Apple watch—why is everyone coming up with watches? Because it was a confluence of factors. It was, finally, the stuff was cheap enough; the hardware, finally the screens were good enough. There’s stuff that comes together where suddenly it’s like, “You couldn’t have done this three years ago.” I don’t know if Tiny Seed would have been successful a few years back, but I feel like the reception and the response we’ve gotten so far both from investors and companies, it kind of indicates to me that hopefully, this is the right time for this.
Einar: Yeah, I think so. I mean, obviously […].
Rob: I know. That’s the thing I’ve been trying to be careful with is, I certainly want to blog or when I talk in the podcast, I don’t want to sound like, “Hey,” I’m just tooting my own horn and saying, “Yeah, this is a tectonic shift, so you should buy into this.” But the whole reason that you and I are basically going all in on this thing when we have a bunch of other things we could be doing, is that we believe, by definition, we believe it’s a tectonic shift, that this is what’s happening. That’s how we can justify going all in on it, right?
Einar: Yup, yup.
Rob: One question that I’ve been asked about Tiny Seed is how it’s different than a typical accelerator. Why would they go with Tiny Seed versus any of the others 500 Startups or YCombinator, any of the others you could find, and we have six here—I’m guessing over time there’d be more—but one I mentioned already is that we’re going to be remote by default. We’ve talked about doing probably three in-person gathering where we get everybody together. Imagine we do one early on because having that facetime with people kind of starts to solidify a cohort. It is remote.
The advantage that it has—obviously, it’s advantages and disadvantages. Because the disadvantage is you don’t have that face-to-face time all the time like you would with a typical accelerator, the advantage is much like starting your fully-remote company is our talent pull and our essentially, the companies we can back are much more far reaching. It’s folks that you and I run into at MicroConf that perhaps can’t…
Einar: I think in part is it’s a more scalable model. Not to disparage accelerators but to be honest with you, some accelerators are in part seem to be more geared towards being a booster for the city they’re in rather than trying to help the companies in an optimal fashion. Really, I think with a remote model, basically, you keep the social support network that you need for founders going through this anyway. They already have that in place with their family and friends. You also keep expenses low, that’s a big part of it as you go through it. If you have the years’ worth of runway, it’s better to not have to move somewhere, or not to have to uproot your family and friends and your expenses to have a journey […].
Rob: You touched on differentiator number two is that, unlike most accelerators that are three months long, we look to do it for a year basically, to have this cohort and this community built over the course of a year. You get 10 companies or 12 companies or whatever and they’re on 2-4 calls a month, there’s some office hour calls, it’s all Zoom video stuff, but they build that mastermind relationship, that friendly competition or even just that friendly, the you-have-my-back kind of relationship. It gives you runway to quit that day job because that’s what the funding is for, but it gives you that 12 months, we know how long SaaS takes.
I was just talking to someone, and I realized that venture capitalist gives you a lot of money and then they want your timetable to compress. They want you to do more in a shorter amount of time, but they can get fed up by saying, “Well you have a bunch of money. Go do that.” If you’re running Instagram or Twitter or whatever else, maybe that can happen but SaaS, traditionally doesn’t work like that. Slack, it works like that. There’s a couple of other SaaS apps. Most SaaS apps, we’ve seen it over and over, years and years and years. It takes 6 months, 12 months to get traction and then it takes years over time to compound and grow. Our view is that the longer we are able to allow people to build this, the better off the results will be.
Einar: I think it also ties into, “What is the nature of most accelerators? What is the goal that comes out of it?” The goal on […] YC is that you raise your next funding and that takes about three months and you have enough things to show that you can raise the next series of funding versus what we’re hoping to do is you don’t necessarily have to step on that venture track. You can basically build a profitable, sustainable business. We think 12 months is probably what it takes to go from something small to something that potentially can cover your expenses, so you don’t have to go back to your day job or start consulting.
Rob: Yup. The third differentiator really is this lack of series A pressure. Series A is the first venture round people raise. We’re giving multiple options. These founders, as we’ve said, can pull dividends out and they’ll get a percentage and the investors are going to get a percentage. Over time, I’m sure some will exit at some point, it’s not something that we’re going to force or push people into but sometimes getting […] event is really the right choice for the founder. Obviously, they and the investors would make out there.
Einar: I think it’s probably misunderstood by people who aren’t in sort of the Silicon Valley VC world. Like, how much a part of the founder’s job on the venture track is to raise money? There’s is series A, but now there’s a series pre-seed and then a series seed, and then a series A, and then series B, and the series whatever. Essentially, most of the time, you raise just enough money so that you run out of money in 18 months. Then once you’re done fundraising, you maybe have six months, and then you have to start fundraising again for the next round because you’re trying, like you said, to compress as much as possible and go as fast as possible in order to grow as fast as you probably can. Because that is the only model that works for that kind of venture investment.
Rob: Yep. As I was saying. Tiny Seed companies, they just have to pay dividends, they could exit, or some may decide that they could raise another round. This is not something that we would say, “No, don’t do that.” It’s going to be the right option for some companies. But it’s just having the optionality to do it or not do it. It’s like, “Make a good choice.”
Einar: Exactly. Probably maybe six months in you’re like, “Oh, holy crap. This is a much bigger opportunity than I thought.” in which case, okay, we’ll be supportive. We will say, “Okay. We’ll help you re-enter the VCs. We’re excited about being part of the next round.” That’s fine too but there’s no expectation about you wither do that or die trying.
Rob: Yup. I have six investments that I would essentially call this model, this more sustainable, sane, startup model and one of them has done exactly that. They have raised subsequent round because the opportunity got big really quick and it was unexpected at the start. Certainly, the right choice for them.
The fourth key differentiator is, this one’s interesting. I’m wondering if this going to be controversial, but I don’t have a bias against single founders and I know that a lot of accelerators do. I think the phrase I’ve heard is like, “The journey is hard. The journey is long to get to $1 billion. Most single founders aren’t able to do it.” In my experience, I’ve seen a lot of single founders be very successful at sustainably building these seven and low eight figure businesses.
Einar: I think that’s true. I think in part, it’s sort of a historical artifact because of what happened in ’05, ’06. Basically, it was YCombinator and Paul Graham really there, who sort of espoused this almost hard-plan rule that you had to be two at least. You are never going to make it without being two founders. That actually, I think, impacted every single subsequent accelerator and seed investment around. But I’m with you. The people I see that are successful in the space are usually, it’s one person, at least one lead person then maybe later a cofounder that comes on board.
Rob: Yeah, it’s pretty interesting. The fifth differentiator is release seven-figure ARR, so millions, multiple millions and low eight-figures, so let’s say, 10 million to 20 million. I think you and I have kind of talked about, “Hey, if we think SaaS company has a potential and even non-SaaS,” We’re not going to be 100% SaaS, I bet we’ll have others that are not, but that is definitely an area of our expertise, if they can get between $1 and $20 million, that’s a win for a lot of people. It can be a win for the founders, it can be a win for employees if they have equity and certainly, it can be a win from our perspective as well.
Einar: I think that makes sense, that’s the key differentiator. You have to have an investment structure which I don’t think really fundamentally exist. Currently, you have to have an investment structure that can support those kinds of success.
Rob: Yeah, that’s right. That’s where we’ve had to go, I’ll say, go back to first principle and say, “What is founder-friendly? What also works from a financial model perspective?” Because we won’t get investors. The fund will not exist if we can show that, “Hey, there’s a good likelihood that there will be a really good return for you.” and for us, we’re putting in time, we’re putting in money, we have to believe that ourselves or else it’s not worth doing.
Einar: It’s a risk-reward thing. It’s easy to look at from the founder side and say, “Oh, this is the percentage. I’m giving up too much, too little,” whatever. But fundamentally, for most investors, the question isn’t like, “Do I do this or nothing?” It is, “Do I do this, or do I put this in my buddy’s real estate investment trust where okay, the return isn’t this high, or the potential return isn’t this high but it’s much less risky than backing a basically a small SaaS business?”
Rob: The last differentiator we’ll talk about today as we’re coming close on time. I’ve been talking with my wife, Sherry, for quite some time. A lot of folks know her as Zen founder and she’s a psychologist and also now, essentially a consultant to startup founders and executives and entrepreneurs about staying sane while building a company.
We’ve been throwing around this idea of the sane startup. It’s a startup that values people over results. It has reasonable work hours expectations, so it’s not 90-hour weeks. It’s a startup that allows you to build something interesting and fun and profitable and lucrative, but you avoid burnout while doing that. You maintain your family relationships, your friend relationships, that you grow at a healthy clip instead on a […]. Some startups out there, they grow at an unhealthy clip to the point where they’re doing shady things, they’re doing unlicensed insurance sales or they’re sacrificing their employees. Something a sane startup, I think has ample vacation time, and it just cares about people on general.
We’ve seen these, there’s examples up in Baremetrics I would say, Buffer, that’s how we grew Drip, SparkToro I imagine is going to be that way, Basecamp, Balsamiq. I love this idea, whatever we call it, whether we call it Sane Startup or not, it’s a company that cares about its people over the results but can be a successful and profitable company.
Einar: On top of that, it can do it in sort of the non-traditional places. It can do it in a mid-sized town somewhere that isn’t coastal. I think that’s a big part of it too is, you don’t have to be in Silicon Valley in order to have this kind of success from a business.
Rob: Yup. That’s a big piece to it. I think that’s where we’ve talked about is the untapped potential of this. There is a lot about location and then there’s a lot about kind of quality of life that I think we can have the best of both worlds. That’s our hypothesis here is, we can have the best of these worlds and yet still build profitable businesses that are interesting, fund to work on, and all that stuff.
Thanks so much, Einar, for joining me today. If folks want to keep up with you online, aside from going to tinyseed.com where they can follow you and I, where would they hit you up online?
Einar: You should check out @einarvolsett on Twitter. It’s probably the easiest. I sort of went off that for a bit but I’m seemingly back on now. That’s my […].
Rob: Oh, goodie. You can do that, and I will not argue with people on Twitter. That’s kind of my status quo. Your name is Einar Vollset and we will link that up on the show notes as well.
Einar: Cool.
Rob: If you have a question for us, you can call our voicemail number 1-888-801-9690 or you can email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s 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 419 | VC Prospecting Emails, Building Features vs. Integrations and More Listener Questions
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including VC prospecting emails, building features vs. integration, buying software businesses and more.
Items mentioned in this episode:
- RobWalling.com
- TinySeed
- ZenFounder Ep.193-“Productivity Hacks”
- Flippa
- All Side Projects
- 1Kprojects.com
- FE International
- QuietLight Brokerage
- Empire Flippers
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about how to handle VC prospecting emails, building features versus building integrations and more listener questions. This is Startups for the Rest of Us episode 419.
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: And we’re here to share our experiences help you avoid the same mistakes we’ve made. What’s going on this week sir?
Mike: Well, I’m in the midst of polishing up by a bunch of screenshots for Bluetick to distribute with product listings that I’m posting on various websites at the moment. I started doing it and I realize the screenshots that I could take that would take me like two seconds to do just from various places inside the app don’t really tell a story about the app itself or any of the screens themselves because you kind of have to have used the product in order to understand certain pieces of it.
I kind of backed off a little bit and said okay, well how can I tell a story with these screenshots? I was like, most of the screenshots are actually like smaller versions of the screen itself and then like descriptive text around it and arrows arose and it kind of tells more a marketing story around what the product will do for you as opposed to like just strict screenshots that you see on a lot of those websites.
Rob: I agree. I think taking screenshots and making them palatable is such an art and just trying to take a screenshot of like an entire screenshot of a whole screen in your app almost never works. There’s just too much information, there’s no context, you don’t know what’s going on. It a very developer thing to do because we’ve seen screenshots and inspects before mockups inspects.
When I’ve seen screenshots that wind up being really helpful, it tends to be this really highly cropped thing that’s just one corner of the screen, is high resolution and like you said, it has some type of helper text. It takes a lot of time I guess is what I realized to make good screenshots. Much like making a good explainer video, it seems like you’re cranking out in a few hours tends to take a lot of time to do something like that.
Mike: Yeah, those things take a couple of days. I actually allocated a day earlier this week to basically create a new explainer video and that was just not enough time. I’ve done them before. I knew that it took more time but I guess I was overly optimistic about how long it would take.
Rob: Yup. I kind of always end up with those things. This blog post called How I Created 4 Startup Explainer Videos for $11 and that’s at robwalling.com in my essays section. I ran through how I created some pretty LoFi explainer videos for Drip and why I did that. It’s definitely a bootstrapper’s approach because it was time consuming.
I think I spent a full day from the time I wrote the copy until I recorded. I recorded four different ones but then as far as I can repurpose a bunch of a copy and the parts, basically the animations can repurpose them. Not something I’d recommend if you have the budget to just hire someone professional but definitely something that a scrappy bootstrap startup should probably think about.
Mike: How about you, what’s going on this week?
Rob: I’m having a tough week this week man. Sherry’s out of town she’s with her family. Her dad is pretty ill and it’s been a long time coming. It’s been more than a year of stuff kind of degrading there. So she’s out of town and I’m trying to figure out, I tend to do really well with just me and three kids and I can do it for about four days and then things just drop off a cliff. On the fifth day I wake up tired and then I think the kids are tired of me, kind of tired of each other and I kind of start running out of patience and it’s just this vicious cycle I’ll say.
At the end of the week, it’s Friday right now when we’re recording, we’re doing an emergency recording session because, I’m supposed to record next week but I’m going to be out of town. I think that’s the other thing, I usually don’t enjoy being on the road very much and I’m pretty much on the road for almost the next two weeks. So it is what it is, these are just times and stuff that I have to do. I think it’s stuff that will certainly help with TinySeed and a lot of it is work stuff and being face to face with some folks where it’s important.
For now, I’m just kind of looking forward to getting back here for Thanksgiving and getting pass this week. It’s probably been one of the I’d say worst weeks of maybe the last quarter. It’s not like some catastrophic lifelong trough. But last several months, this has been a tough one.
Mike: Yeah I’ve realized earlier this week that my kids have days off from school this week, next week and the following week. I’m just like, do you kids ever go to school?
Rob: Yeah, it’s like who’s going to watch these kids while they do that? Oh me, I’m just going to work less. Already an announcement to the listeners, you and I have been on the mic for almost 30 minutes and I’ve been interrupted twice by my kids. One kid is home sick and another kid I homeschool part time. But since Sherry’s not here, I’m home schooling full time and on and on. It’s just enough interruption that you can’t actually get anything done. So I feel your pain with the kids home.
Mike: It’s a good thing you don’t write code.
Rob: Maybe there’s a reason I don’t write code anymore.
Mike: It could be. Maybe that’s the trick, I don’t know. I forget who, there was somebody who commented on—I think it was Alex Yumashev he’s like, “Oh I was able to only spend 1% of my time on my phone this week.” and somebody asked him how he did it and he’s like, “Well, I had a third kid.”
Rob: That’s a good way to do it. So today we’re answering some listener questions. Our first one is about how to handle VC prospecting emails and it’s from a long time listener he says, “Hey guys, I got the email below and I was briefly excited and when I clicked on the link and opened up a form where I’m asked about my company’s earnings.” The gist of the email is it’s from a what looks like a venture capital firm and it says, “I’d like to speak to you about a financial opportunity regarding your SaaS business. As an acquisition advisor, I’m seeking to acquire business in this space season.”
So I don’t know this much of VC, it’s almost like private equity right? We may want to acquire you. So back to the original email he says, “Based on his email and the form that was presented, it seems like he’s not really interested in my company, he’s just casting a broad net seeing what’s out there. I think it would be interesting for you guys to discuss A, what to do if you get half asked acquisition related emails like this and B, what to do with all those VC emails, venture capital emails. People seem to get looking to connect when you have no interest in venture capital. Keep up the good work on the show.”
So what do you think? There’s two separate things here. I think anyone who’s built any type of business got any traction winds up on any list anywhere eventually gets these emails. I remember in the latter days right before the acquisition of Drip, I was getting probably three or four of the VC emails a month and I was getting I’d say maybe one a month of acquisition related, maybe it was one every six weeks but there was definitely a pretty steady flow of them. So what do you think about these?
Mike: I guess if we separate these two because as you said, they are two entirely different questions. The part about VC just looking to connect like on LinkedIn or sending emails. I get a bunch of these emails like, “Hey, can we hop on a call and talk about your business?” And I’m just like, “No, I don’t have time to talk to you and even if I did, this isn’t a good fit.” I’m just blunt with them and it’s like, spend your time someplace else because it’s just not going to happen. A lot of times, I will just let the email go and I’ll just ignore it and then if they send me a couple of follow ups, I think if I get like two follow ups, I have a cold emails folder that I just dump these into and then if it gets to at least two and it still looks like they’re still going to continue to email me then I’ll just respond and say, “Look, this is not a good fit. It’s not going to work. I’m just not interested. So take me off your email list.”
For the other ones if it’s like a situation that he described where it’s an acquisition related email and they’re asking questions about finances and stuff, my advice in that situation is really just like ask what their range of interest is because what you don’t want to do is you don’t want to go and fill out a form that gives all the information about your business because they may be looking to use that to justify a purchase price or to lowball somebody else’s business or something along those lines. You just don’t know what that data is going to be used for and there’s no trust. So why would you give over that information.
But if they’re actually really looking for those types of businesses, then they know how much they’re willing to spend. They know what their budget is and they know that below a certain threshold, they’re not going to be interested and they know that above a certain threshold, it’s probably not going to work because they’re not looking for a business that’s at large because they’re just not going to be able to pay for it. Ask them what their range is and if you fall within that range, then you might want to have a conversation with them. But otherwise, I don’t see any real obligation to start forking over information that is very specific to your business without actually going down the path of formal offers and all that other stuff. But if you’re not interested at all, you can say, “Hey look, it’s not a good time. Maybe let’s keep in touch.” But I don’t know if I’d entertain them. Just don’t spend a lot of time on them is really what the bottom line is.
Rob: I think that’s a great advice. I think especially the venture capital emails, I mean they call it junior partner, but just a junior person that is prospecting, it’s cold outreach.
Mike: Like an intern. That’s what you mean, intern.
Rob: An intern, exactly. That’s really what it is. They might be called the junior partner but that’s essentially what it is and it’s like, “Go find some deals.” So, with the venture capital stuff, I pretty much like you, I just put that all into a folder somewhere in case in the future ever I decided by some crazy thing that I was going to raise venture capital which is never on my radar. But at least then you have all the names you could reach back out to.
The acquisition stuff I agree with you. I used to respond directly like you said and just be like, “What are you looking at? What ranges are you looking at?” I mean basically what you said, I would never fill out a form like that and if that’s their requirement, then delete. It’s done. I feel like you don’t have to feel like they’re back to in a corner or something because they’re sending you this email. You don’t have any obligation to do any of this. Also, when those come into my inbox, I would tend to put them in my this week folder.
So I talked this week on ZenFounder I guess it’s last week when this was live but the ZenFounder podcast I did a solo episode where I talked about productivity hacks. One of my productivity things in Gmail is that I have this label and it’s _thisweek and the reason it’s underscore is so it goes to the top the list. Anything that is not time urgent for me or is someone else putting something on my to do list that does not need to urgently get done, I throw into this thisweek folder.
And then once a week, I have a 30-minute time box that pops up and says, “Go through this week folder.” And then, I would go through all these and respond and I would try not to let it get into some big back and forth because that’s how people suck time from you. They don’t do it necessarily intentionally but they do it because it is in their best interest and not necessarily in yours. That’s the biggest thing I would think about. You don’t have to respond to every email and even if you do, like you just said Mike, don’t spend a ton of time on this. That’s the key. So thanks for the question.
Our next question, it’s another anonymous question and he says, “Hey Rob, congratulations on selling Drip. I’ve been following you and Startups for the Rest of Us for a few years and consider you some kind of a role model. Thanks so much for all the useful tips and inspiration. I have a question, I’ve built a SaaS. It works well in the German market. Now that we’ve entered the English speaking market, it’s become clear that it’s scheduling feature, like scheduling for appointments is a deal breaker for most of our trial users. We don’t have it built yet so I’m thinking now if we should build the feature from scratch which would be a lot of work and distraction and it would be essentially expensive for us. Or, should we build an integration with some of the existing big players like say Calendly or Acuity or I’ll say YouCanBook.me. What is your opinion or experience with this? Thanks a lot for your time.” What do you think?
Mike: So this is something I’ve actually looked at for Bluetick and the path that I’m going down is to integrate with other ones who do exactly that. You could invest all the time and effort of building your own version of it from scratch but that is a value add to your products, not necessarily a core feature. For those other products, it’s their core feature. So you may be able to attract certain types of users who aren’t already using those but at the same time, there are huge numbers of people who already have those products in place and they work really well and they’ve got a lot of support infrastructure and customer validation and users, all the stuff that goes with supporting an entire product that does just that.
For you to replicate that inside of your own app is like a small piece of it is probably not the wisest move in the world. So I would lean towards going with an integration of some kind and if down the road it makes sense to build your own version of it so that your incoming customers don’t also have to have a subscription to those, then maybe that makes sense at that point. But I wouldn’t start there, I wouldn’t try to rebuild an entire application that other companies do and that’s all they do.
Rob: Yeah, I would agree with that advice. This is what we’ve seen with the all in one tools much like the infusion Infusionsoft or even the Hubspot where they have built all this functionality into one and so I guess I’ll speak to Infusionsoft itself if you’ve used it and you’ve tried to use their shopping cart, their affiliate management, their landing pages, their CRM, they’re not very good.
The core email stuff is decent and they were the innovator in the visual builder, but it’s a pretty rough product outside of that, I’ve never use those things. I’ve heard it from dozens and dozens of Infusionsoft customers who said, “Yes, I’ve tried their shopping cart and it’s not configurable and it’s kind of a kludge.” And so, that’s what we have to think about, are you going to build something that is a worst in class but is literally just a checkbox so the people say, “Oh, they have the scheduling feature.” the moment you build it, people are going to say, “Oh, Calendly does this and I can check this one box and I can put this buffer around my times or I can do it only every other day or I can do weekly this and that.” Suddenly it’s like you are almost on the hook to build this best in class product.
So I think that if you want to do that, you can make it a very deliberate decision to do that over the long term and think three years down the line. Do you want to still be maintaining that and adding to it and expanding it because it’s not a one-time build. Not only are you going to have to get it to feature parity with your competitors but then as they get better here and after they implement those features. So it really will be like having two products. Now, if you had funding or you’re going after huge market or growing very fast, then maybe that is the right choice.
Maybe it is the right choice to not send people off to sign up for Calendly or Acuity or YouCanBook.me because you would want to maintain those dollars, you don’t want to retain them. Having someone go and pay for those other subscriptions would actually be a loss of value to you and you need to capture as much value as you can. But when you’re a bootstrapper and you’re a small team and you’re going based on revenue, I would say by default, integrate first and do a pretty quick integration. Then do a kind of a V2 integration which is the next level up and is even better. Then if everything catches on, you’re six months down the line and you really have realized this is the core feature, then maybe you evaluate building it.
That’s a very common path to what you see even bigger startups do is first they go integrate and then they circle back and they build out the core features in the app that are the most popular. The most popular integrations become core features in the app but then you at least have more data and you kind of have a longer timeframe to think about it. You’re not making this rash decision of like, “Everyone’s requesting it over the course of this month. Let’s commit ourselves to this thing which lasts years.” you’re going to impact your product roadmap for literally years if you do that.
So I’m on the same page as you. I would integrate first and then I would think about what is does it look like improve that integration and then what does it look like to eventually if we need to build that out. But to do it very deliberately and to give yourself more time for again as to the ramifications of what that means. So thanks for the question, hope that was helpful.
Our next question is about going in circles, no traction, no investors so Gabriel Popan. He says, “Hey Mike and Rob, thanks the great show. I’ve been listening for a couple months now. I’m catching up on older shows as well. I’d appreciate some advice or starting point on this, on the single developer of a note taking app, I’ve reached to the point where the app needs a team and some funding to move forward. I would like to apply for seed investment. But given the fact that investors like to see among other things traction, some customer base etcetera. I know that the chances are slim for me to get investment. I did my homework and I am able to articulate the key differentiators properly. Right now, I cannot get any traction with the current state of the app. it’s not consumer ready. So I’m stuck in this loop. I’m reluctant to apply for seed investment as a single developer as I know this does not look good to investors. All I have is a website, screenshots, a blog, a demo and a deck. I know that’s not enough but I also know that this has some potential. How do you break out of this loop?” So Mike, I’ll totally let you handle this first. He has a lot of I know statements in here that I question if they’re factual.
Mike: I was going to call this out, I was going to call this out like, how do you know that it’s not enough. It seems to me like the core problem here is that you need money in order to be able to take the products to the next level and there are some customers there. There’s a customer base which looks like you’re getting some traction with it. How do you know that you’re not going to get the money unless you ask for it.
Rob: But he said he doesn’t have a customer base.
Mike: Oh he doesn’t?
Rob: No, he said, “The current state of the app is not consumer ready,” that all he has is a marketing website, screenshots, a blog, a demo and a deck. So he doesn’t yet have, I’m assuming zero paying customers at this point.
Mike: Does that mean he doesn’t have a product either?
Rob: He says, “I can’t get any traction with the current state of the app.” So that tells me there’s code written. I don’t know item maybe the UI is bad, maybe it’s just not usable yet. He said it’s not consumer ready, I don’t know what that means.
Mike: I wonder if this is a mobile app or like a web app.
Rob: It says note taking which tells me it might be both. Note taking app you think of like Evernote or something it’s like you kind of have to be mobile and web.
Mike: Right. Honestly, I would wonder more about whether it’s the space as opposed to the app itself because there are a lot of note taking apps. And there’s a lot of them that are free. That’s the thing, there’s so much competition and I feel like it’s like project management software or blog trackers. Developers for whatever reason love to build blog trackers.
Rob: To do lists.
Mike: Yes, to do lists, blog trackers, those are the things that every developer decides, “All these other ones suck and I’m going to create my own and it’s going to be better than all of them.” and the reality is that like, everyone has different tastes and that’s why there are so many of them and it’s hard to build like mass market appeal with any of them because everyone just has these different tastes associated with it.
It’s so easy to get into this space because the bar is really low to build most of those apps. I’m not saying that’s not complicated and there’s not a lot to it, it’s just that it’s fairly straightforward in terms of the technical challenges that you have to overcome. So everyone says, “Well, I can build one that’s better than that and it will do exactly what I want.” The problem is, everybody who uses those apps has slightly different needs and therefore that’s why the market is so incredibly fragmented.
I’m with you, I think that there’s a lot of “I knows” in here that are probably not justified but at the same time like, I don’t know how much traction you’re going to get with an app like this or how you would go about pitching this to investors to begin with without getting that traction. You even look at Evernote, I’ve used Evernote before, I still have my account but I barely use the product anymore. And why is that? It’s just like I got away from it and I found other things that I like better. So there’s huge term problems as well in those types of apps and I don’t know how you overcome those types of things.
Rob: Yeah, it’s definitely an investment play and I think that’s the struggle. Trying to build an app in a crowded space like this even with differentiators, you have to validate that that differentiation matters to anyone before anyone is likely to give you investment. Honestly in your shoes, this is what accelerators are made for. It’s made for people who have ideas and either no traction or maybe a little bit of traction. That’s why YC started. You can come with an idea.
I know a lot of people come in beyond that but you got put your hustle pants on in all honesty. You either need to apply to an accelerator if this idea is that big, you need to have a network of people who are willing to invest in you because of your past history. I’m guessing that that’s not the case, you would have already done that. You need to teach yourself to code or if you’re already a developer, nights and weekends.
I mean we’ve all done this years and years of nights and weekends I did to get stuff off the ground. If you’re not a developer, then work aside hustle, save enough money, hire a developer, have them bill that. I mean there are ways to get this done, they’re hard. It’s hard work. That’s what startups are. There is no easy answer. So you break out of this loop by just saying that you’re not going to give up until you have something to show people. If you truly believe that this is something that that’s going to be a differentiator.
That’s my first two thoughts one is I think accelerators are ideal for this. Number two, I think you’re going to have to hustle way harder than you’re letting on in your email. I’m not saying you’re not hustling, but you’re certainly not presenting that in the email that you’ve just gone to the mattress that are pulling out all the stops because that’s what it’s going to take to watch an app like this. My third thought is, have you validated this with anyone? Does anyone else care about the note taking differentiators you’re talking about.
So I would be literally going to local coffee shops and just ask if it’s a B2C app, I would just start asking people. I would approach people. I would be on forums. I would start on indie hackers, be on hacker news but I would also if this is a note taking app for veterinarians, I would be on the veterinarian forums. I would buy that ticket to the conference where you need to approach people that might use this app.
It’s just like have the conversations and try to invalidate your hypothesis. Your hypothesis is that these key differentiators are going to so differentiate your note taking app that it’s going to have all this traction and it’s going to grow big and grow fast. I think you need to validate that assumption.
Mike: The one thing that you mentioned in there that I think is actually something for him to key in on is the, you’ve mentioned the note taking app for veterinarians. The way this is presented to us is that it’s a generic note taking app. I think if your knee is down to a particular type of industry or market vertical or even a position in a company, that would probably be a great place to go.
I have seen apps that are specifically designed for the person who changes your tires at the car shop. They have apps that are specifically set up so that they can take notes on, “Oh, you last came in for your car and this is what things look like and this is what we should look, or this is what we should reach out to you about in the future because we see that there’s like a degradation on the muffler or something like that and it looks fine now. But what about in six months, what about in a year? Maybe we should send you a coupon or something like that.” Those are the types of things that you’re going to want to key in on to find who the audience is that’s actually going to pay for it. Then you have your value propositions and everything else.
Rob: Yeah. This is a hard place to be. This is what every early stage entrepreneur, this is where almost all of us find ourselves in unless you have a Cinderella story. You’re Mark Zuckerberg and you’re at Harvard and you’re hacking away and suddenly your app is growing 9 million percent a month or whatever. That almost never happens, almost never. It’s always this struggle. It’s the untold struggle and I think that does us all a disservice because when you get to the point where Gabriel is at, you don’t realize all the hustle you have to put into it to get any type of escape velocity.
The untold hours and nights and weekends and the sacrifice that it’s going to take and the fact that it may not work out. You may spend the next six months or a year of nights and weekends and then realize, “This is no different than Evernote. I can’t get any traction.” or “This is different but nobody cares.” or “It was different, but Evernote implemented my feature and now I have to start over from scratch.” and this is the path that you’re going to travel as a founder.
I really think you want to ask yourself, “Is this what I’m signing up for? Is this something that I want to do?” because it is a life long journey I believe. From the time I first launched something in 1999 until I was even able to quit my job is for myself full time it was 10 years I think. There are some tough times there. I think all of us, each of us, each successful entrepreneur has that story to tell. Hopefully it’s not 10 years for you, hopefully it’s gotten shorter now that there’s better information out there. But I want you to think in terms of years, not months when you’re thinking about trying to build a successful business. That was a good question, thanks for sending it in.
Our last question of the day is all about buying a software business. It’s from Alex Bush and he says, “Hey Rob and Mike, thanks for making such a great podcast, very educational. I am entrepreneurial myself but so far, I’m in the consulting world trying to save up as much FU money as I can to go full time with my own business. I’m focusing on selling services and educational materials for iOS developers. I listened to a few of your episodes lately about taking on investment and it got me thinking about acquiring a business rather than building one from scratch. So question for you, how would you go about this? Specifically, how do I find an online or software business for sale? How do I approach them? How do I find all the info? How do I get all the data like their user base, their accounting books, what they’ve done for marketing etcetera that I need about them to make an educated decision. What are the price ranges I’m looking at for a profitable business. So far, I have found Flippa, flippa.com and it is very interesting but some of the prices in bids there seem to be too good to be true. How would I vet them? Is it even a good place to look?” what do you think Mike?
Mike: I’m going to give a couple of links in addition to Flippa for you. One of them is allsideprojects.com and you’ll find things there that have various price ranges and there’s different tags and stuff that you can sort and it does look like you can buy various websites and apps and products over there. But there’s also a new one that I saw, it was on products on Product Hunt, it’s called one 1kprojects.com and its pitch is, “Neglected side projects for less than $1,000.”
So you can go there and take a look and see what they have there and they’ll tell you what the MRR is, what the price is, what the product does and kind of who it’s aimed at. You can get a good sense of at least whether or not it’s worth your time looking at, but that’s the place that I would probably start over Flippa. It’s relatively new, I remember I saw it was within a month ago. So it’s relatively new.
I can’t voucher the quality of anything that you find there but it seems like they’re getting a fair amount of traction and the site looks pretty clean and polished. so I would imagine that they’re heading in the right direction because there’s a lot of people out there with projects that they started working on and they just didn’t go anywhere or they’re down to a certain point they just can’t make it work. So that’s a place I would start.
Rob: That’s a cool idea. I hope this sticks around. I’ve seen a lot of these things crop up over the years and then they just go away because they don’t make enough money. But I like this idea because of how many side projects people start and shut down. It’s like wasted value. You know how economists look at like, I think it’s like Christmas as this huge waste of economic value because you buy things for people that they don’t want and then they either have to sell them for less or they return them and they get store credits instead of getting value.
That’s why I see people building side projects shutting them down and then all these other people are coming in and saying, “I really wish I could take over a side project.” so I hope that this kind of thing sticks around. It’s kind of cool and it’s neat that they’re at a low price point. I mean I guess if they get traction, they’ll expand out because certainly sometimes there are things that I suppose could be worth more than $1,000 but I love that idea as you said, allsideprojects.com and 1kprojects.com. We will include links to those in the show notes.
The other thing I think you could look at and even five or six years ago, I wouldn’t have had this suggestion but there are a handful of basically website or app brokers. They do both, they do ecommerce websites and information products and software and all that stuff. There’s a handful of them that are pretty damn good and they’re specializing in this kind of stuff. So FE International is one and quietlightbrokerage.com is another and empireflippers.com. Those are the three that I tend to recommend to people.
You get on their lists and they get new listings each week. You kind of got to go through and look at them. Now those are going to be I would say definitely higher quality and also higher cost to something like Flippa. I have bought many websites, web apps on Flippa. Some of them are complete junk and scams. I had to spend a bunch of time vetting them even then sometimes it did mark out but the cost was so low that in the end, it was very much a net positive for me but it was a lot of time that I spent vetting.
It wasn’t just you walk down the street and find this amazing deal on this amazing piece of real estate, that never happens. If you’re a real estate investor, you spend a ton of time learning the market, learning how to negotiate, learning how to vet things, learning how to do the work and what it’s going to cost, same thing here. If you’re going to buy an app, you need to educate yourself. So don’t think that you’re just going to walk up and on the first day, find a great deal that you don’t have to vet and everything’s laid out for you.
Especially the cheaper you get, the more risk that there’s going to be. You just have to be willing to take that risk. So I have always been a proponent of buying or I say always, since my first acquisition worked out in 2005 and I realized, oh my gosh, this is like the shortcut. Forget all this building stuff. I mean as fun as the building is, it’s also super stressful. It takes too long and you never know if it’s going to work and it takes a year or two to get the product market fit. Whereas if you can acquire something that’s already halfway there or already has product market fit, honestly I think you are definitely ahead of the game by thinking in those terms.
Mike: Well I think that about wraps us up for the day. If you have a question for us, you can call it in 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 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: And we’re here to share our experiences help you avoid the same mistakes we’ve made. What’s going on this week sir?
Mike: Well, I’m in the midst of polishing up by a bunch of screenshots for Bluetick to distribute with product listings that I’m posting on various websites at the moment. I started doing it and I realize the screenshots that I could take that would take me like two seconds to do just from various places inside the app don’t really tell a story about the app itself or any of the screens themselves because you kind of have to have used the product in order to understand certain pieces of it.
I kind of backed off a little bit and said okay, well how can I tell a story with these screenshots? I was like, most of the screenshots are actually like smaller versions of the screen itself and then like descriptive text around it and arrows arose and it kind of tells more a marketing story around what the product will do for you as opposed to like just strict screenshots that you see on a lot of those websites.
Rob: I agree. I think taking screenshots and making them palatable is such an art and just trying to take a screenshot of like an entire screenshot of a whole screen in your app almost never works. There’s just too much information, there’s no context, you don’t know what’s going on. It a very developer thing to do because we’ve seen screenshots and inspects before mockups inspects.
When I’ve seen screenshots that wind up being really helpful, it tends to be this really highly cropped thing that’s just one corner of the screen, is high resolution and like you said, it has some type of helper text. It takes a lot of time I guess is what I realized to make good screenshots. Much like making a good explainer video, it seems like you’re cranking out in a few hours tends to take a lot of time to do something like that.
Mike: Yeah, those things take a couple of days. I actually allocated a day earlier this week to basically create a new explainer video and that was just not enough time. I’ve done them before. I knew that it took more time but I guess I was overly optimistic about how long it would take.
Rob: Yup. I kind of always end up with those things. This blog post called How I Created 4 Startup Explainer Videos for $11 and that’s at robwalling.com in my essays section. I ran through how I created some pretty LoFi explainer videos for Drip and why I did that. It’s definitely a bootstrapper’s approach because it was time consuming.
I think I spent a full day from the time I wrote the copy until I recorded. I recorded four different ones but then as far as I can repurpose a bunch of a copy and the parts, basically the animations can repurpose them. Not something I’d recommend if you have the budget to just hire someone professional but definitely something that a scrappy bootstrap startup should probably think about.
Mike: How about you, what’s going on this week?
Rob: I’m having a tough week this week man. Sherry’s out of town she’s with her family. Her dad is pretty ill and it’s been a long time coming. It’s been more than a year of stuff kind of degrading there. So she’s out of town and I’m trying to figure out, I tend to do really well with just me and three kids and I can do it for about four days and then things just drop off a cliff. On the fifth day I wake up tired and then I think the kids are tired of me, kind of tired of each other and I kind of start running out of patience and it’s just this vicious cycle I’ll say.
At the end of the week, it’s Friday right now when we’re recording, we’re doing an emergency recording session because, I’m supposed to record next week but I’m going to be out of town. I think that’s the other thing, I usually don’t enjoy being on the road very much and I’m pretty much on the road for almost the next two weeks. So it is what it is, these are just times and stuff that I have to do. I think it’s stuff that will certainly help with TinySeed and a lot of it is work stuff and being face to face with some folks where it’s important.
For now, I’m just kind of looking forward to getting back here for Thanksgiving and getting pass this week. It’s probably been one of the I’d say worst weeks of maybe the last quarter. It’s not like some catastrophic lifelong trough. But last several months, this has been a tough one.
Mike: Yeah I’ve realized earlier this week that my kids have days off from school this week, next week and the following week. I’m just like, do you kids ever go to school?
Rob: Yeah, it’s like who’s going to watch these kids while they do that? Oh me, I’m just going to work less. Already an announcement to the listeners, you and I have been on the mic for almost 30 minutes and I’ve been interrupted twice by my kids. One kid is home sick and another kid I homeschool part time. But since Sherry’s not here, I’m home schooling full time and on and on. It’s just enough interruption that you can’t actually get anything done. So I feel your pain with the kids home.
Mike: It’s a good thing you don’t write code.
Rob: Maybe there’s a reason I don’t write code anymore.
Mike: It could be. Maybe that’s the trick, I don’t know. I forget who, there was somebody who commented on—I think it was Alex Yumashev he’s like, “Oh I was able to only spend 1% of my time on my phone this week.” and somebody asked him how he did it and he’s like, “Well, I had a third kid.”
Rob: That’s a good way to do it. So today we’re answering some listener questions. Our first one is about how to handle VC prospecting emails and it’s from a long time listener he says, “Hey guys, I got the email below and I was briefly excited and when I clicked on the link and opened up a form where I’m asked about my company’s earnings.” The gist of the email is it’s from a what looks like a venture capital firm and it says, “I’d like to speak to you about a financial opportunity regarding your SaaS business. As an acquisition advisor, I’m seeking to acquire business in this space season.”
So I don’t know this much of VC, it’s almost like private equity right? We may want to acquire you. So back to the original email he says, “Based on his email and the form that was presented, it seems like he’s not really interested in my company, he’s just casting a broad net seeing what’s out there. I think it would be interesting for you guys to discuss A, what to do if you get half asked acquisition related emails like this and B, what to do with all those VC emails, venture capital emails. People seem to get looking to connect when you have no interest in venture capital. Keep up the good work on the show.”
So what do you think? There’s two separate things here. I think anyone who’s built any type of business got any traction winds up on any list anywhere eventually gets these emails. I remember in the latter days right before the acquisition of Drip, I was getting probably three or four of the VC emails a month and I was getting I’d say maybe one a month of acquisition related, maybe it was one every six weeks but there was definitely a pretty steady flow of them. So what do you think about these?
Mike: I guess if we separate these two because as you said, they are two entirely different questions. The part about VC just looking to connect like on LinkedIn or sending emails. I get a bunch of these emails like, “Hey, can we hop on a call and talk about your business?” And I’m just like, “No, I don’t have time to talk to you and even if I did, this isn’t a good fit.” I’m just blunt with them and it’s like, spend your time someplace else because it’s just not going to happen. A lot of times, I will just let the email go and I’ll just ignore it and then if they send me a couple of follow ups, I think if I get like two follow ups, I have a cold emails folder that I just dump these into and then if it gets to at least two and it still looks like they’re still going to continue to email me then I’ll just respond and say, “Look, this is not a good fit. It’s not going to work. I’m just not interested. So take me off your email list.”
For the other ones if it’s like a situation that he described where it’s an acquisition related email and they’re asking questions about finances and stuff, my advice in that situation is really just like ask what their range of interest is because what you don’t want to do is you don’t want to go and fill out a form that gives all the information about your business because they may be looking to use that to justify a purchase price or to lowball somebody else’s business or something along those lines. You just don’t know what that data is going to be used for and there’s no trust. So why would you give over that information.
But if they’re actually really looking for those types of businesses, then they know how much they’re willing to spend. They know what their budget is and they know that below a certain threshold, they’re not going to be interested and they know that above a certain threshold, it’s probably not going to work because they’re not looking for a business that’s at large because they’re just not going to be able to pay for it. Ask them what their range is and if you fall within that range, then you might want to have a conversation with them. But otherwise, I don’t see any real obligation to start forking over information that is very specific to your business without actually going down the path of formal offers and all that other stuff. But if you’re not interested at all, you can say, “Hey look, it’s not a good time. Maybe let’s keep in touch.” But I don’t know if I’d entertain them. Just don’t spend a lot of time on them is really what the bottom line is.
Rob: I think that’s a great advice. I think especially the venture capital emails, I mean they call it junior partner, but just a junior person that is prospecting, it’s cold outreach.
Mike: Like an intern. That’s what you mean, intern.
Rob: An intern, exactly. That’s really what it is. They might be called the junior partner but that’s essentially what it is and it’s like, “Go find some deals.” So, with the venture capital stuff, I pretty much like you, I just put that all into a folder somewhere in case in the future ever I decided by some crazy thing that I was going to raise venture capital which is never on my radar. But at least then you have all the names you could reach back out to.
The acquisition stuff I agree with you. I used to respond directly like you said and just be like, “What are you looking at? What ranges are you looking at?” I mean basically what you said, I would never fill out a form like that and if that’s their requirement, then delete. It’s done. I feel like you don’t have to feel like they’re back to in a corner or something because they’re sending you this email. You don’t have any obligation to do any of this. Also, when those come into my inbox, I would tend to put them in my this week folder.
So I talked this week on ZenFounder I guess it’s last week when this was live but the ZenFounder podcast I did a solo episode where I talked about productivity hacks. One of my productivity things in Gmail is that I have this label and it’s _thisweek and the reason it’s underscore is so it goes to the top the list. Anything that is not time urgent for me or is someone else putting something on my to do list that does not need to urgently get done, I throw into this thisweek folder.
And then once a week, I have a 30-minute time box that pops up and says, “Go through this week folder.” And then, I would go through all these and respond and I would try not to let it get into some big back and forth because that’s how people suck time from you. They don’t do it necessarily intentionally but they do it because it is in their best interest and not necessarily in yours. That’s the biggest thing I would think about. You don’t have to respond to every email and even if you do, like you just said Mike, don’t spend a ton of time on this. That’s the key. So thanks for the question.
Our next question, it’s another anonymous question and he says, “Hey Rob, congratulations on selling Drip. I’ve been following you and Startups for the Rest of Us for a few years and consider you some kind of a role model. Thanks so much for all the useful tips and inspiration. I have a question, I’ve built a SaaS. It works well in the German market. Now that we’ve entered the English speaking market, it’s become clear that it’s scheduling feature, like scheduling for appointments is a deal breaker for most of our trial users. We don’t have it built yet so I’m thinking now if we should build the feature from scratch which would be a lot of work and distraction and it would be essentially expensive for us. Or, should we build an integration with some of the existing big players like say Calendly or Acuity or I’ll say YouCanBook.me. What is your opinion or experience with this? Thanks a lot for your time.” What do you think?
Mike: So this is something I’ve actually looked at for Bluetick and the path that I’m going down is to integrate with other ones who do exactly that. You could invest all the time and effort of building your own version of it from scratch but that is a value add to your products, not necessarily a core feature. For those other products, it’s their core feature. So you may be able to attract certain types of users who aren’t already using those but at the same time, there are huge numbers of people who already have those products in place and they work really well and they’ve got a lot of support infrastructure and customer validation and users, all the stuff that goes with supporting an entire product that does just that.
For you to replicate that inside of your own app is like a small piece of it is probably not the wisest move in the world. So I would lean towards going with an integration of some kind and if down the road it makes sense to build your own version of it so that your incoming customers don’t also have to have a subscription to those, then maybe that makes sense at that point. But I wouldn’t start there, I wouldn’t try to rebuild an entire application that other companies do and that’s all they do.
Rob: Yeah, I would agree with that advice. This is what we’ve seen with the all in one tools much like the infusion Infusionsoft or even the Hubspot where they have built all this functionality into one and so I guess I’ll speak to Infusionsoft itself if you’ve used it and you’ve tried to use their shopping cart, their affiliate management, their landing pages, their CRM, they’re not very good.
The core email stuff is decent and they were the innovator in the visual builder, but it’s a pretty rough product outside of that, I’ve never use those things. I’ve heard it from dozens and dozens of Infusionsoft customers who said, “Yes, I’ve tried their shopping cart and it’s not configurable and it’s kind of a kludge.” And so, that’s what we have to think about, are you going to build something that is a worst in class but is literally just a checkbox so the people say, “Oh, they have the scheduling feature.” the moment you build it, people are going to say, “Oh, Calendly does this and I can check this one box and I can put this buffer around my times or I can do it only every other day or I can do weekly this and that.” Suddenly it’s like you are almost on the hook to build this best in class product.
So I think that if you want to do that, you can make it a very deliberate decision to do that over the long term and think three years down the line. Do you want to still be maintaining that and adding to it and expanding it because it’s not a one-time build. Not only are you going to have to get it to feature parity with your competitors but then as they get better here and after they implement those features. So it really will be like having two products. Now, if you had funding or you’re going after huge market or growing very fast, then maybe that is the right choice.
Maybe it is the right choice to not send people off to sign up for Calendly or Acuity or YouCanBook.me because you would want to maintain those dollars, you don’t want to retain them. Having someone go and pay for those other subscriptions would actually be a loss of value to you and you need to capture as much value as you can. But when you’re a bootstrapper and you’re a small team and you’re going based on revenue, I would say by default, integrate first and do a pretty quick integration. Then do a kind of a V2 integration which is the next level up and is even better. Then if everything catches on, you’re six months down the line and you really have realized this is the core feature, then maybe you evaluate building it.
That’s a very common path to what you see even bigger startups do is first they go integrate and then they circle back and they build out the core features in the app that are the most popular. The most popular integrations become core features in the app but then you at least have more data and you kind of have a longer timeframe to think about it. You’re not making this rash decision of like, “Everyone’s requesting it over the course of this month. Let’s commit ourselves to this thing which lasts years.” you’re going to impact your product roadmap for literally years if you do that.
So I’m on the same page as you. I would integrate first and then I would think about what is does it look like improve that integration and then what does it look like to eventually if we need to build that out. But to do it very deliberately and to give yourself more time for again as to the ramifications of what that means. So thanks for the question, hope that was helpful.
Our next question is about going in circles, no traction, no investors so Gabriel Popan. He says, “Hey Mike and Rob, thanks the great show. I’ve been listening for a couple months now. I’m catching up on older shows as well. I’d appreciate some advice or starting point on this, on the single developer of a note taking app, I’ve reached to the point where the app needs a team and some funding to move forward. I would like to apply for seed investment. But given the fact that investors like to see among other things traction, some customer base etcetera. I know that the chances are slim for me to get investment. I did my homework and I am able to articulate the key differentiators properly. Right now, I cannot get any traction with the current state of the app. it’s not consumer ready. So I’m stuck in this loop. I’m reluctant to apply for seed investment as a single developer as I know this does not look good to investors. All I have is a website, screenshots, a blog, a demo and a deck. I know that’s not enough but I also know that this has some potential. How do you break out of this loop?” So Mike, I’ll totally let you handle this first. He has a lot of I know statements in here that I question if they’re factual.
Mike: I was going to call this out, I was going to call this out like, how do you know that it’s not enough. It seems to me like the core problem here is that you need money in order to be able to take the products to the next level and there are some customers there. There’s a customer base which looks like you’re getting some traction with it. How do you know that you’re not going to get the money unless you ask for it.
Rob: But he said he doesn’t have a customer base.
Mike: Oh he doesn’t?
Rob: No, he said, “The current state of the app is not consumer ready,” that all he has is a marketing website, screenshots, a blog, a demo and a deck. So he doesn’t yet have, I’m assuming zero paying customers at this point.
Mike: Does that mean he doesn’t have a product either?
Rob: He says, “I can’t get any traction with the current state of the app.” So that tells me there’s code written. I don’t know item maybe the UI is bad, maybe it’s just not usable yet. He said it’s not consumer ready, I don’t know what that means.
Mike: I wonder if this is a mobile app or like a web app.
Rob: It says note taking which tells me it might be both. Note taking app you think of like Evernote or something it’s like you kind of have to be mobile and web.
Mike: Right. Honestly, I would wonder more about whether it’s the space as opposed to the app itself because there are a lot of note taking apps. And there’s a lot of them that are free. That’s the thing, there’s so much competition and I feel like it’s like project management software or blog trackers. Developers for whatever reason love to build blog trackers.
Rob: To do lists.
Mike: Yes, to do lists, blog trackers, those are the things that every developer decides, “All these other ones suck and I’m going to create my own and it’s going to be better than all of them.” and the reality is that like, everyone has different tastes and that’s why there are so many of them and it’s hard to build like mass market appeal with any of them because everyone just has these different tastes associated with it.
It’s so easy to get into this space because the bar is really low to build most of those apps. I’m not saying that’s not complicated and there’s not a lot to it, it’s just that it’s fairly straightforward in terms of the technical challenges that you have to overcome. So everyone says, “Well, I can build one that’s better than that and it will do exactly what I want.” The problem is, everybody who uses those apps has slightly different needs and therefore that’s why the market is so incredibly fragmented.
I’m with you, I think that there’s a lot of “I knows” in here that are probably not justified but at the same time like, I don’t know how much traction you’re going to get with an app like this or how you would go about pitching this to investors to begin with without getting that traction. You even look at Evernote, I’ve used Evernote before, I still have my account but I barely use the product anymore. And why is that? It’s just like I got away from it and I found other things that I like better. So there’s huge term problems as well in those types of apps and I don’t know how you overcome those types of things.
Rob: Yeah, it’s definitely an investment play and I think that’s the struggle. Trying to build an app in a crowded space like this even with differentiators, you have to validate that that differentiation matters to anyone before anyone is likely to give you investment. Honestly in your shoes, this is what accelerators are made for. It’s made for people who have ideas and either no traction or maybe a little bit of traction. That’s why YC started. You can come with an idea.
I know a lot of people come in beyond that but you got put your hustle pants on in all honesty. You either need to apply to an accelerator if this idea is that big, you need to have a network of people who are willing to invest in you because of your past history. I’m guessing that that’s not the case, you would have already done that. You need to teach yourself to code or if you’re already a developer, nights and weekends.
I mean we’ve all done this years and years of nights and weekends I did to get stuff off the ground. If you’re not a developer, then work aside hustle, save enough money, hire a developer, have them bill that. I mean there are ways to get this done, they’re hard. It’s hard work. That’s what startups are. There is no easy answer. So you break out of this loop by just saying that you’re not going to give up until you have something to show people. If you truly believe that this is something that that’s going to be a differentiator.
That’s my first two thoughts one is I think accelerators are ideal for this. Number two, I think you’re going to have to hustle way harder than you’re letting on in your email. I’m not saying you’re not hustling, but you’re certainly not presenting that in the email that you’ve just gone to the mattress that are pulling out all the stops because that’s what it’s going to take to watch an app like this. My third thought is, have you validated this with anyone? Does anyone else care about the note taking differentiators you’re talking about.
So I would be literally going to local coffee shops and just ask if it’s a B2C app, I would just start asking people. I would approach people. I would be on forums. I would start on indie hackers, be on hacker news but I would also if this is a note taking app for veterinarians, I would be on the veterinarian forums. I would buy that ticket to the conference where you need to approach people that might use this app.
It’s just like have the conversations and try to invalidate your hypothesis. Your hypothesis is that these key differentiators are going to so differentiate your note taking app that it’s going to have all this traction and it’s going to grow big and grow fast. I think you need to validate that assumption.
Mike: The one thing that you mentioned in there that I think is actually something for him to key in on is the, you’ve mentioned the note taking app for veterinarians. The way this is presented to us is that it’s a generic note taking app. I think if your knee is down to a particular type of industry or market vertical or even a position in a company, that would probably be a great place to go.
I have seen apps that are specifically designed for the person who changes your tires at the car shop. They have apps that are specifically set up so that they can take notes on, “Oh, you last came in for your car and this is what things look like and this is what we should look, or this is what we should reach out to you about in the future because we see that there’s like a degradation on the muffler or something like that and it looks fine now. But what about in six months, what about in a year? Maybe we should send you a coupon or something like that.” Those are the types of things that you’re going to want to key in on to find who the audience is that’s actually going to pay for it. Then you have your value propositions and everything else.
Rob: Yeah. This is a hard place to be. This is what every early stage entrepreneur, this is where almost all of us find ourselves in unless you have a Cinderella story. You’re Mark Zuckerberg and you’re at Harvard and you’re hacking away and suddenly your app is growing 9 million percent a month or whatever. That almost never happens, almost never. It’s always this struggle. It’s the untold struggle and I think that does us all a disservice because when you get to the point where Gabriel is at, you don’t realize all the hustle you have to put into it to get any type of escape velocity.
The untold hours and nights and weekends and the sacrifice that it’s going to take and the fact that it may not work out. You may spend the next six months or a year of nights and weekends and then realize, “This is no different than Evernote. I can’t get any traction.” or “This is different but nobody cares.” or “It was different, but Evernote implemented my feature and now I have to start over from scratch.” and this is the path that you’re going to travel as a founder.
I really think you want to ask yourself, “Is this what I’m signing up for? Is this something that I want to do?” because it is a life long journey I believe. From the time I first launched something in 1999 until I was even able to quit my job is for myself full time it was 10 years I think. There are some tough times there. I think all of us, each of us, each successful entrepreneur has that story to tell. Hopefully it’s not 10 years for you, hopefully it’s gotten shorter now that there’s better information out there. But I want you to think in terms of years, not months when you’re thinking about trying to build a successful business. That was a good question, thanks for sending it in.
Our last question of the day is all about buying a software business. It’s from Alex Bush and he says, “Hey Rob and Mike, thanks for making such a great podcast, very educational. I am entrepreneurial myself but so far, I’m in the consulting world trying to save up as much FU money as I can to go full time with my own business. I’m focusing on selling services and educational materials for iOS developers. I listened to a few of your episodes lately about taking on investment and it got me thinking about acquiring a business rather than building one from scratch. So question for you, how would you go about this? Specifically, how do I find an online or software business for sale? How do I approach them? How do I find all the info? How do I get all the data like their user base, their accounting books, what they’ve done for marketing etcetera that I need about them to make an educated decision. What are the price ranges I’m looking at for a profitable business. So far, I have found Flippa, flippa.com and it is very interesting but some of the prices in bids there seem to be too good to be true. How would I vet them? Is it even a good place to look?” what do you think Mike?
Mike: I’m going to give a couple of links in addition to Flippa for you. One of them is allsideprojects.com and you’ll find things there that have various price ranges and there’s different tags and stuff that you can sort and it does look like you can buy various websites and apps and products over there. But there’s also a new one that I saw, it was on products on Product Hunt, it’s called one 1kprojects.com and its pitch is, “Neglected side projects for less than $1,000.”
So you can go there and take a look and see what they have there and they’ll tell you what the MRR is, what the price is, what the product does and kind of who it’s aimed at. You can get a good sense of at least whether or not it’s worth your time looking at, but that’s the place that I would probably start over Flippa. It’s relatively new, I remember I saw it was within a month ago. So it’s relatively new.
I can’t voucher the quality of anything that you find there but it seems like they’re getting a fair amount of traction and the site looks pretty clean and polished. so I would imagine that they’re heading in the right direction because there’s a lot of people out there with projects that they started working on and they just didn’t go anywhere or they’re down to a certain point they just can’t make it work. So that’s a place I would start.
Rob: That’s a cool idea. I hope this sticks around. I’ve seen a lot of these things crop up over the years and then they just go away because they don’t make enough money. But I like this idea because of how many side projects people start and shut down. It’s like wasted value. You know how economists look at like, I think it’s like Christmas as this huge waste of economic value because you buy things for people that they don’t want and then they either have to sell them for less or they return them and they get store credits instead of getting value.
That’s why I see people building side projects shutting them down and then all these other people are coming in and saying, “I really wish I could take over a side project.” so I hope that this kind of thing sticks around. It’s kind of cool and it’s neat that they’re at a low price point. I mean I guess if they get traction, they’ll expand out because certainly sometimes there are things that I suppose could be worth more than $1,000 but I love that idea as you said, allsideprojects.com and 1kprojects.com. We will include links to those in the show notes.
The other thing I think you could look at and even five or six years ago, I wouldn’t have had this suggestion but there are a handful of basically website or app brokers. They do both, they do ecommerce websites and information products and software and all that stuff. There’s a handful of them that are pretty damn good and they’re specializing in this kind of stuff. So FE International is one and quietlightbrokerage.com is another and empireflippers.com. Those are the three that I tend to recommend to people.
You get on their lists and they get new listings each week. You kind of got to go through and look at them. Now those are going to be I would say definitely higher quality and also higher cost to something like Flippa. I have bought many websites, web apps on Flippa. Some of them are complete junk and scams. I had to spend a bunch of time vetting them even then sometimes it did mark out but the cost was so low that in the end, it was very much a net positive for me but it was a lot of time that I spent vetting.
It wasn’t just you walk down the street and find this amazing deal on this amazing piece of real estate, that never happens. If you’re a real estate investor, you spend a ton of time learning the market, learning how to negotiate, learning how to vet things, learning how to do the work and what it’s going to cost, same thing here. If you’re going to buy an app, you need to educate yourself. So don’t think that you’re just going to walk up and on the first day, find a great deal that you don’t have to vet and everything’s laid out for you.
Especially the cheaper you get, the more risk that there’s going to be. You just have to be willing to take that risk. So I have always been a proponent of buying or I say always, since my first acquisition worked out in 2005 and I realized, oh my gosh, this is like the shortcut. Forget all this building stuff. I mean as fun as the building is, it’s also super stressful. It takes too long and you never know if it’s going to work and it takes a year or two to get the product market fit. Whereas if you can acquire something that’s already halfway there or already has product market fit, honestly I think you are definitely ahead of the game by thinking in those terms.
Mike: Well I think that about wraps us up for the day. If you have a question for us, you can call it in 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 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 418 | Creators Versus Fans
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about creators versus fans. They discuss some cautionary tales of building products on someone else’s platform and the potential risks.
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Mike: In this episode of Startups for the Rest of Us, Rob and I are going to be talking about creators versus fans. This is Startups for the Rest of Us episode 418.
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 experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Mike: Things are good this week. Fall is in full effect as the leaves fall off the trees, we live near a lake and the view of that gets better for us. It’s kind of definitely feeling the season’s change and kind of gearing up to do more work in Winter. I took late Spring, Summer and an early Fall off. I’ve been off work since I left Drip in April, so it’s been about six months. Now, I’m kind of starting to ramp up little bit on Tiny Seed, tinyseedfund.com which is the accelerator that I mentioned on the show a few weeks back and things are picking up and going really well with that.
We’re in fundraising mode in essence and that’s going, I will say, quite a bit better than I thought it would. The hypothesis is I think this is needed in our space, I think that bootstrappers and people who want to kind of fun strap things needs and some funding and better funding source and some guidance, and then that there will be people who are interested in supporting that, and based on our models, making money obviously, because it’s an investment. But you don’t know, it’s a hypothesis when you start.
Then the more that we’ve talked to people it’s like, “This is really interesting.” This is something that I feel the momentum building as we speak and I’m pretty excited about that. It’s exciting for me to be working on something new. I haven’t done anything new since starting Drip which is 2012. It’s fun to do that.
Mike: Awesome. On my end, last month, I started doing some paid advertising through the one paid ad that I was doing. I added about 600 email addresses to my mailing list and they’re still kind of working their way through an email campaign that I have set up for them. I have no idea what my eventual conversion rate will be on them. But we just have to just kind of see how that all shakes out. I’m kind of looking at what other things I can do in November and then December and January etc. I’m kind of looking forward to the future, but we seem to have had some reasonable success so far with that.
Rob: Sounds good. How are you feeling about Bluetick? Are you optimistic? Are you in a rut or in a valley right now? What’s your sentiment?
Mike: I don’t know. It’s hard to separate, I’ll say, the business side of things from the personal side of things. Last week I mentioned that I was diagnosed with sleep apnea and I got a CPAP machine and my sleep has started to get noticeably better already. It’s hard to say whether or not like, I don’t want to call it apathy but it’s just like general tiredness, it’s been more than a year or so, just general exhaustion working on it.
It’s not that I’m not excited to work on it or that I don’t want to, it already got things going or make good progress on it, but with the sleep, I feel more energetic just in general. I’m thinking that that’s actually like I said, I’m trying to differentiate between, “Is it just utter lack of sleep? or is it like, “How the product is going.” Obviously, there’s a correlation between them but at a financial level, Bluetick has kind of been meandering. It doesn’t have like hockey stick growth. It goes up some months and goes down some months and it’s just not where I want it to be. But it’s also been really hard to make any substantial progress on it because of the lack of sleep.
Rob: It’s tough, right?
Mike: Yeah. I’m looking at it, saying, “Well, if I can actually start sleeping and get more productive days on a consistent basis…” because before I would have maybe two or three out of a month which is awful. You can’t make progress like that. This week alone I’ve had like three. Obviously, a 300% increase but yeah, I’ll see how it goes and I think that I’ll probably know more in a couple of months.
Rob: Yeah. That makes sense. Like I said last week, it’s tough to have that chronic stuff that you’re fighting against. It’s hard enough to start a company like this without also having to fight another battle on another front. A colleague of mine said, “I can have a tumultuous work life if my personal life is calm and supportive and I can have a tumultuous personal life if my work life is calm and supportive. But if both are in tumult at the same time, it’s just too much.” That’s when people melt out, that’s when you either leave the job, you get a divorce, bad things happen, and you have to make a change, or you come to a breaking point. It sounds like you have the challenge on the business front and then on the personal front—and it’s not easy fighting both those battles.
Mike: like I said, I’m consciously optimistic at this point. The sleep issues will be at least partially resolved and then my expectation/hope is that those will translate into more consistent progress on the Bluetick side. We’ll just see how it goes because I mean honestly, even with sleep, it may not eventually work out. I don’t know, we’ll see how it goes.
Rob: What are we talking about today?
Mike: Well, I have a subscription to Medium and one of the articles that hedge…
Rob: You’re the one.
Mike: Yes, I’m the one.
Rob: You’re the one person that subscribed to it. Did you just do it to get rid of the annoying pop-ups?
Mike: There were articles that I actually wanted to read, and there’s various authors who I read a bunch of their stuff and, it just kind of made sense. It was one of those things where I can pay the $50 a year or not, but if I don’t, then there are certain articles like I go to click on them and they say, “Oh, you can’t read this because you need a Medium subscription.” and yes, I know that there are ways around it but I didn’t really care. It’s $50 a year, I’m totally cool with helping to support those authors. That’s just kind of my point of view on it. It wasn’t enough that I was like, “Oh, I don’t want to pay this, they’re dastardly.” or something like that. It’s just like, “Yeah, whatever.” It’s not that big a deal to me.
Rob: Yeah, I wouldn’t do a work around. If I believe in the content, I pay for the content. I think at this point in our careers, we need to a: value creators and b: not be such cheap bastards that you’re not going to pay somebody $4 a month to help support what’s going on. If it’s a big corporation trying to take a bunch of money from me, then of course, I’m going to fight that tooth and nail. But assuming that some of this is distributed to the writers themselves or at the office themselves, that’s the point of it, I don’t see a reason to try to do some lame work around.
Mike: Yeah, and that was it. Knowing that it was going to support those authors. I will admit that I used those workarounds early on because I was like, “Well, is the content that’s behind the pay wall, is that the same?” or similar quality and everything else like, “Is it the same type of stuff or is it just like completely different.?” It’s the same type of stuff it was just, I want to read it based on what the headline was or what the first couple of paragraphs were and I was like, “Oh, I actually want to read the rest of this.” It’s worked out.
I’d totally renew my subscription when it comes up. If you’re interested in learning more about that, score Medium and you start reading a few different things. Some of them are really interesting and some of them aren’t. But I mean you’re kind of supporting, I think all of the authors that you read their articles because I think that they track what you read and how much you read it and they attribute the money that you pay on a monthly basis to whichever people that you read their content.
Rob: Yeah, and it’s tough because when Medium came out it’s kind of like, “What? How are you going to do this at Williams? You’ve obviously had success with Blogger and Twitter, but this seems like a real tough gamble.” But he raised a bunch of money, buckets of it, because he’s at Williams and really hasn’t found a business model that’s made it work and then when they went to pay, and they started the ads, and they started the pop-ups it’s like, “It’s predictable.” and it’s irritatingly predictable.
It’s another Silicon Valley company that launches with no business model, that in the end just went pissing off or screwing their users, and that’s frustrating to me. It’s a similar thing to, I mean I can throw out dozens of examples, but one that reminds me is Outright which is an accounting software and it was free. It’s an accounting software that’s free. I remember even the CEO, when they launched I said, “How can this be free?” and he’s like, “Well, we want it to be free for everyone and we think that should just be table stakes and then we’re going to charge for tax preparation and these other things and that’s going to make it work.” Well, that was his line but really what they’re trying to do is get a bunch of users and then sell.
Because they sold to GoDaddy and it’s a [shit] product now. It’s terrible, they haven’t touched it. I think we used to use it for academy stuff, we had to switched to Zero. I had three or four accounts at Outright and it’s terrible.
Mike: No, we still use it.
Rob: Do we? I hate that program and it used to be good, but they decided to Silicon Valley model of, “We don’t care about our users. We’re going to launch. We need a bunch of free users. Look, here, we have an exit.” and that’s the difference. I don’t disagree when people have an exit. I mean I’ve sold companies but do it in a way that you don’t screw your employees, you screw your customers, you screw your partners, don’t do that. Have some something. I don’t know if it’s ethics or morals or it’s just like, do the right thing by people and that’s where I get irritated. I’m not saying Medium has gone that far. But I am annoyed every time I go there and there’s some annoying pop-ups.
Mike: I think that there’s a correlation between like the Silicon Valley startups. You and I, we started this podcast kind of in direct opposition to those because as you said, it’s predictable. This happens almost every time. They build a product, they don’t really know who they’re going after, or who’s going to buy it, or who’s going to pay the money, or how they’re going to make money and then they do a bunch of stuff. They get users, they use that to get to the next funding level and eventually, they turn around and bite the people who got them there.
Whether that’s because they sold the company to somebody else and they just say, “Okay, it’s not my problem anymore.” or they do things like put in annoying ads and pop-ups because they didn’t have any business model to begin with, or they’re like Facebook and they start selling all your personal information. It’s predictable every single time.
Rob: Right, or Twitter. Remember they just screwed all the developers who were using their API at one point, remember that? They just said, “Yeah, we’re not going to do that anymore.” Or Google who used to give us the best search results and now the top five of any given search results are a bunch of ads that they say are sponsored in small writing, but my kids don’t know that those are ads, my mom doesn’t know those are ads, she thinks they’re results. Google was always against pay-to-rank and that’s exactly what they’re doing now. We’ve just named five companies who’ve all done this off the top of our heads. We could probably name 50 more. Shall we get back to the episode?
Mike: Sure. Know that our next episode will be a rant. But actually, the topic that we’re going to be talking about today was this article that I found on Medium. It’s named, The Power Struggle for Dungeons & Dragons’ Soul. I thought it was interesting because I read this article and it was all about how originally TSR was the company and Gary Gygax and his team, built dungeons, dragons as to what it was. They sold it to Wizards of the Coast in ’97 and Wizards of the Coast has basically owned it ever since.
Throughout that time, they have done various things to promote the game but at the same time, they own the license to the rules, the content, all the stuff that they distribute. But Dungeons and Dragons has always been like this world that was created or a style of gaming that was created and then people build their own stuff and bring their own stuff to it. There’s this really big do-it-yourself culture inside of Dungeons and Dragons.
I would say there’s a very strong analogy you can make between something like that where you’ve got a platform and you have all these creators who are kind of adding on to it and like the world of software where you have the Twitter API and then there’s all these people that are saying, “Hey, I can use that to create this or I can do that.” so they build on it and then the platform creator turns around and bites them.
In reading through this article, the one thing that struck me was that the analogies are so strong. The very first thing they said was, “Oh, the Dungeons and Dragons rules tend to be complicated and software will help you avoid that minutia.” so software developers came in and started saying like, “Hey, I’m going to build this tool for the game and distribute it.” and Wizards of the Coast said, “Well, yeah. Here’s an open gaming license.” They created this back in the year 2000 and they basically licensed some of their content to be distributed within those tools. The problem is, it wasn’t all of it.
Rob: Yeah, that’s right. It was the gaming engine and to be honest in 2000, that was revolutionary. It was the third edition of Dungeons and Dragons. It was the rules engine itself, but you couldn’t take their proprietary monsters or their proprietary spell names. There’s a bunch of stuff they kept behind. But man, that sparked a huge kind of revolution in terms of all these games. I used to say, “I want to build my own role-playing game.” and a bunch of people want to do that.
You have to come up with all your own game mechanics. I can’t use the 3D6 or the 118, I guess it’s 3D18 ability score, strength, intelligence, wisdom, constitution the ones that Dungeons and Dragons uses because they’re copyrighted, and they’re protected. They opened that up which now 18 years later it seems like, “Yeah, of course they should have done that.” but no one had done that before.
I mean there’s always been massive kind of in-fighting even within the creators themselves like Gary Gygax kind of co-created DnD with this guy Dave Arneson. Dave Arneson sued him every other year for five years in a row about who owned what. It was just super unclear. It was just riddled with lawsuits and has been from the start.
Mike: If you go back and look at the history of it a little bit in terms of what the open gaming license is. Well, I’ll actually have this linked into the show notes. But they have things in here like, “What do you mean by free in terms of the open gaming license?” They actually talk about the concept of free as in beer which is just it’s fascinating that there’s that. They borrowed a lot from open source licenses because they said like with some of the text of their manuals, you could take that and put it directly in.
Normally, it would be a copyright violation and they said, “No. These sections of the manuals, you can copy word-for-word and distribute them but these other things you can’t.” so they restricted certain pieces of it but not all of it. The vast majority of it, you can do whatever you want with it and republish it but then, there’s small sections of it that are actually important sections that you can’t do anything with. It’s almost like an API where you got access to a lot of things but there’s certain things they hold back because they want to basically be in control of them. It’s really not any different than like Twitter saying, “Okay you can have this API but we’re not going to give you the ability to create polls via the API. Only we can do that.”
Rob: This is a tough one. Where are we headed with this? Because I can get into, I believe, if I was Wizards of the Coast, I would hold some stuff back because it’s their business model. Their business model is selling content. It’s selling a game engine and it’s selling content around that game engine, adventures and then expansions to the game mechanics, new classes, new spells all that stuff. They held all that back because if they give it all away, that’s their business, you know I mean. Are we going to debate that part or are we headed in a different direction with this?
Mike: Well, I think it’s just an interesting question of what as a creator of the platform are you holding back from your customers or users versus what they’re allowed to do with it. Because like the things that they hold back for example, you can play the game without them. It’s just that they’re also the popular pieces of it that people want to use like certain sub-races or what have you. I think this is going to be more of a discussion about, “How do you treat your users?” for one. Wizards of the Coast offered their own set of tools in the marketplace called DnD Beyond and they allow people to distribute their own content through it, but they also compete with them at the same time.
Do you trust, I’ll say, the platform vendors? If you put something on Apple’s ecosystem, are you guaranteed that they’re not going to compete against you. Of course, the answer to that is no. They can create anything they want and so could Microsoft or Twitter or what have you. But certain companies are more likely to, I’ll say, leave pieces of the business alone because they know that they want third party vendors to come in and develop on their platform and they don’t want to squash them. They want to kind of foster that. Because as soon as they start squashing these smaller vendors, people are going to take notice and say, “Well, if you’re going to build exactly what we put on your platform and develop, and you see that it’s successful, you create your own version of it and then bundle it…” back in the situation of Microsoft being threatened to be broken up into four different business units back in 2000 because they’re abusing their monopoly position of the distribution engine.
Rob: Wizards of the Coast, when I look at it, the amount of stuff they’re giving away is shocking. The stuff they give away on dndbeyond.com, they have a free plan, that’s all I have. I can pretty much play the game with all that. I mean you can download that the starter rule book and all the materials for free as PDFs legally off of their site. Now, I paid whatever it is, $14 or $15 for it on Amazon, The Dungeons and Dragons starter set for fifth edition because I wanted to print versions of it, I don’t want to print it all out and always be trying to flip around through it on my iPad. But you could get this for free and then even like the expanded spells and expanded monsters are all on DnD Beyond in electronic format for free and it’s fully searchable.
In my opinion, they have done a great job of expanding the free bubble. Expanding the free circle because the free circle was almost nonexistent 10 or 15 years ago. It just keeps getting bigger and bigger but as a result, they then have to have other things around it that they can add to that. My son and I are casual DnD fans, we play it, we like it but we’re not buying all the supplements and all the extra stuff because we don’t have time to consume all of that. For the casual gamer, it’s great. I am spending some money. We buy miniatures and we buy other stuff that I think helps the ecosystem.
But if you’re intense about it, if you’re a hardcore gamer, a hardcore Dungeons and Dragons player, then you’re going to buy that expansion stuff and that’s the gamble Wizards had to take because to me it’s a gamble. Can you make up the lost revenue back giving this other stuff away with the expectation that people are going to buy the other stuff you put out. I think that’s part of what we’re talking about here, right? If you’re building on someone else’s platform, you’re taking a gamble. If you build a platform, how much of it can you release for free without cannibalizing your business model.
Mike: One of the things I find interesting is that there’s nothing that I’ve found that is I’ll say a concession for purchasing their content in another form for example. If you buy some of the books themselves, you can’t then plug in a license key or anything like that into their online system that provides you access to the content that you already bought.
Rob: You bought a physical copy. You’re just saying they don’t give you the digital copy free with the physical. Is that what you’re saying?
Mike: Right.
Rob: Yeah, I mean they could do that if they wanted. But I don’t feel like they’re required to do that, do you?
Mike: I don’t. But if you’re paying a subscription for it which is like there’s the free plan and then there’s the paid plan. But the paid plan doesn’t give you the access to the things that you already purchased in physical form, that’s my point. It’s like they’re charging you a subscription fee to allow you more things inside of the software and it’s like you can create more characters for example. If you want to see a particular monster that’s in a book you already purchased, you can’t have access to that. You have to buy the digital copy of the book which is another $30 to $50 or whatever. You’re basically paying for twice.
Rob: But if you wanted a digital format then don’t buy the physical one, like that’s what I would say. Your subscription is $3 a month or $5 a month, it’s not expensive and that gives you capabilities of the software itself. But then there are these tomes that they spend thousands and tens of thousands of person hours developing with art and all this stuff, it’s expensive to write that stuff. If they wanted to give that away as an all access pass, to me, that’s another tier all together and my guess is someday they might do that.
The Kindle Unlimited or comiXology Unlimited where you can just pay $5 or $10 a month and you get access to not everything in the Kindle store, but you get access to the ones that people make available. They could do that and then it’s a content subscription. I think that the subscription you have with DnD Beyond is more about the capabilities of the software, isn’t it?
Mike: No, if you go in and do you log in and you say, “Okay, let me take a look at the monsters,” there’s like official monsters and stuff like and you go to click on some of them that says, “Oh, you have to purchase the monster manual in order to see this.” It’s like, “Well, I have a physical copy of it. I already purchased it. You’re just allowing me to see it now inside of the software.” Do you see what I’m saying? You already purchased the content.
Rob: You purchased it in paper format though. It’s not their obligation to give it to you in all 17 formats that exist. Should you get a PDF, an EPUB, a Kindle version, when you buy the paper copy? I don’t think that they need to do that, they can.
Mike: I’m not saying that they do, yeah, I totally agree with you. I hear you. I completely agree with what you’re saying but the problems they’ve, I’ll say. created is that they started publishing these things like two or three years before they came out with their online version, so that’s a problem that they’d like basically just looked at and said, “Yeah, we’re not going to deal with this at all.” The whole article is basically about one, them basically pissing off their fan base because of that, because these people have invested $300, $400 or $500 into buying the books and then Wizards of the Coast comes along and says, “Hey, use our online software. You can’t use things that other people have developed because it has the copyrighted material in it. You can’t use those tools. “
It’s like, “How do you use software to basically just search for stuff? ” for example, something simple like that. They’re like, “Yeah, you can’t do that.” And then they compete with you side by side and they take 30% of whatever it is. You can use some other source material, publish it on the market place and they will take 30% of it.
Rob: Sure, it’s an app store model.
Mike: Sure.
Rob: Right, but they compete with you. You’re actually competing with them, if you think about it. They own the license, they own the marketplace. They could just say, “No user-generated content. Go use…” I forget, “…drive through RPG. ” and there’s all these other peripheral market places. They made the choice to let people publish their stuff and to let other people compete with them. You don’t have to put your stuff on there, right?
Mike: No, you don’t. But there’s two different licenses you can choose from when you decide to create something in their world and one of them is the open gaming license, the other one’s the DnD Beyond license. DnD Beyond license lets you use things from their world, but you can only publish it in DnD Beyond. If use the open gaming license, you have to publish it elsewhere. It’s not even allowed in DnD Beyond.
They’ve got a split license system that they think seems to have solved the problem, but it doesn’t solve every problem, of course. Like I said, it kind of comes down to what is the vendor doing that you are not going to be able to work around? What are the things they’re doing that are not fair to you as a creator on that platform? What are they not allowing you to do?
Rob: Yeah, that makes sense. Let’s get back to the point, because we’ve kind of dug through this, but let’s bring this around to software. How does this apply? Where are we going with this in terms of startups?
Mike: Yeah, so as I said there’s a lot of analogies between this particular situation and software where as I said, Twitter is cracking down on their API right now. I get, in certain cases, you have to do that to prevent abuse and right now, Twitter’s cracking down a lot on apps that are bot related, because they don’t want tons of bots on their platform, they want people.
And then there’s others the similar situations where like you got WordPress plugins for example, or Microsoft Office add-ins, or Gmail plug-ins, you are very much reliance upon the vendors’, I’ll say, good graces to allow you to continue doing that and are they going to build a product that does the same thing as yours? TweetDeck, for example competes with other Twitter automation products. Stripe is starting offer in app dashboards and that competes with things like Baremetrics and ProfitWell. I think it’s, I’ll say, a cautionary tale of, “be careful what you wish for,” in terms of the marketplace because you might get it.
Rob: Yeah, that’s right. I think it’s very difficult. The platform is viewed as this holy grail, “If you can build a platform everybody else is building on, then you’ll make a lot of money.” That’s something a lot of Silicon Valley companies strive for. It is also a headache. It is hard to manage because once you have a platform people are building on, those creators—well, they’ve spent money and they have a right to expect that you’re not going to turn around screw them, and sometimes for the greater business, you make the decision to turn around and screw them and that sucks.
I see both sides of it when I look at what Wizards is doing DnD Beyond, I think overall, they are pushing forward, and they are doing the best they can. I don’t think they’re out to screw people. I do think that the licensing stuff is a challenge. I don’t think there’s anything they can do to not piss at least somebody off, when you have tens of thousands of people dealing with, creating or whatever, someone’s going to be upset about something. I’m not saying no one should be upset.
But then on the flip side, when you look at Twitter and Facebook and Google, some of the other things we’ve mentioned, they have done things that I feel like are, I don’t know, downright evil in terms of the sense of don’t be evil, that they’ve really just purely to grow their own bottom line and keep shareholders happy, do things to their ecosystem that, frankly, they said they wouldn’t do or they implied they wouldn’t do and then they turn around and screw a lot of people. They put people out of business, they do real damage. I see both sides of it. I think sometimes the creators and the builders on these platforms get a little too whiny about it or a little too entitled of like, “Well, Wizard shouldn’t be able to do this,” and I don’t necessarily agree with some of that, but I also see the other side of it.
Mike: Yeah, I mean I feel like they’re entitled to do whatever they want, but at the same time, you kind of have to respect the position you’re in is because of the people that you kind of invited to use the platform. I think what’s a little irksome about this is they aren’t really clear about what the future holds. When you’ve got this black box of how it operates and what the future road map for it looks like, it’s hard to make your own decisions about what to do with your business. If you’re a creator and you’re putting things out there and you’re trying to build a business from it and they’re not real clear about what their intentions are for the future, it makes it hard for you to make decisions. Ultimately, the fate of your business, to some extent, is in their hands. They can come out of left field and kill you at any time and there’s very little that you can do to stop it. You can complain but, that may only go so far.
The bigger problem is that, if you don’t have a good understanding of what’s going on inside the company, you can’t predict the future or tell when their business is suffering from the outside and they could be put in a position where they have to make tough choices that are going to hurt you, in order to just either become profitable or simply to stay in business and sometimes, I think their hands are tied as well.
Rob: Yeah, that’s a good point. Typically, I keep saying that Silicon Valley startups, I’m not trying to be generic and paint everybody with a brush, but it does tend to be these heavily funded startups that are clawing after market share and just burning through cash. When I hear one of them is having financial difficulties, either just rumored or they’re a public company and so you know that they’re missing earnings like Twitter has been and Yahoo was, and we hear these companies in trouble. As soon as I hear that, I think to myself, “They’re going to scratch, claw, and screw everyone they can including their users, including their customers, including their partners in order to somehow turn this around. ” They’re doing it for the survival. Once I hear that I’m always backing away like, “Okay, I’m going to be using this tool less.”
I’m just kind of waiting for them to turn around and kind of make decisions that are going to be negative for everyone else’s experience. This is the hard part about building on someone else’s platform. Remember when Facebook—the games came out, Facebook apps, I guess, and then there were all these games like, what was it, FarmVille.
Mike: Yep, FarmVille, Candy Crush.
Rob: FarmVille just got huge instantly and it was like, “Oh my gosh, the company that built that, this is amazing,” and I remember thinking this isn’t lasting, Facebook isn’t going to let it last,” and then they didn’t, remember? And then they tweaked the algorithm on the news feed and all these companies went from whatever it was, down to 10% of their revenue overnight, and that’s it. You fall as quickly as you go up. I don’t view that as a sustainable business. I mean, it’s really, really hard.
I can think of very few platforms that you can build your business on and count that it’s not going to change and screw you in the next two year. Especially if they’re heavily funded and they don’t have the revenue model worked out yet and they eventually want to go public. Eventually, they’re just going to figure out a way to take more money from you, you won’t have a choice or to just build the same functionality you’ve built and usurp you and you won’t have a choice.
Again, building on someone else’s platform is not something you shouldn’t do, but know that you’re going to get screwed at some point and figure out what your exit strategy is before that happens. That’s how I would approach it.
Mike: You’re saying get out no matter what as quickly as possible.
Rob: My personal thing. If I were to build on the next Facebook or Twitter or even Amazon, like people launching Amazon, launching their ecommerce shops on Amazon, I know they get traction fast. But have you seen how many Amazon private label things there are now? I used to buy Duracell and Energizer batteries on Amazon, now they have Amazon Basics. They’re cheaper, I think they arrive the same day here in Minneapolis if I order them. Luggage, I almost bought an Amazon Basics luggage because it was cheaper, it was nice it was highly rated. They are basically looking at all these categories and they’re just figuring out a way to basically screw their vendor.
Again, I’m not saying you shouldn’t do that. But if you get in and you get traction, count that that’s not going to last. That’s not a 10-year business. There’s no chance Amazon will let you take that kind of profit margin for 10 years. They’re going to figure out a way to take it from you.
Mike: I find that odd. On one hand, I get it because they’re a public company and they’re always looking for ways to make more revenue and push their stock price everything. But at the same time, if you develop a reputation for doing that, does it hurt your chances as a platform provider? I think with Amazon, at the moment, the answer is no. But longer term, 10 or 20 years down the road is that going to hurt them? I don’t know the answer to that. I think it depends a lot on specifics of which platform and kind of what it does.
Rob: That makes sense. It depends on, “Are you so big that it doesn’t matter. ” Obviously, Twitter was not, Twitter hasn’t figured out. I mean, they’re struggling. Amazon may be, they may be big enough that it doesn’t matter. Salesforce sucks. I never tried to integrate with them. It’s a 9-month process. They try to charge you a bunch of money just to integrate, it’s insane.
Everyone whom I spoke to, all the SaaS vendors, except for maybe one, got months into the process and eventually just gave up and put their hands up. People had invested hundreds of hours and built the whole thing and then just walked away from it, but they’re still successful. They are big enough that they can kind of do what they want. I think it goes both ways.
Mike: I guess the question for the people listening to this is like, “What do you do when you get to that point? ” I think your thinking is definitely, sell out as quickly as possible and get out. I think that’s a risk, that’s a basic risk profile. You’re not comfortable with the risk.
Rob: And mitigation, totally. Here’s the thing, these are great. If you think of WordPress plugins and Microsoft Office add-ons, the Gmail plugins, even Salesforce add-ons, whatever. I mean if you’ve built a little lifestyle business and you get a couple hundred grand in revenue, the odds of them squashing you are pretty low. But as soon as you’ve built kind of a high six, or seven, or an eight-figure business and you’re really cranking it, and you’re hiring employees, and you’re growing and all that stuff, that’s when it’s like that’s not going to last. I don’t know of many platforms that are going to let you just sit there and do that.
Mike: Right. That kind of goes to the thing I said earlier, what happens 10 or 20 years out, and they’re small enough that you’re not going to grow into this massive business entity in that 10 or 20 years, or if you have no intentions of doing that then it probably doesn’t make nearly as much of a difference. But if you do have plans for that then developing your own platform is probably a better way to go than leveraging theirs.
Rob: Yeah and that’s the struggle. From both sides of it, if you’re building your own platform, you’ll have to manage these challenges. Know that if you get a bunch of developers or a bunch of people using, or consuming, or creating, you’re eventually going to make someone mad. You’re going to piss somebody off. If you have 10,000 people, five are going to be mad at any given time or maybe it’s 500 that are going to be mad.
That’s probably okay, it’s just people’s opinion. You get groups of people and that’s going to happen. But you try to do right by them and you try to have a long-term vision about taking care of the people who made you what you are. If you’re building on someone else’s platform and I think we have talked that through, there are risks. It’s not that you shouldn’t do it, just be aware of the risks going in. Don’t be naive and think that because someone’s offering something for free that they’re not trying to get a bunch of users and sell.
Mike: I think the quote that sticks out from the article is for fan creators, the new status quo is all about dodging wizards hovering mallet. They gave an example of somebody who would put something out there and technically violated their copyright terms of service inside of the license, but Wizards of the Coast was selling it and making 30% off of it for over a year and then they decided, “Well, yeah, we don’t want you doing this anymore.” and then they killed it.
Rob: I wonder if they decided that or if nobody had noticed.
Mike: It was one of their top selling products. It was one of the top selling products in the marketplace. How do you not notice that?
Rob: I don’t know. I’d want to dig in, I mean I’m not trying to defend Wizards, they’re a big company. I’m not trying to say that they’re on the right, but I’m always a little hesitant when I read things like this. These stories, it’s easy to be dramatic and kind of throw stones at the big 98-pound gorilla. I would like to hear more about that. If everyone inside knew about it and they’re like, “Oh, we’re just going to make 30%.” I don’t think 30% on that thing made a damn bit of difference to them. I don’t think that’s why they were doing it. I don’t think Wizards were just like, “Yeah, but we’re going to make money. Let them infringe on our copyright.” I think the fact that it sold for a year and then was taken down is pretty dang unfortunate though, that sucks. It doesn’t look good.
Mike: Right. And I think that’s the question that people have. Well, if they’re going to let this go on, if you make a mistake, for example, and you create a larger business out of it and you start hiring employees and they don’t tell you early enough on that, “Hey, there’s been a mistake here or you’re violating copyright.” Your business would not get to that point. Let’s say, you got it to $15,000 a month and you hired two or three people, and then suddenly they come in a year later and say, “Well, this is wrong. You can’t do this.” and then it’s like, “Okay, well, now what?”
Rob: Right. Yeah, that was a good one. Thanks for bringing that article in. It’s always nice to discuss. It’s a little bit different and it’s definitely a form of philosophical conversation, but I do think that it’s fun to think through and fun to put into the mind set up of this goes on in a lot of different ecosystems. Sometimes it’s a hobby and sometimes it’s business and startups, and what does that look like from both sides, and what are some things you should be aware of as you kind of plan for what you’re building.
With that, I think we’re wrapped up for the day. If you have a question for us, call our voicemail number 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. 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 experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Mike: Things are good this week. Fall is in full effect as the leaves fall off the trees, we live near a lake and the view of that gets better for us. It’s kind of definitely feeling the season’s change and kind of gearing up to do more work in Winter. I took late Spring, Summer and an early Fall off. I’ve been off work since I left Drip in April, so it’s been about six months. Now, I’m kind of starting to ramp up little bit on Tiny Seed, tinyseedfund.com which is the accelerator that I mentioned on the show a few weeks back and things are picking up and going really well with that.
We’re in fundraising mode in essence and that’s going, I will say, quite a bit better than I thought it would. The hypothesis is I think this is needed in our space, I think that bootstrappers and people who want to kind of fun strap things needs and some funding and better funding source and some guidance, and then that there will be people who are interested in supporting that, and based on our models, making money obviously, because it’s an investment. But you don’t know, it’s a hypothesis when you start.
Then the more that we’ve talked to people it’s like, “This is really interesting.” This is something that I feel the momentum building as we speak and I’m pretty excited about that. It’s exciting for me to be working on something new. I haven’t done anything new since starting Drip which is 2012. It’s fun to do that.
Mike: Awesome. On my end, last month, I started doing some paid advertising through the one paid ad that I was doing. I added about 600 email addresses to my mailing list and they’re still kind of working their way through an email campaign that I have set up for them. I have no idea what my eventual conversion rate will be on them. But we just have to just kind of see how that all shakes out. I’m kind of looking at what other things I can do in November and then December and January etc. I’m kind of looking forward to the future, but we seem to have had some reasonable success so far with that.
Rob: Sounds good. How are you feeling about Bluetick? Are you optimistic? Are you in a rut or in a valley right now? What’s your sentiment?
Mike: I don’t know. It’s hard to separate, I’ll say, the business side of things from the personal side of things. Last week I mentioned that I was diagnosed with sleep apnea and I got a CPAP machine and my sleep has started to get noticeably better already. It’s hard to say whether or not like, I don’t want to call it apathy but it’s just like general tiredness, it’s been more than a year or so, just general exhaustion working on it.
It’s not that I’m not excited to work on it or that I don’t want to, it already got things going or make good progress on it, but with the sleep, I feel more energetic just in general. I’m thinking that that’s actually like I said, I’m trying to differentiate between, “Is it just utter lack of sleep? or is it like, “How the product is going.” Obviously, there’s a correlation between them but at a financial level, Bluetick has kind of been meandering. It doesn’t have like hockey stick growth. It goes up some months and goes down some months and it’s just not where I want it to be. But it’s also been really hard to make any substantial progress on it because of the lack of sleep.
Rob: It’s tough, right?
Mike: Yeah. I’m looking at it, saying, “Well, if I can actually start sleeping and get more productive days on a consistent basis…” because before I would have maybe two or three out of a month which is awful. You can’t make progress like that. This week alone I’ve had like three. Obviously, a 300% increase but yeah, I’ll see how it goes and I think that I’ll probably know more in a couple of months.
Rob: Yeah. That makes sense. Like I said last week, it’s tough to have that chronic stuff that you’re fighting against. It’s hard enough to start a company like this without also having to fight another battle on another front. A colleague of mine said, “I can have a tumultuous work life if my personal life is calm and supportive and I can have a tumultuous personal life if my work life is calm and supportive. But if both are in tumult at the same time, it’s just too much.” That’s when people melt out, that’s when you either leave the job, you get a divorce, bad things happen, and you have to make a change, or you come to a breaking point. It sounds like you have the challenge on the business front and then on the personal front—and it’s not easy fighting both those battles.
Mike: like I said, I’m consciously optimistic at this point. The sleep issues will be at least partially resolved and then my expectation/hope is that those will translate into more consistent progress on the Bluetick side. We’ll just see how it goes because I mean honestly, even with sleep, it may not eventually work out. I don’t know, we’ll see how it goes.
Rob: What are we talking about today?
Mike: Well, I have a subscription to Medium and one of the articles that hedge…
Rob: You’re the one.
Mike: Yes, I’m the one.
Rob: You’re the one person that subscribed to it. Did you just do it to get rid of the annoying pop-ups?
Mike: There were articles that I actually wanted to read, and there’s various authors who I read a bunch of their stuff and, it just kind of made sense. It was one of those things where I can pay the $50 a year or not, but if I don’t, then there are certain articles like I go to click on them and they say, “Oh, you can’t read this because you need a Medium subscription.” and yes, I know that there are ways around it but I didn’t really care. It’s $50 a year, I’m totally cool with helping to support those authors. That’s just kind of my point of view on it. It wasn’t enough that I was like, “Oh, I don’t want to pay this, they’re dastardly.” or something like that. It’s just like, “Yeah, whatever.” It’s not that big a deal to me.
Rob: Yeah, I wouldn’t do a work around. If I believe in the content, I pay for the content. I think at this point in our careers, we need to a: value creators and b: not be such cheap bastards that you’re not going to pay somebody $4 a month to help support what’s going on. If it’s a big corporation trying to take a bunch of money from me, then of course, I’m going to fight that tooth and nail. But assuming that some of this is distributed to the writers themselves or at the office themselves, that’s the point of it, I don’t see a reason to try to do some lame work around.
Mike: Yeah, and that was it. Knowing that it was going to support those authors. I will admit that I used those workarounds early on because I was like, “Well, is the content that’s behind the pay wall, is that the same?” or similar quality and everything else like, “Is it the same type of stuff or is it just like completely different.?” It’s the same type of stuff it was just, I want to read it based on what the headline was or what the first couple of paragraphs were and I was like, “Oh, I actually want to read the rest of this.” It’s worked out.
I’d totally renew my subscription when it comes up. If you’re interested in learning more about that, score Medium and you start reading a few different things. Some of them are really interesting and some of them aren’t. But I mean you’re kind of supporting, I think all of the authors that you read their articles because I think that they track what you read and how much you read it and they attribute the money that you pay on a monthly basis to whichever people that you read their content.
Rob: Yeah, and it’s tough because when Medium came out it’s kind of like, “What? How are you going to do this at Williams? You’ve obviously had success with Blogger and Twitter, but this seems like a real tough gamble.” But he raised a bunch of money, buckets of it, because he’s at Williams and really hasn’t found a business model that’s made it work and then when they went to pay, and they started the ads, and they started the pop-ups it’s like, “It’s predictable.” and it’s irritatingly predictable.
It’s another Silicon Valley company that launches with no business model, that in the end just went pissing off or screwing their users, and that’s frustrating to me. It’s a similar thing to, I mean I can throw out dozens of examples, but one that reminds me is Outright which is an accounting software and it was free. It’s an accounting software that’s free. I remember even the CEO, when they launched I said, “How can this be free?” and he’s like, “Well, we want it to be free for everyone and we think that should just be table stakes and then we’re going to charge for tax preparation and these other things and that’s going to make it work.” Well, that was his line but really what they’re trying to do is get a bunch of users and then sell.
Because they sold to GoDaddy and it’s a [shit] product now. It’s terrible, they haven’t touched it. I think we used to use it for academy stuff, we had to switched to Zero. I had three or four accounts at Outright and it’s terrible.
Mike: No, we still use it.
Rob: Do we? I hate that program and it used to be good, but they decided to Silicon Valley model of, “We don’t care about our users. We’re going to launch. We need a bunch of free users. Look, here, we have an exit.” and that’s the difference. I don’t disagree when people have an exit. I mean I’ve sold companies but do it in a way that you don’t screw your employees, you screw your customers, you screw your partners, don’t do that. Have some something. I don’t know if it’s ethics or morals or it’s just like, do the right thing by people and that’s where I get irritated. I’m not saying Medium has gone that far. But I am annoyed every time I go there and there’s some annoying pop-ups.
Mike: I think that there’s a correlation between like the Silicon Valley startups. You and I, we started this podcast kind of in direct opposition to those because as you said, it’s predictable. This happens almost every time. They build a product, they don’t really know who they’re going after, or who’s going to buy it, or who’s going to pay the money, or how they’re going to make money and then they do a bunch of stuff. They get users, they use that to get to the next funding level and eventually, they turn around and bite the people who got them there.
Whether that’s because they sold the company to somebody else and they just say, “Okay, it’s not my problem anymore.” or they do things like put in annoying ads and pop-ups because they didn’t have any business model to begin with, or they’re like Facebook and they start selling all your personal information. It’s predictable every single time.
Rob: Right, or Twitter. Remember they just screwed all the developers who were using their API at one point, remember that? They just said, “Yeah, we’re not going to do that anymore.” Or Google who used to give us the best search results and now the top five of any given search results are a bunch of ads that they say are sponsored in small writing, but my kids don’t know that those are ads, my mom doesn’t know those are ads, she thinks they’re results. Google was always against pay-to-rank and that’s exactly what they’re doing now. We’ve just named five companies who’ve all done this off the top of our heads. We could probably name 50 more. Shall we get back to the episode?
Mike: Sure. Know that our next episode will be a rant. But actually, the topic that we’re going to be talking about today was this article that I found on Medium. It’s named, The Power Struggle for Dungeons & Dragons’ Soul. I thought it was interesting because I read this article and it was all about how originally TSR was the company and Gary Gygax and his team, built dungeons, dragons as to what it was. They sold it to Wizards of the Coast in ’97 and Wizards of the Coast has basically owned it ever since.
Throughout that time, they have done various things to promote the game but at the same time, they own the license to the rules, the content, all the stuff that they distribute. But Dungeons and Dragons has always been like this world that was created or a style of gaming that was created and then people build their own stuff and bring their own stuff to it. There’s this really big do-it-yourself culture inside of Dungeons and Dragons.
I would say there’s a very strong analogy you can make between something like that where you’ve got a platform and you have all these creators who are kind of adding on to it and like the world of software where you have the Twitter API and then there’s all these people that are saying, “Hey, I can use that to create this or I can do that.” so they build on it and then the platform creator turns around and bites them.
In reading through this article, the one thing that struck me was that the analogies are so strong. The very first thing they said was, “Oh, the Dungeons and Dragons rules tend to be complicated and software will help you avoid that minutia.” so software developers came in and started saying like, “Hey, I’m going to build this tool for the game and distribute it.” and Wizards of the Coast said, “Well, yeah. Here’s an open gaming license.” They created this back in the year 2000 and they basically licensed some of their content to be distributed within those tools. The problem is, it wasn’t all of it.
Rob: Yeah, that’s right. It was the gaming engine and to be honest in 2000, that was revolutionary. It was the third edition of Dungeons and Dragons. It was the rules engine itself, but you couldn’t take their proprietary monsters or their proprietary spell names. There’s a bunch of stuff they kept behind. But man, that sparked a huge kind of revolution in terms of all these games. I used to say, “I want to build my own role-playing game.” and a bunch of people want to do that.
You have to come up with all your own game mechanics. I can’t use the 3D6 or the 118, I guess it’s 3D18 ability score, strength, intelligence, wisdom, constitution the ones that Dungeons and Dragons uses because they’re copyrighted, and they’re protected. They opened that up which now 18 years later it seems like, “Yeah, of course they should have done that.” but no one had done that before.
I mean there’s always been massive kind of in-fighting even within the creators themselves like Gary Gygax kind of co-created DnD with this guy Dave Arneson. Dave Arneson sued him every other year for five years in a row about who owned what. It was just super unclear. It was just riddled with lawsuits and has been from the start.
Mike: If you go back and look at the history of it a little bit in terms of what the open gaming license is. Well, I’ll actually have this linked into the show notes. But they have things in here like, “What do you mean by free in terms of the open gaming license?” They actually talk about the concept of free as in beer which is just it’s fascinating that there’s that. They borrowed a lot from open source licenses because they said like with some of the text of their manuals, you could take that and put it directly in.
Normally, it would be a copyright violation and they said, “No. These sections of the manuals, you can copy word-for-word and distribute them but these other things you can’t.” so they restricted certain pieces of it but not all of it. The vast majority of it, you can do whatever you want with it and republish it but then, there’s small sections of it that are actually important sections that you can’t do anything with. It’s almost like an API where you got access to a lot of things but there’s certain things they hold back because they want to basically be in control of them. It’s really not any different than like Twitter saying, “Okay you can have this API but we’re not going to give you the ability to create polls via the API. Only we can do that.”
Rob: This is a tough one. Where are we headed with this? Because I can get into, I believe, if I was Wizards of the Coast, I would hold some stuff back because it’s their business model. Their business model is selling content. It’s selling a game engine and it’s selling content around that game engine, adventures and then expansions to the game mechanics, new classes, new spells all that stuff. They held all that back because if they give it all away, that’s their business, you know I mean. Are we going to debate that part or are we headed in a different direction with this?
Mike: Well, I think it’s just an interesting question of what as a creator of the platform are you holding back from your customers or users versus what they’re allowed to do with it. Because like the things that they hold back for example, you can play the game without them. It’s just that they’re also the popular pieces of it that people want to use like certain sub-races or what have you. I think this is going to be more of a discussion about, “How do you treat your users?” for one. Wizards of the Coast offered their own set of tools in the marketplace called DnD Beyond and they allow people to distribute their own content through it, but they also compete with them at the same time.
Do you trust, I’ll say, the platform vendors? If you put something on Apple’s ecosystem, are you guaranteed that they’re not going to compete against you. Of course, the answer to that is no. They can create anything they want and so could Microsoft or Twitter or what have you. But certain companies are more likely to, I’ll say, leave pieces of the business alone because they know that they want third party vendors to come in and develop on their platform and they don’t want to squash them. They want to kind of foster that. Because as soon as they start squashing these smaller vendors, people are going to take notice and say, “Well, if you’re going to build exactly what we put on your platform and develop, and you see that it’s successful, you create your own version of it and then bundle it…” back in the situation of Microsoft being threatened to be broken up into four different business units back in 2000 because they’re abusing their monopoly position of the distribution engine.
Rob: Wizards of the Coast, when I look at it, the amount of stuff they’re giving away is shocking. The stuff they give away on dndbeyond.com, they have a free plan, that’s all I have. I can pretty much play the game with all that. I mean you can download that the starter rule book and all the materials for free as PDFs legally off of their site. Now, I paid whatever it is, $14 or $15 for it on Amazon, The Dungeons and Dragons starter set for fifth edition because I wanted to print versions of it, I don’t want to print it all out and always be trying to flip around through it on my iPad. But you could get this for free and then even like the expanded spells and expanded monsters are all on DnD Beyond in electronic format for free and it’s fully searchable.
In my opinion, they have done a great job of expanding the free bubble. Expanding the free circle because the free circle was almost nonexistent 10 or 15 years ago. It just keeps getting bigger and bigger but as a result, they then have to have other things around it that they can add to that. My son and I are casual DnD fans, we play it, we like it but we’re not buying all the supplements and all the extra stuff because we don’t have time to consume all of that. For the casual gamer, it’s great. I am spending some money. We buy miniatures and we buy other stuff that I think helps the ecosystem.
But if you’re intense about it, if you’re a hardcore gamer, a hardcore Dungeons and Dragons player, then you’re going to buy that expansion stuff and that’s the gamble Wizards had to take because to me it’s a gamble. Can you make up the lost revenue back giving this other stuff away with the expectation that people are going to buy the other stuff you put out. I think that’s part of what we’re talking about here, right? If you’re building on someone else’s platform, you’re taking a gamble. If you build a platform, how much of it can you release for free without cannibalizing your business model.
Mike: One of the things I find interesting is that there’s nothing that I’ve found that is I’ll say a concession for purchasing their content in another form for example. If you buy some of the books themselves, you can’t then plug in a license key or anything like that into their online system that provides you access to the content that you already bought.
Rob: You bought a physical copy. You’re just saying they don’t give you the digital copy free with the physical. Is that what you’re saying?
Mike: Right.
Rob: Yeah, I mean they could do that if they wanted. But I don’t feel like they’re required to do that, do you?
Mike: I don’t. But if you’re paying a subscription for it which is like there’s the free plan and then there’s the paid plan. But the paid plan doesn’t give you the access to the things that you already purchased in physical form, that’s my point. It’s like they’re charging you a subscription fee to allow you more things inside of the software and it’s like you can create more characters for example. If you want to see a particular monster that’s in a book you already purchased, you can’t have access to that. You have to buy the digital copy of the book which is another $30 to $50 or whatever. You’re basically paying for twice.
Rob: But if you wanted a digital format then don’t buy the physical one, like that’s what I would say. Your subscription is $3 a month or $5 a month, it’s not expensive and that gives you capabilities of the software itself. But then there are these tomes that they spend thousands and tens of thousands of person hours developing with art and all this stuff, it’s expensive to write that stuff. If they wanted to give that away as an all access pass, to me, that’s another tier all together and my guess is someday they might do that.
The Kindle Unlimited or comiXology Unlimited where you can just pay $5 or $10 a month and you get access to not everything in the Kindle store, but you get access to the ones that people make available. They could do that and then it’s a content subscription. I think that the subscription you have with DnD Beyond is more about the capabilities of the software, isn’t it?
Mike: No, if you go in and do you log in and you say, “Okay, let me take a look at the monsters,” there’s like official monsters and stuff like and you go to click on some of them that says, “Oh, you have to purchase the monster manual in order to see this.” It’s like, “Well, I have a physical copy of it. I already purchased it. You’re just allowing me to see it now inside of the software.” Do you see what I’m saying? You already purchased the content.
Rob: You purchased it in paper format though. It’s not their obligation to give it to you in all 17 formats that exist. Should you get a PDF, an EPUB, a Kindle version, when you buy the paper copy? I don’t think that they need to do that, they can.
Mike: I’m not saying that they do, yeah, I totally agree with you. I hear you. I completely agree with what you’re saying but the problems they’ve, I’ll say. created is that they started publishing these things like two or three years before they came out with their online version, so that’s a problem that they’d like basically just looked at and said, “Yeah, we’re not going to deal with this at all.” The whole article is basically about one, them basically pissing off their fan base because of that, because these people have invested $300, $400 or $500 into buying the books and then Wizards of the Coast comes along and says, “Hey, use our online software. You can’t use things that other people have developed because it has the copyrighted material in it. You can’t use those tools. “
It’s like, “How do you use software to basically just search for stuff? ” for example, something simple like that. They’re like, “Yeah, you can’t do that.” And then they compete with you side by side and they take 30% of whatever it is. You can use some other source material, publish it on the market place and they will take 30% of it.
Rob: Sure, it’s an app store model.
Mike: Sure.
Rob: Right, but they compete with you. You’re actually competing with them, if you think about it. They own the license, they own the marketplace. They could just say, “No user-generated content. Go use…” I forget, “…drive through RPG. ” and there’s all these other peripheral market places. They made the choice to let people publish their stuff and to let other people compete with them. You don’t have to put your stuff on there, right?
Mike: No, you don’t. But there’s two different licenses you can choose from when you decide to create something in their world and one of them is the open gaming license, the other one’s the DnD Beyond license. DnD Beyond license lets you use things from their world, but you can only publish it in DnD Beyond. If use the open gaming license, you have to publish it elsewhere. It’s not even allowed in DnD Beyond.
They’ve got a split license system that they think seems to have solved the problem, but it doesn’t solve every problem, of course. Like I said, it kind of comes down to what is the vendor doing that you are not going to be able to work around? What are the things they’re doing that are not fair to you as a creator on that platform? What are they not allowing you to do?
Rob: Yeah, that makes sense. Let’s get back to the point, because we’ve kind of dug through this, but let’s bring this around to software. How does this apply? Where are we going with this in terms of startups?
Mike: Yeah, so as I said there’s a lot of analogies between this particular situation and software where as I said, Twitter is cracking down on their API right now. I get, in certain cases, you have to do that to prevent abuse and right now, Twitter’s cracking down a lot on apps that are bot related, because they don’t want tons of bots on their platform, they want people.
And then there’s others the similar situations where like you got WordPress plugins for example, or Microsoft Office add-ins, or Gmail plug-ins, you are very much reliance upon the vendors’, I’ll say, good graces to allow you to continue doing that and are they going to build a product that does the same thing as yours? TweetDeck, for example competes with other Twitter automation products. Stripe is starting offer in app dashboards and that competes with things like Baremetrics and ProfitWell. I think it’s, I’ll say, a cautionary tale of, “be careful what you wish for,” in terms of the marketplace because you might get it.
Rob: Yeah, that’s right. I think it’s very difficult. The platform is viewed as this holy grail, “If you can build a platform everybody else is building on, then you’ll make a lot of money.” That’s something a lot of Silicon Valley companies strive for. It is also a headache. It is hard to manage because once you have a platform people are building on, those creators—well, they’ve spent money and they have a right to expect that you’re not going to turn around screw them, and sometimes for the greater business, you make the decision to turn around and screw them and that sucks.
I see both sides of it when I look at what Wizards is doing DnD Beyond, I think overall, they are pushing forward, and they are doing the best they can. I don’t think they’re out to screw people. I do think that the licensing stuff is a challenge. I don’t think there’s anything they can do to not piss at least somebody off, when you have tens of thousands of people dealing with, creating or whatever, someone’s going to be upset about something. I’m not saying no one should be upset.
But then on the flip side, when you look at Twitter and Facebook and Google, some of the other things we’ve mentioned, they have done things that I feel like are, I don’t know, downright evil in terms of the sense of don’t be evil, that they’ve really just purely to grow their own bottom line and keep shareholders happy, do things to their ecosystem that, frankly, they said they wouldn’t do or they implied they wouldn’t do and then they turn around and screw a lot of people. They put people out of business, they do real damage. I see both sides of it. I think sometimes the creators and the builders on these platforms get a little too whiny about it or a little too entitled of like, “Well, Wizard shouldn’t be able to do this,” and I don’t necessarily agree with some of that, but I also see the other side of it.
Mike: Yeah, I mean I feel like they’re entitled to do whatever they want, but at the same time, you kind of have to respect the position you’re in is because of the people that you kind of invited to use the platform. I think what’s a little irksome about this is they aren’t really clear about what the future holds. When you’ve got this black box of how it operates and what the future road map for it looks like, it’s hard to make your own decisions about what to do with your business. If you’re a creator and you’re putting things out there and you’re trying to build a business from it and they’re not real clear about what their intentions are for the future, it makes it hard for you to make decisions. Ultimately, the fate of your business, to some extent, is in their hands. They can come out of left field and kill you at any time and there’s very little that you can do to stop it. You can complain but, that may only go so far.
The bigger problem is that, if you don’t have a good understanding of what’s going on inside the company, you can’t predict the future or tell when their business is suffering from the outside and they could be put in a position where they have to make tough choices that are going to hurt you, in order to just either become profitable or simply to stay in business and sometimes, I think their hands are tied as well.
Rob: Yeah, that’s a good point. Typically, I keep saying that Silicon Valley startups, I’m not trying to be generic and paint everybody with a brush, but it does tend to be these heavily funded startups that are clawing after market share and just burning through cash. When I hear one of them is having financial difficulties, either just rumored or they’re a public company and so you know that they’re missing earnings like Twitter has been and Yahoo was, and we hear these companies in trouble. As soon as I hear that, I think to myself, “They’re going to scratch, claw, and screw everyone they can including their users, including their customers, including their partners in order to somehow turn this around. ” They’re doing it for the survival. Once I hear that I’m always backing away like, “Okay, I’m going to be using this tool less.”
I’m just kind of waiting for them to turn around and kind of make decisions that are going to be negative for everyone else’s experience. This is the hard part about building on someone else’s platform. Remember when Facebook—the games came out, Facebook apps, I guess, and then there were all these games like, what was it, FarmVille.
Mike: Yep, FarmVille, Candy Crush.
Rob: FarmVille just got huge instantly and it was like, “Oh my gosh, the company that built that, this is amazing,” and I remember thinking this isn’t lasting, Facebook isn’t going to let it last,” and then they didn’t, remember? And then they tweaked the algorithm on the news feed and all these companies went from whatever it was, down to 10% of their revenue overnight, and that’s it. You fall as quickly as you go up. I don’t view that as a sustainable business. I mean, it’s really, really hard.
I can think of very few platforms that you can build your business on and count that it’s not going to change and screw you in the next two year. Especially if they’re heavily funded and they don’t have the revenue model worked out yet and they eventually want to go public. Eventually, they’re just going to figure out a way to take more money from you, you won’t have a choice or to just build the same functionality you’ve built and usurp you and you won’t have a choice.
Again, building on someone else’s platform is not something you shouldn’t do, but know that you’re going to get screwed at some point and figure out what your exit strategy is before that happens. That’s how I would approach it.
Mike: You’re saying get out no matter what as quickly as possible.
Rob: My personal thing. If I were to build on the next Facebook or Twitter or even Amazon, like people launching Amazon, launching their ecommerce shops on Amazon, I know they get traction fast. But have you seen how many Amazon private label things there are now? I used to buy Duracell and Energizer batteries on Amazon, now they have Amazon Basics. They’re cheaper, I think they arrive the same day here in Minneapolis if I order them. Luggage, I almost bought an Amazon Basics luggage because it was cheaper, it was nice it was highly rated. They are basically looking at all these categories and they’re just figuring out a way to basically screw their vendor.
Again, I’m not saying you shouldn’t do that. But if you get in and you get traction, count that that’s not going to last. That’s not a 10-year business. There’s no chance Amazon will let you take that kind of profit margin for 10 years. They’re going to figure out a way to take it from you.
Mike: I find that odd. On one hand, I get it because they’re a public company and they’re always looking for ways to make more revenue and push their stock price everything. But at the same time, if you develop a reputation for doing that, does it hurt your chances as a platform provider? I think with Amazon, at the moment, the answer is no. But longer term, 10 or 20 years down the road is that going to hurt them? I don’t know the answer to that. I think it depends a lot on specifics of which platform and kind of what it does.
Rob: That makes sense. It depends on, “Are you so big that it doesn’t matter. ” Obviously, Twitter was not, Twitter hasn’t figured out. I mean, they’re struggling. Amazon may be, they may be big enough that it doesn’t matter. Salesforce sucks. I never tried to integrate with them. It’s a 9-month process. They try to charge you a bunch of money just to integrate, it’s insane.
Everyone whom I spoke to, all the SaaS vendors, except for maybe one, got months into the process and eventually just gave up and put their hands up. People had invested hundreds of hours and built the whole thing and then just walked away from it, but they’re still successful. They are big enough that they can kind of do what they want. I think it goes both ways.
Mike: I guess the question for the people listening to this is like, “What do you do when you get to that point? ” I think your thinking is definitely, sell out as quickly as possible and get out. I think that’s a risk, that’s a basic risk profile. You’re not comfortable with the risk.
Rob: And mitigation, totally. Here’s the thing, these are great. If you think of WordPress plugins and Microsoft Office add-ons, the Gmail plugins, even Salesforce add-ons, whatever. I mean if you’ve built a little lifestyle business and you get a couple hundred grand in revenue, the odds of them squashing you are pretty low. But as soon as you’ve built kind of a high six, or seven, or an eight-figure business and you’re really cranking it, and you’re hiring employees, and you’re growing and all that stuff, that’s when it’s like that’s not going to last. I don’t know of many platforms that are going to let you just sit there and do that.
Mike: Right. That kind of goes to the thing I said earlier, what happens 10 or 20 years out, and they’re small enough that you’re not going to grow into this massive business entity in that 10 or 20 years, or if you have no intentions of doing that then it probably doesn’t make nearly as much of a difference. But if you do have plans for that then developing your own platform is probably a better way to go than leveraging theirs.
Rob: Yeah and that’s the struggle. From both sides of it, if you’re building your own platform, you’ll have to manage these challenges. Know that if you get a bunch of developers or a bunch of people using, or consuming, or creating, you’re eventually going to make someone mad. You’re going to piss somebody off. If you have 10,000 people, five are going to be mad at any given time or maybe it’s 500 that are going to be mad.
That’s probably okay, it’s just people’s opinion. You get groups of people and that’s going to happen. But you try to do right by them and you try to have a long-term vision about taking care of the people who made you what you are. If you’re building on someone else’s platform and I think we have talked that through, there are risks. It’s not that you shouldn’t do it, just be aware of the risks going in. Don’t be naive and think that because someone’s offering something for free that they’re not trying to get a bunch of users and sell.
Mike: I think the quote that sticks out from the article is for fan creators, the new status quo is all about dodging wizards hovering mallet. They gave an example of somebody who would put something out there and technically violated their copyright terms of service inside of the license, but Wizards of the Coast was selling it and making 30% off of it for over a year and then they decided, “Well, yeah, we don’t want you doing this anymore.” and then they killed it.
Rob: I wonder if they decided that or if nobody had noticed.
Mike: It was one of their top selling products. It was one of the top selling products in the marketplace. How do you not notice that?
Rob: I don’t know. I’d want to dig in, I mean I’m not trying to defend Wizards, they’re a big company. I’m not trying to say that they’re on the right, but I’m always a little hesitant when I read things like this. These stories, it’s easy to be dramatic and kind of throw stones at the big 98-pound gorilla. I would like to hear more about that. If everyone inside knew about it and they’re like, “Oh, we’re just going to make 30%.” I don’t think 30% on that thing made a damn bit of difference to them. I don’t think that’s why they were doing it. I don’t think Wizards were just like, “Yeah, but we’re going to make money. Let them infringe on our copyright.” I think the fact that it sold for a year and then was taken down is pretty dang unfortunate though, that sucks. It doesn’t look good.
Mike: Right. And I think that’s the question that people have. Well, if they’re going to let this go on, if you make a mistake, for example, and you create a larger business out of it and you start hiring employees and they don’t tell you early enough on that, “Hey, there’s been a mistake here or you’re violating copyright.” Your business would not get to that point. Let’s say, you got it to $15,000 a month and you hired two or three people, and then suddenly they come in a year later and say, “Well, this is wrong. You can’t do this.” and then it’s like, “Okay, well, now what?”
Rob: Right. Yeah, that was a good one. Thanks for bringing that article in. It’s always nice to discuss. It’s a little bit different and it’s definitely a form of philosophical conversation, but I do think that it’s fun to think through and fun to put into the mind set up of this goes on in a lot of different ecosystems. Sometimes it’s a hobby and sometimes it’s business and startups, and what does that look like from both sides, and what are some things you should be aware of as you kind of plan for what you’re building.
With that, I think we’re wrapped up for the day. If you have a question for us, call our voicemail number 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. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 417 | Pulling Out Profits, Building Features vs. Integrating, Marketing a Podcast, and More Listener Questions
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including how to market a podcast, what to do with business profits, building features vs. integrating and more.
Items mentioned in this episode:
- MicroConf
- ZoomAdmin
- Big Snow Tiny Conf
- Business of Software Conference
- FemtoConf
- Brian Casel “Tiny Conferences”
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about when to pull profits out of your business, the balancing act of building features versus integrating, how to market a podcast, and more listener questions. This is Startups For The Rest Of Us episode 417.
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 talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. 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 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 talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. 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 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 416 | MicroConf Europe 2018 Recap
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike recap MicroConf Europe 2018. The guys go through the list of speakers of the two day event and highlight some of their key takeaways from each presentation.
Picture of Rob in the Iron Throne
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Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be recapping MicroConf Europe 2018. This is Startups For The Rest Of Us 416.
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: 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: You know, I’m still in Croatia. We’re taking an extended little vacation after MicroConf Europe ended a couple of days ago. Even actually the day the day this goes live next week, I think that’s a day before Halloween, we’re flying back on Tuesday in order to get the kids back for Halloween. They really didn’t want to miss Halloween.
Mike: Oh, interesting.
Rob: Yeah. About that time, we would have been here for over two weeks I believe. Maybe 16 days or something. It’s been a really fun time. I am pleasantly surprised. I found a lot of good things about Croatia. We have travelled a lot so I tend to have high expectations of the places that I go. I want them to be interesting, fun, have history, have natural beauty, have cities with cool thing, just have all the stuff. Croatia has offered that. I’m really impressed with it.
Mike: I came back yesterday. The place is amazing. I don’t even know how to put it into words, to be honest. It was just crazy how awesome the city was. I did a walking tour. I went around like a Game of Thrones tour there, so I went on that. I think Zander went on one of the six hours. Mine was only two but it was still fantastic. What I really liked about the tour was that it actually went into history of the city itself, it wasn’t just Game of Thrones because they also had a tour of the city walls that you could go on. I think it was self-guided.
But you could walk around the entire city, and of course, because the city was built in I don’t even know exactly what year, but I think the walls, they said, they think they were built anywhere between 1100 and 1400, and the city never been breached by a siege. It went into a lot of the history of the Ottoman Empire being nearby and how they were like a conduit back to them from the ocean. It was just fascinating because I’m sort of a history buff, I enjoy history, but I don’t necessarily know a vast array of history but I always find it fascinating.
Rob: Dubrovnik specifically is where the conference is. I think my favorite part of the trip, we were up North, there’s an amazing natural park, waterfalls that was great, we went to some islands, those were fun and sleepy because it’s offseason now which has been nice. I mean, the fact that it hasn’t been crowded, it’s still pretty warm, and it’s inexpensive to be here right now compared to the high season. Dubrovnik has definitely been our favorite time. I’m a wid bit […] we’re going to have been here a week by tomorrow and we’re going to extend our stay and stay for another two or three days and fly out directly from here just because there’s more to do. I went on the two-hour Game of Thrones tour as well and I had a great time. It was nice to be able to walk around and see the scenes, but also get some amazing pictures of the city. I’m impressed. Thumbs up for me.
Mike: Cool.
Rob: How about you?
Mike: Well, like I said, I just got back. I’m burrowing through my emails. That’s the funny part because I’m going through and trying to clear up my email box and of course, because it’s the middle of the day, I’m still getting them in. It’s kind of brushing your teeth while eating oreos but I think I’m down to under a hundred or so right now. It’s just a matter of figuring out what to do with a lot of the rest of them and kind of […] them in and still like, “What to do? When?”
Rob: Yep, yep. It’s just getting it all, gathering it, and it’s like, “Do I throw this into Trello? Do I boomerang…” When I get back, I will boomerang things that I don’t want to log into Trello, I don’t want to put somewhere else, but I know that I need to get to it in a week or so. I will just boomerang it because I know that by that time I will have less in my inbox and I’m just trying to churn through things. I’ve kept up pretty well with email, fortunately. I got a sim card when I got here and so as we were riding on trains or ferries and boats and that kind of stuff, I’ve been trying to keep up with stuff, but it’s always tough on vacation to try to balance that.
Mike: Yep.
Rob: Cool. We are talking about MicroConf Europe 2018 today.
Mike: Yeah. Why don’t we go through some of the speakers, kind of talk about the gist of what it is they were talking about, and kind of pull out some takeaways that the audience can use.
Rob: Sounds great.
Mike: The first speaker was Steli Efti and he talked about what he called, The 7 Deadly Startup Sales Sins. I don’t if he arranged or structured the talk exactly like this when he started because I know he’s given a very similar talk the past couple of weeks at different conferences, but he basically, took the talk itself and shortened it a little bit so that he could do a lot more Q&A. I thought that was a really great way to handle this especially for the size of the audience this year because he was able to really dig in and start digging into people’s specific problems and challenges that they were having about how do you address certain sales situations or how do you handle certain types of objections that other people would have, how you transition between one part of the sales process and the other, how do you get the sales team and the marketing team and the product team all on the same page. I think that was extremely helpful for the audience. He did a fantastic job.
Rob: The nice part is having a talk that I think we had slotted 35 minutes for talks and then you get some Q&A time, 35-40 minutes I think, and he went out for 20 or 25 minutes, but you can pack a lot in that amount of time. We’ve actually shortened our talk times over the years. But for our very first year, we have everybody an hour. That’s a long time to get up on stage, even including Q&A, that’s got 50 minute talk just starts to feel long. We shortened to 45 and sometimes, we do 35, and then 30, and then we found as long as we can fill the days with good content, having more of a shorter talk I think is something that works pretty well. Steli knew, he didn’t accidentally go short.
We’ve had folks do that where they get up there and it’s like, “Boom!” 20 minutes and they’re done and that’s like, “Oh, no. What do we do?” But it was not like that at all. In his first five minutes he goes like, “Look, I’m going to do a short but we’re going to do a lot of Q&A.” and there was. There were a ton of questions. He totally filled out the time. I thought it was a well-delivered talk, as you would expect from Steli. He’s a good speaker, good content, it was a good talk. I thought that was well-received.
Mike: Next we have Ashley Baxter come in from Scotland. Her talk title was, Idea to Execution and Beyond. What I found fascinating about her and one of the reasons I sought her out as a speaker was because she’s in software, she’s been a software developer, and she’s also in the insurance industry. It’s not an industry where you would think that you would probably want to go, I think for the most part. I certainly would not want to deal with the insurance industry. But her company is re-selling insurance to freelancers. She talked about how she built her business and how she grew it, and what people were really looking for, and how to dive into the idea itself, and then also expanding and really hit on the actual pain points that your customers are having, and how to use those in not just your marketing material, but how you talk to them.
She showed some extremely crappy ways of how she was gathering information from the audience that she was going after just by using a simple type form where she’s like, “Oh, people thought this was part of the process to get the information and it really wasn’t. It was just I used that because I didn’t have any feedback loop from the insurance company themselves where they were actually filling-up the information.” She gathered all email address upfront and then send them over and people just kind of thought that, “Oh, this is part of that process.” and it wasn’t. It was so she can get the information she needed.
Rob: Yeah, this was the first time I had met Ashley. When she said she was talking about insurance, I was like, “Oh, no. What have we done?” But she’s like, “No, it’s kind of a joke. I’m not actually talking about the insurance. I’m talking about doing the startup and validating it and the steps I took.” I thought her talk turned out really well. I enjoyed it. I heard some folks talking in hallway about how they enjoyed hearing her journey because it’s a little bit non-traditional. It’s not a SaaS app, but we’ve had really good talks from some folks who sell information products, some people who sell physical products. There are things to be learned and passed along across this disciplines.
Mike: Third speaker on our first day is Aleth Gueguen. Her talk was the Bulletproof Path to Privacy for your Software Business. She does a lot of stuff with the GDPR, a lot of consulting with various companies. But she kind of describes herself as a privacy advocate. Most of what she talked about was things that you would think are generally common sense and in certain cases they are. Obviously, certain companies where she has done consulting, they go in a different direction or they lean too much on the legal team for example. She’s like, “If you’re going to be putting together a privacy policy, yes, the legal team should have an input, but the marketing team should write it.” Because it’s really about how you are portraying your company and what you’re doing to your customers versus making it overly, I’ll say, aimed at covering your ass in terms of the legalities of it.
Yes, you do want to do that, but when you have a lawyer write that stuff, it’s very different in terms of tone and feel when the users are reading it versus when the marketing team writes it because you are presenting your company to the users like, “Hey, this is what we do with your data and this is why you should trust us.” Not saying you shouldn’t have the legal team review it afterwards, but it depends on your starting point and it’s going to have a very different tone and feel depending on who you have offer it.
Rob: This was another one when Aleth said she was speaking about GDPR. I was like, “Well, this can go one of two ways. It can be really boring or it can be super helpful.” What I like about what she said is when GDPR started coming on our radar at Drip—this is shortly before I had moved on from Drip—I said, “Let legal worry about it.” He said, “No. If they do it, it’ll be a mess. We, as product people, know the product and legal will not. They just won’t have the experience or the knowledge to be able to do this. We need to do it first then they need to make it legal speak.” and it worked out. That’s what we did. Brendan read the whole GDPR document, it’s 200 and something pages, and it worked out really well. She wasn’t recommending you read the whole thing, but she was saying, “You, as a product person, you have to own this.” I think that’s super important.
This is similar to negotiations I’ve seen. If your company is going to be acquired, you don’t want lawyers negotiating before the stuff needs to go to legal. There’s a point where it needs in a contract, before then, keep the lawyers out of it, and either have an investment maker or a broker, of if you’re going to be negotiating yourself, you handle it. But the lawyers in general will make things complicated and they can kill deals just with their approach. They’re trained to do things a certain way and it’s not always the right way.
GDPR, it was actually a really good talk. A couple of people said it was the best talk they’d heard on GDPR. It wasn’t like walking through legislation, it was saying, “Here’s a minimum viable approach to this. Here’s the next level up. Here’s some ways to think about.” It was much more from a more experienced person, not just someone who read a boring document.
Mike: It was definitely positioned as like, “This is the common sense way to approach it for companies that don’t have unlimited resources to be able to do it.”
Rob: Yeah, that’s right. And then we had some attendee talks in the afternoon. We have four attendee talks this year and that’s where admitted topics and they were voted on in advanced based on the topic. The presenter voted in advanced who should give the talks. I thought those went well. There were 12-minute talks, we did four of them in an hour, and they tend to move pretty quick. In general, we tend to have a pretty good luck in it, so that was the case again this year.
Mike: I would agree with that. I do want to call out a special thanks to Benedikt Deicke for putting together a attendee talk at the last minute because we did have an attendee talk that who had been voted on and was going to come and do that and he ended-up having to change his plans, and wasn’t able to make it to MicroConf Europe so I contacted Benedikt a few days before MicroConf and asked him. I was like, “Do you think you could put something together? Yes or No?” and I didn’t want to put him on the spot and force him to do it, but if he hadn’t been able to, we probably wouldn’t have been able to get away with it. But at the same time, I wanted to give him the opportunity if he wanted to. He put together a great talk. I thought it was exceptionally well done for the amount of time that he had.
Rob: Yup, I agree. Kudos to him for stepping up and doing that. And then I wrapped the day up with my talk. I called it, I really messed with the title a lot, and I finally landed on The State of Bootstrapping in 2018. I kind of talked through my journey as a bootstrapper, the phases of doing literally six years of nights and weekends, on and off and never making more $100 a month from the stuff I launched. Then there was this three-year period where I stair-stepped up to having like a house payment type of money, like $1000-$2000 a month. Then over that three years, I got to full-time income.
I went through the phases of what that looked like for me, funding options I have like, finding being nights and weekends, it’s a day job, or you can have savings or whatever. Then I looked at the funding options that we have today because they are definitely more a founder-friendly options. Obviously, I talked about venture capital, what that looks like. I still don’t think it’s fit for almost everyone in the room. Talked about fund-strapping which of course, I’ve talked about on this podcast before. I mentioned what I believe is the next wave or next generation of funding for our crowd basically, for the the MicroConf bootstrapping community which is kind of these funds like […] VC or accelerators I’m launching with TinySeed, at tinyseedfund.com which is bootstrapper-friendly accelerator.
I talked through all that and I got a lot of good questions afterwards. A couple of people said, “I wish you’d spend more time talking about TinySeed,” and I said, “The intent was not for it to be an advertisement for what I’m doing.” It’s not, “Hey, look at what I’m doing.” because if you don’t care about that, why are you sitting in the dock for 30 or 40 minutes. I really wanted it to be helpful to you no matter what you do. If it convinced you that bootstrapping is still the best way for you, then good, at least I convinced at something. If I convinced that you should consider fund-strapping or an accelerator like TinySeed or whatever, my goal was accomplished as well.
Mike: Then we had an evening event out on the terrace right outside where the main hall was where we had the conference itself, and that was sponsored by FE International. It was an absolutely gorgeous view from there because you could see, not just down to the water, the hotel was literally right on the water, and then they have like an infinity pool there with a swim up bar and a hot tub over to the side. It was just like, you could watch the sunset.
I think the second day I was there, there were probably 15 or 20 people just sitting out there, watching the sunset, and there were a few people who took timelapse videos. There’s a couple that got uploaded into the Slack group. It was just amazing view.
Rob: The hotel was the nicest, I’d say the nicest hotel we’ve had at MicroConf Europe at and by far the best location and the best view. Everyone commented on that. Every room has an ocean view. It’s really crazy. It’s so cool to be able to do that and to do it off-season so it wasn’t outrageously expensive. It was €110 a night for these rooms that I believe are twice that, I think they’re €220 in the high season or €240 or something. It’s nice.
Mike: I would say the only confusing thing about the hotel is that because you’re basically coming in from the back and it’s sort of on a cliff, the lobby is above all the other floors. The first floor is actually where you could go down, there’s a place to eat, and you can walk out into the pool area. But the lobby is actually–I think they call it the RC level but was like 9 or 10 or something like that. It’s at the top of the hotel and so the bottom.
Rob: Thank you to FE International for sponsoring MicroConf Europe and for sponsoring that evening event.
Mike: And then on day two, we had Adii Pienaar who came in and talked about fundstrapping. He talked about how he had bootstrapped his company and then he did a seed round, and then he almost did a Series A round and decided that instead of doing that, he just didn’t have the heart to try and convince people—the VCs—that that was the direction that the company really deserved to go in. Instead of trying to spend his effort there he turned around and said, “Okay, well let me just make this company profitable and I can do whatever they want.” They cut expenses, went through a couple of rough decisions, but ultimately, he has made the company profitable and they’ve been profitable since the beginning of the year. It was nice to see that path that he took.
He could’ve probably gotten funding if he really wanted to and he just said, “You know what, I don’t have to. I’m just going to make this company profitable.” and it gave some options. I think it was a nice follow-up to the talk that you had had where you talked about the different funding options and how money makes you make different decisions and profit from Adii’s […] but also gives you an optionality that I think that you don’t always have if you take a giant pile of money and you’re trying to build a big business that needs to grow fast because of the investors.
Rob: Yup. That makes a lot of sense. His was one of my favorite talks, to be honest, because he was so raw. Talk about the emotion, the ups and downs, and really kind of told the whole story. I didn’t feel like he held anything back, he gave exact numbers, he talked about a potential acquisition, and talked about, I believe he said what the price was. It was really so cool to hear all the details and then talk like that. I really appreciated him in coming into this with both the topic and the honesty.
Mike: Next, Dr. Sherry Walling came and she talked about mainly trying to keep the alignment that you have as an entrepreneur, making sure that you are aligned both mentally and physically with the goals that you have as a human being. She talked about how entrepreneurs are basically disruptors and there’s a sense that you want to do something that makes you belong but you also want to be successful. Sometimes those things have a little bit of friction between them but having alignment across that spectrum makes things a lot easier for you.
Rob: I missed most of her talk because I was watching the kids. We have three kids here with us and it was the middle of the day, so I had them, and then I caught the last 15 minutes of the talk. When I walked in, it was towards the end. All the eyes were up on her so I knew that she was capturing the audience. People weren’t off on their phone doing Twitter and stuff. It was good. I heard good things about it in the evening events as well.
But she spent a long time trying to figuring out exactly what she wanted to speak about this year and felt like she was going out on a limb with it. I felt like it really resonated.
Mike: The third talk of day two was Simon Payne. It was the CTO of LeadPages. He had left LeadPages I think shortly before you joined. He’s brought a couple of different things. He ran ConvertPlayer and more recently he’s been involved in a company called EventsFrame which helps event organizers sell tickets, and has different pricing structures.
What I found fascinating about that is that one of the things that they did to help get it out there was they did an AppSumo deal. He’s actually done two different AppSumo deals. First one was a while back and then this one was with EventsFrame. He talked about the behind-the-scene stuff like how that worked, what the, not necessarily the specific numbers of it, but what he saw in terms of like, “Oh, we started out with a hefty amount of traffic here and then there’s follow-up emails, and this is how we dealt with people who are already using the software,” and then they saw the AppSumo deal.
You do something like that where you don’t necessarily have control over who it goes to or the messaging, you may have to deal with customer support issues of somebody who says, “Hey, I bought this at this price and now I see this thing over here where you’re offering that.” He talked about how they handled that. I thought it was a really interesting way of approaching some of the objections that people may have about that.
Rob: For sure. And then we have typically seen this. If you’re doing a SaaS app, you […] craft a different plan that doesn’t match any of the plans on your pricing page. You probably put it in between two of the plans. Whatever you do, you just make it different so there is no direct comparison. They had some clever ways of working around that as well. Overall, it sounds like it was pretty successful for them and they’re off to a good start with EventsFrame. I enjoyed the talk. I like stories, he talked about the story and if you’re thinking about doing an AppSumo deal or even any of the deal a day things, it will apply to any of them. I felt like there was some value there.
Next up was Ashley Greene. The title of her talk was, Tech Changes, People Don’t: User Research Is Your Secret Growth Weapon. She is a user-research expert, that’s what she does for a living. She’s a consultant. She talked a lot about segmenting your users and surveying them, and figuring out which folks use which features, and which folks asks for which features. I caught most of it. I was actually in the middle of, there was this conference stuff coming up, so I kept having to get up. But the pieces that I caught I liked and I could tell there were certain folks in the audience who it really resonated with.
With talks like this, about user research, some people aren’t at the phase where it matters yet or they’re past the phase where it matters although you’re kind of never past that phase. But essentially, in the early days of customer […] that’s when, I would say, matters most. As a product matures, you can still do it, but it’s definitely, I would say not as, in my opinion, not as critical or something you should do. You’re doing everyday and make something in the early days. There were definitely some people who were really focused in on it, a lot of good questions for her at the end of the talk.
And then you wrapped up the day and the conference with the talk called, I’m Not Even Supposed to be Here. What’s that all about?
Mike: Well, we had a speaker who canceled at the last minute. I was flying out on Friday and I got an email on Thursday saying, “Look, there’s some stuff going on.” I’m not going to talk about it on the podcast because it’s his story, but I totally understand why he had to cancel. I feel more bad for him that he had to cancel than me for having to fill in. But just because he wasn’t able to make it, I didn’t want to leave the attendees in a lurch so I ended-up coming up with a talk at the very last minute to basically fill the time.
You could tell me how it went, but I completely pulled it out of thin air to be perfectly honest on extremely short notice. I had to work from notes. I would say that the presentation was probably the worst talk that I’ve ever given, but given the timeframe and the zero practice and everything else, it probably wasn’t terrible.
Rob: That was the thing, you had no practice, and you literally had notes that you had learn from, so it was tough. I would agree with you. Certainly, you’ve given talks that are a lot better than it both in prep, it’s hard. The first part, you have a lot of jokes, Morgan Freeman kind of internet meme stuff, and I felt the timing on some of them was off. I think by that time, people were tired. It was two days into the conference and I think it didn’t necessarily resonate with everyone but then you went into like, “Things go wrong, what do you do when they go wrong?” You started giving examples of all the things that have gone wrong behind-the-scenes at MicroConf over the past 16 conferences we’ve run. That part was fun for me, for sure. I think people got a kick out of it. And then you went into stuff that has gone wrong with you, like health issues and such, and kind of wrapped it up with, “Here’s what we do about it. We’re entrepreneurs.” I felt overall it was a good message.
The content was good, the delivery was unpracticed. It is what it is at that point, but we need some way to wrap up the conf.
Mike: After that, we had another evening reception on the terrace again and it was sponsored by SureSwift Capital. Again, another big thanks and shout out to SureSwift for stepping up and helping us to sponsor and support MicroConf. This is the third time that they’ve sponsored MicroConf. Honestly, it’s great to have sponsors like SureSwift Capital and FE International who really just want to support the community. They want to help people be successful. They like to interact with the attendees too. I think in general, the sponsors we have at MicroConf are fantastic in their attitudes and their willingness to just come in and help. They’re like, “We just want to support this community.” Obviously, I can’t say enough good things about both FE International and SureSwift.
Rob: It’s really nice to have, like you said, sponsors that I would do business with or have done business with because then you know, I can genuinely vouch for them, I don’t feel bad about letting them come up and talk on stage for two or three minutes or ask for information or intro-ing them to people, or whatever. We would thank them up from stage like, “Thanks to these guys. They’re legit. We like them.” It’s nice to have that luxury I think.
Mike: Yeah, it’s nice for everybody I think, everybody involved.
Rob: Overall, 16th, one in the bag. How does it feel?
Mike: It feels good. I’m hoping that I will get a goodnight of sleep tonight. I just got back yesterday. I think I left at one o’clock, Croatia time. When I got home, it was 9:00 PM for me, so it was like three o’clock in the morning, something like that. 13 hours of travel, 14 hours of travel which I really shouldn’t be complaining because I know that there are some people who come into MicroConf Vegas and they travelled 25 or 30 hours to be there.
Rob: Totally. That’s the thing for me too. I don’t know if you can hear it in my voice, but I have a little bit of head cold, I’m also super tired. It’s Thursday and the conference ended Tuesday night so you’d expect on Wednesday you’d be tired, but then last night, Sherry and I just went down to the bar to literally have a drink and to have a conversation. Of course, we’ve run into some MicroConf and the we stayed way too late. I still haven’t caught up on sleep. I’m trying to make a plan to do that tonight. But it’s almost dinner time and already I’m thinking, “You know, it’d be nice to just hit the bar and just have a little…watch the sunset right now.” We’ll see where all that leads.
Mike: After the evening reception was over, there were a ton of people that went down to the —actually, I should say up—to the reception area or the lobby area because they have a bar there and they have a piano and somebody went and got on the piano. One of the attendees plays piano and he just played for like 1 hour, 1 ½ or something like that. It reminded me a lot of the very first MicroConf when Marcus got onto the piano up in Andrew Warner’s room. We were all hanging out there. It reminded me a lot of that.
Rob: Yeah, it was fun. It was impromptu. I thought it was really neat. It kind of showed the community that’s like, the conference was over, the conference party was over, and yet, there people were gathering, hanging out, talking, networking/making jokes/playing the piano and just having drinks. I thought that was nice.
Mike: I would totally agree and I would totally go back.
Rob: I know. We’ll have to see if we can pull it off again next year because Croatia sure is a nice destination.
Mike: Well, with that said, I think you should take us out.
Rob: That wraps us up for the day. 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 Mike.
Rob: And I’m Rob.
Mike: 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: You know, I’m still in Croatia. We’re taking an extended little vacation after MicroConf Europe ended a couple of days ago. Even actually the day the day this goes live next week, I think that’s a day before Halloween, we’re flying back on Tuesday in order to get the kids back for Halloween. They really didn’t want to miss Halloween.
Mike: Oh, interesting.
Rob: Yeah. About that time, we would have been here for over two weeks I believe. Maybe 16 days or something. It’s been a really fun time. I am pleasantly surprised. I found a lot of good things about Croatia. We have travelled a lot so I tend to have high expectations of the places that I go. I want them to be interesting, fun, have history, have natural beauty, have cities with cool thing, just have all the stuff. Croatia has offered that. I’m really impressed with it.
Mike: I came back yesterday. The place is amazing. I don’t even know how to put it into words, to be honest. It was just crazy how awesome the city was. I did a walking tour. I went around like a Game of Thrones tour there, so I went on that. I think Zander went on one of the six hours. Mine was only two but it was still fantastic. What I really liked about the tour was that it actually went into history of the city itself, it wasn’t just Game of Thrones because they also had a tour of the city walls that you could go on. I think it was self-guided.
But you could walk around the entire city, and of course, because the city was built in I don’t even know exactly what year, but I think the walls, they said, they think they were built anywhere between 1100 and 1400, and the city never been breached by a siege. It went into a lot of the history of the Ottoman Empire being nearby and how they were like a conduit back to them from the ocean. It was just fascinating because I’m sort of a history buff, I enjoy history, but I don’t necessarily know a vast array of history but I always find it fascinating.
Rob: Dubrovnik specifically is where the conference is. I think my favorite part of the trip, we were up North, there’s an amazing natural park, waterfalls that was great, we went to some islands, those were fun and sleepy because it’s offseason now which has been nice. I mean, the fact that it hasn’t been crowded, it’s still pretty warm, and it’s inexpensive to be here right now compared to the high season. Dubrovnik has definitely been our favorite time. I’m a wid bit […] we’re going to have been here a week by tomorrow and we’re going to extend our stay and stay for another two or three days and fly out directly from here just because there’s more to do. I went on the two-hour Game of Thrones tour as well and I had a great time. It was nice to be able to walk around and see the scenes, but also get some amazing pictures of the city. I’m impressed. Thumbs up for me.
Mike: Cool.
Rob: How about you?
Mike: Well, like I said, I just got back. I’m burrowing through my emails. That’s the funny part because I’m going through and trying to clear up my email box and of course, because it’s the middle of the day, I’m still getting them in. It’s kind of brushing your teeth while eating oreos but I think I’m down to under a hundred or so right now. It’s just a matter of figuring out what to do with a lot of the rest of them and kind of […] them in and still like, “What to do? When?”
Rob: Yep, yep. It’s just getting it all, gathering it, and it’s like, “Do I throw this into Trello? Do I boomerang…” When I get back, I will boomerang things that I don’t want to log into Trello, I don’t want to put somewhere else, but I know that I need to get to it in a week or so. I will just boomerang it because I know that by that time I will have less in my inbox and I’m just trying to churn through things. I’ve kept up pretty well with email, fortunately. I got a sim card when I got here and so as we were riding on trains or ferries and boats and that kind of stuff, I’ve been trying to keep up with stuff, but it’s always tough on vacation to try to balance that.
Mike: Yep.
Rob: Cool. We are talking about MicroConf Europe 2018 today.
Mike: Yeah. Why don’t we go through some of the speakers, kind of talk about the gist of what it is they were talking about, and kind of pull out some takeaways that the audience can use.
Rob: Sounds great.
Mike: The first speaker was Steli Efti and he talked about what he called, The 7 Deadly Startup Sales Sins. I don’t if he arranged or structured the talk exactly like this when he started because I know he’s given a very similar talk the past couple of weeks at different conferences, but he basically, took the talk itself and shortened it a little bit so that he could do a lot more Q&A. I thought that was a really great way to handle this especially for the size of the audience this year because he was able to really dig in and start digging into people’s specific problems and challenges that they were having about how do you address certain sales situations or how do you handle certain types of objections that other people would have, how you transition between one part of the sales process and the other, how do you get the sales team and the marketing team and the product team all on the same page. I think that was extremely helpful for the audience. He did a fantastic job.
Rob: The nice part is having a talk that I think we had slotted 35 minutes for talks and then you get some Q&A time, 35-40 minutes I think, and he went out for 20 or 25 minutes, but you can pack a lot in that amount of time. We’ve actually shortened our talk times over the years. But for our very first year, we have everybody an hour. That’s a long time to get up on stage, even including Q&A, that’s got 50 minute talk just starts to feel long. We shortened to 45 and sometimes, we do 35, and then 30, and then we found as long as we can fill the days with good content, having more of a shorter talk I think is something that works pretty well. Steli knew, he didn’t accidentally go short.
We’ve had folks do that where they get up there and it’s like, “Boom!” 20 minutes and they’re done and that’s like, “Oh, no. What do we do?” But it was not like that at all. In his first five minutes he goes like, “Look, I’m going to do a short but we’re going to do a lot of Q&A.” and there was. There were a ton of questions. He totally filled out the time. I thought it was a well-delivered talk, as you would expect from Steli. He’s a good speaker, good content, it was a good talk. I thought that was well-received.
Mike: Next we have Ashley Baxter come in from Scotland. Her talk title was, Idea to Execution and Beyond. What I found fascinating about her and one of the reasons I sought her out as a speaker was because she’s in software, she’s been a software developer, and she’s also in the insurance industry. It’s not an industry where you would think that you would probably want to go, I think for the most part. I certainly would not want to deal with the insurance industry. But her company is re-selling insurance to freelancers. She talked about how she built her business and how she grew it, and what people were really looking for, and how to dive into the idea itself, and then also expanding and really hit on the actual pain points that your customers are having, and how to use those in not just your marketing material, but how you talk to them.
She showed some extremely crappy ways of how she was gathering information from the audience that she was going after just by using a simple type form where she’s like, “Oh, people thought this was part of the process to get the information and it really wasn’t. It was just I used that because I didn’t have any feedback loop from the insurance company themselves where they were actually filling-up the information.” She gathered all email address upfront and then send them over and people just kind of thought that, “Oh, this is part of that process.” and it wasn’t. It was so she can get the information she needed.
Rob: Yeah, this was the first time I had met Ashley. When she said she was talking about insurance, I was like, “Oh, no. What have we done?” But she’s like, “No, it’s kind of a joke. I’m not actually talking about the insurance. I’m talking about doing the startup and validating it and the steps I took.” I thought her talk turned out really well. I enjoyed it. I heard some folks talking in hallway about how they enjoyed hearing her journey because it’s a little bit non-traditional. It’s not a SaaS app, but we’ve had really good talks from some folks who sell information products, some people who sell physical products. There are things to be learned and passed along across this disciplines.
Mike: Third speaker on our first day is Aleth Gueguen. Her talk was the Bulletproof Path to Privacy for your Software Business. She does a lot of stuff with the GDPR, a lot of consulting with various companies. But she kind of describes herself as a privacy advocate. Most of what she talked about was things that you would think are generally common sense and in certain cases they are. Obviously, certain companies where she has done consulting, they go in a different direction or they lean too much on the legal team for example. She’s like, “If you’re going to be putting together a privacy policy, yes, the legal team should have an input, but the marketing team should write it.” Because it’s really about how you are portraying your company and what you’re doing to your customers versus making it overly, I’ll say, aimed at covering your ass in terms of the legalities of it.
Yes, you do want to do that, but when you have a lawyer write that stuff, it’s very different in terms of tone and feel when the users are reading it versus when the marketing team writes it because you are presenting your company to the users like, “Hey, this is what we do with your data and this is why you should trust us.” Not saying you shouldn’t have the legal team review it afterwards, but it depends on your starting point and it’s going to have a very different tone and feel depending on who you have offer it.
Rob: This was another one when Aleth said she was speaking about GDPR. I was like, “Well, this can go one of two ways. It can be really boring or it can be super helpful.” What I like about what she said is when GDPR started coming on our radar at Drip—this is shortly before I had moved on from Drip—I said, “Let legal worry about it.” He said, “No. If they do it, it’ll be a mess. We, as product people, know the product and legal will not. They just won’t have the experience or the knowledge to be able to do this. We need to do it first then they need to make it legal speak.” and it worked out. That’s what we did. Brendan read the whole GDPR document, it’s 200 and something pages, and it worked out really well. She wasn’t recommending you read the whole thing, but she was saying, “You, as a product person, you have to own this.” I think that’s super important.
This is similar to negotiations I’ve seen. If your company is going to be acquired, you don’t want lawyers negotiating before the stuff needs to go to legal. There’s a point where it needs in a contract, before then, keep the lawyers out of it, and either have an investment maker or a broker, of if you’re going to be negotiating yourself, you handle it. But the lawyers in general will make things complicated and they can kill deals just with their approach. They’re trained to do things a certain way and it’s not always the right way.
GDPR, it was actually a really good talk. A couple of people said it was the best talk they’d heard on GDPR. It wasn’t like walking through legislation, it was saying, “Here’s a minimum viable approach to this. Here’s the next level up. Here’s some ways to think about.” It was much more from a more experienced person, not just someone who read a boring document.
Mike: It was definitely positioned as like, “This is the common sense way to approach it for companies that don’t have unlimited resources to be able to do it.”
Rob: Yeah, that’s right. And then we had some attendee talks in the afternoon. We have four attendee talks this year and that’s where admitted topics and they were voted on in advanced based on the topic. The presenter voted in advanced who should give the talks. I thought those went well. There were 12-minute talks, we did four of them in an hour, and they tend to move pretty quick. In general, we tend to have a pretty good luck in it, so that was the case again this year.
Mike: I would agree with that. I do want to call out a special thanks to Benedikt Deicke for putting together a attendee talk at the last minute because we did have an attendee talk that who had been voted on and was going to come and do that and he ended-up having to change his plans, and wasn’t able to make it to MicroConf Europe so I contacted Benedikt a few days before MicroConf and asked him. I was like, “Do you think you could put something together? Yes or No?” and I didn’t want to put him on the spot and force him to do it, but if he hadn’t been able to, we probably wouldn’t have been able to get away with it. But at the same time, I wanted to give him the opportunity if he wanted to. He put together a great talk. I thought it was exceptionally well done for the amount of time that he had.
Rob: Yup, I agree. Kudos to him for stepping up and doing that. And then I wrapped the day up with my talk. I called it, I really messed with the title a lot, and I finally landed on The State of Bootstrapping in 2018. I kind of talked through my journey as a bootstrapper, the phases of doing literally six years of nights and weekends, on and off and never making more $100 a month from the stuff I launched. Then there was this three-year period where I stair-stepped up to having like a house payment type of money, like $1000-$2000 a month. Then over that three years, I got to full-time income.
I went through the phases of what that looked like for me, funding options I have like, finding being nights and weekends, it’s a day job, or you can have savings or whatever. Then I looked at the funding options that we have today because they are definitely more a founder-friendly options. Obviously, I talked about venture capital, what that looks like. I still don’t think it’s fit for almost everyone in the room. Talked about fund-strapping which of course, I’ve talked about on this podcast before. I mentioned what I believe is the next wave or next generation of funding for our crowd basically, for the the MicroConf bootstrapping community which is kind of these funds like […] VC or accelerators I’m launching with TinySeed, at tinyseedfund.com which is bootstrapper-friendly accelerator.
I talked through all that and I got a lot of good questions afterwards. A couple of people said, “I wish you’d spend more time talking about TinySeed,” and I said, “The intent was not for it to be an advertisement for what I’m doing.” It’s not, “Hey, look at what I’m doing.” because if you don’t care about that, why are you sitting in the dock for 30 or 40 minutes. I really wanted it to be helpful to you no matter what you do. If it convinced you that bootstrapping is still the best way for you, then good, at least I convinced at something. If I convinced that you should consider fund-strapping or an accelerator like TinySeed or whatever, my goal was accomplished as well.
Mike: Then we had an evening event out on the terrace right outside where the main hall was where we had the conference itself, and that was sponsored by FE International. It was an absolutely gorgeous view from there because you could see, not just down to the water, the hotel was literally right on the water, and then they have like an infinity pool there with a swim up bar and a hot tub over to the side. It was just like, you could watch the sunset.
I think the second day I was there, there were probably 15 or 20 people just sitting out there, watching the sunset, and there were a few people who took timelapse videos. There’s a couple that got uploaded into the Slack group. It was just amazing view.
Rob: The hotel was the nicest, I’d say the nicest hotel we’ve had at MicroConf Europe at and by far the best location and the best view. Everyone commented on that. Every room has an ocean view. It’s really crazy. It’s so cool to be able to do that and to do it off-season so it wasn’t outrageously expensive. It was €110 a night for these rooms that I believe are twice that, I think they’re €220 in the high season or €240 or something. It’s nice.
Mike: I would say the only confusing thing about the hotel is that because you’re basically coming in from the back and it’s sort of on a cliff, the lobby is above all the other floors. The first floor is actually where you could go down, there’s a place to eat, and you can walk out into the pool area. But the lobby is actually–I think they call it the RC level but was like 9 or 10 or something like that. It’s at the top of the hotel and so the bottom.
Rob: Thank you to FE International for sponsoring MicroConf Europe and for sponsoring that evening event.
Mike: And then on day two, we had Adii Pienaar who came in and talked about fundstrapping. He talked about how he had bootstrapped his company and then he did a seed round, and then he almost did a Series A round and decided that instead of doing that, he just didn’t have the heart to try and convince people—the VCs—that that was the direction that the company really deserved to go in. Instead of trying to spend his effort there he turned around and said, “Okay, well let me just make this company profitable and I can do whatever they want.” They cut expenses, went through a couple of rough decisions, but ultimately, he has made the company profitable and they’ve been profitable since the beginning of the year. It was nice to see that path that he took.
He could’ve probably gotten funding if he really wanted to and he just said, “You know what, I don’t have to. I’m just going to make this company profitable.” and it gave some options. I think it was a nice follow-up to the talk that you had had where you talked about the different funding options and how money makes you make different decisions and profit from Adii’s […] but also gives you an optionality that I think that you don’t always have if you take a giant pile of money and you’re trying to build a big business that needs to grow fast because of the investors.
Rob: Yup. That makes a lot of sense. His was one of my favorite talks, to be honest, because he was so raw. Talk about the emotion, the ups and downs, and really kind of told the whole story. I didn’t feel like he held anything back, he gave exact numbers, he talked about a potential acquisition, and talked about, I believe he said what the price was. It was really so cool to hear all the details and then talk like that. I really appreciated him in coming into this with both the topic and the honesty.
Mike: Next, Dr. Sherry Walling came and she talked about mainly trying to keep the alignment that you have as an entrepreneur, making sure that you are aligned both mentally and physically with the goals that you have as a human being. She talked about how entrepreneurs are basically disruptors and there’s a sense that you want to do something that makes you belong but you also want to be successful. Sometimes those things have a little bit of friction between them but having alignment across that spectrum makes things a lot easier for you.
Rob: I missed most of her talk because I was watching the kids. We have three kids here with us and it was the middle of the day, so I had them, and then I caught the last 15 minutes of the talk. When I walked in, it was towards the end. All the eyes were up on her so I knew that she was capturing the audience. People weren’t off on their phone doing Twitter and stuff. It was good. I heard good things about it in the evening events as well.
But she spent a long time trying to figuring out exactly what she wanted to speak about this year and felt like she was going out on a limb with it. I felt like it really resonated.
Mike: The third talk of day two was Simon Payne. It was the CTO of LeadPages. He had left LeadPages I think shortly before you joined. He’s brought a couple of different things. He ran ConvertPlayer and more recently he’s been involved in a company called EventsFrame which helps event organizers sell tickets, and has different pricing structures.
What I found fascinating about that is that one of the things that they did to help get it out there was they did an AppSumo deal. He’s actually done two different AppSumo deals. First one was a while back and then this one was with EventsFrame. He talked about the behind-the-scene stuff like how that worked, what the, not necessarily the specific numbers of it, but what he saw in terms of like, “Oh, we started out with a hefty amount of traffic here and then there’s follow-up emails, and this is how we dealt with people who are already using the software,” and then they saw the AppSumo deal.
You do something like that where you don’t necessarily have control over who it goes to or the messaging, you may have to deal with customer support issues of somebody who says, “Hey, I bought this at this price and now I see this thing over here where you’re offering that.” He talked about how they handled that. I thought it was a really interesting way of approaching some of the objections that people may have about that.
Rob: For sure. And then we have typically seen this. If you’re doing a SaaS app, you […] craft a different plan that doesn’t match any of the plans on your pricing page. You probably put it in between two of the plans. Whatever you do, you just make it different so there is no direct comparison. They had some clever ways of working around that as well. Overall, it sounds like it was pretty successful for them and they’re off to a good start with EventsFrame. I enjoyed the talk. I like stories, he talked about the story and if you’re thinking about doing an AppSumo deal or even any of the deal a day things, it will apply to any of them. I felt like there was some value there.
Next up was Ashley Greene. The title of her talk was, Tech Changes, People Don’t: User Research Is Your Secret Growth Weapon. She is a user-research expert, that’s what she does for a living. She’s a consultant. She talked a lot about segmenting your users and surveying them, and figuring out which folks use which features, and which folks asks for which features. I caught most of it. I was actually in the middle of, there was this conference stuff coming up, so I kept having to get up. But the pieces that I caught I liked and I could tell there were certain folks in the audience who it really resonated with.
With talks like this, about user research, some people aren’t at the phase where it matters yet or they’re past the phase where it matters although you’re kind of never past that phase. But essentially, in the early days of customer […] that’s when, I would say, matters most. As a product matures, you can still do it, but it’s definitely, I would say not as, in my opinion, not as critical or something you should do. You’re doing everyday and make something in the early days. There were definitely some people who were really focused in on it, a lot of good questions for her at the end of the talk.
And then you wrapped up the day and the conference with the talk called, I’m Not Even Supposed to be Here. What’s that all about?
Mike: Well, we had a speaker who canceled at the last minute. I was flying out on Friday and I got an email on Thursday saying, “Look, there’s some stuff going on.” I’m not going to talk about it on the podcast because it’s his story, but I totally understand why he had to cancel. I feel more bad for him that he had to cancel than me for having to fill in. But just because he wasn’t able to make it, I didn’t want to leave the attendees in a lurch so I ended-up coming up with a talk at the very last minute to basically fill the time.
You could tell me how it went, but I completely pulled it out of thin air to be perfectly honest on extremely short notice. I had to work from notes. I would say that the presentation was probably the worst talk that I’ve ever given, but given the timeframe and the zero practice and everything else, it probably wasn’t terrible.
Rob: That was the thing, you had no practice, and you literally had notes that you had learn from, so it was tough. I would agree with you. Certainly, you’ve given talks that are a lot better than it both in prep, it’s hard. The first part, you have a lot of jokes, Morgan Freeman kind of internet meme stuff, and I felt the timing on some of them was off. I think by that time, people were tired. It was two days into the conference and I think it didn’t necessarily resonate with everyone but then you went into like, “Things go wrong, what do you do when they go wrong?” You started giving examples of all the things that have gone wrong behind-the-scenes at MicroConf over the past 16 conferences we’ve run. That part was fun for me, for sure. I think people got a kick out of it. And then you went into stuff that has gone wrong with you, like health issues and such, and kind of wrapped it up with, “Here’s what we do about it. We’re entrepreneurs.” I felt overall it was a good message.
The content was good, the delivery was unpracticed. It is what it is at that point, but we need some way to wrap up the conf.
Mike: After that, we had another evening reception on the terrace again and it was sponsored by SureSwift Capital. Again, another big thanks and shout out to SureSwift for stepping up and helping us to sponsor and support MicroConf. This is the third time that they’ve sponsored MicroConf. Honestly, it’s great to have sponsors like SureSwift Capital and FE International who really just want to support the community. They want to help people be successful. They like to interact with the attendees too. I think in general, the sponsors we have at MicroConf are fantastic in their attitudes and their willingness to just come in and help. They’re like, “We just want to support this community.” Obviously, I can’t say enough good things about both FE International and SureSwift.
Rob: It’s really nice to have, like you said, sponsors that I would do business with or have done business with because then you know, I can genuinely vouch for them, I don’t feel bad about letting them come up and talk on stage for two or three minutes or ask for information or intro-ing them to people, or whatever. We would thank them up from stage like, “Thanks to these guys. They’re legit. We like them.” It’s nice to have that luxury I think.
Mike: Yeah, it’s nice for everybody I think, everybody involved.
Rob: Overall, 16th, one in the bag. How does it feel?
Mike: It feels good. I’m hoping that I will get a goodnight of sleep tonight. I just got back yesterday. I think I left at one o’clock, Croatia time. When I got home, it was 9:00 PM for me, so it was like three o’clock in the morning, something like that. 13 hours of travel, 14 hours of travel which I really shouldn’t be complaining because I know that there are some people who come into MicroConf Vegas and they travelled 25 or 30 hours to be there.
Rob: Totally. That’s the thing for me too. I don’t know if you can hear it in my voice, but I have a little bit of head cold, I’m also super tired. It’s Thursday and the conference ended Tuesday night so you’d expect on Wednesday you’d be tired, but then last night, Sherry and I just went down to the bar to literally have a drink and to have a conversation. Of course, we’ve run into some MicroConf and the we stayed way too late. I still haven’t caught up on sleep. I’m trying to make a plan to do that tonight. But it’s almost dinner time and already I’m thinking, “You know, it’d be nice to just hit the bar and just have a little…watch the sunset right now.” We’ll see where all that leads.
Mike: After the evening reception was over, there were a ton of people that went down to the —actually, I should say up—to the reception area or the lobby area because they have a bar there and they have a piano and somebody went and got on the piano. One of the attendees plays piano and he just played for like 1 hour, 1 ½ or something like that. It reminded me a lot of the very first MicroConf when Marcus got onto the piano up in Andrew Warner’s room. We were all hanging out there. It reminded me a lot of that.
Rob: Yeah, it was fun. It was impromptu. I thought it was really neat. It kind of showed the community that’s like, the conference was over, the conference party was over, and yet, there people were gathering, hanging out, talking, networking/making jokes/playing the piano and just having drinks. I thought that was nice.
Mike: I would totally agree and I would totally go back.
Rob: I know. We’ll have to see if we can pull it off again next year because Croatia sure is a nice destination.
Mike: Well, with that said, I think you should take us out.
Rob: That wraps us up for the day. 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 415 | Product-Founder Fit, Stairstepping, Free Trials vs. Money Back Guarantees, and More Listener Questions
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In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including trials versus money back guarantees, product founder fit, the stair-step approach, and more.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about product founder fit, stair stepping, free trials versus money-back guarantees, and more listener questions. This is Startups For The Rest Of Us episode 415.
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. Croatia, sir. When this goes live, you and I are at MicroConf Europe.
Mike: Yes, that should definitely be fun. People have asked numerous times like, “What was it that made you select Croatia?” and it’s like, “Well, we’ve never been there before and it becomes a business expense.” Seems like a good reason as any.
Rob: And it’s hard for us to get to from the States but it’s reasonably easy to get there from within the EU. It’s gorgeous. It’s where they filmed a lot of Game of Thrones like the exterior scenes. Obviously, we do MicroConf Europe because we love to see everybody and it’s fun to get the people together and offer the value that we do through the MicroConfs, but we have always been pretty deliberate about where to place it.
First couple of years, we’re in Prague, and that was actually suggested by our coordinator at the time, Dan Taylor, and it turned out really cool because Prague was a fun city to be in. And then next, we picked Barcelona because you and I hadn’t been there and people want to go there. Then we went to Lisbon last year. Croatia is I think a nice next step. We’ve looked at Berlin and Greece, and a bunch of other cities and countries, and I think someday we’ll obviously move it to another place but I, for one, am very excited about this.
I’m going there with my family, wife and kids for two-and-a-half weeks. We’ll be in Dubrovnik itself for about a week but we will be surrounding cities kind of exploring. I don’t know if you’ve looked at images of Croatia or even just read up on it but there’s a lot to do there.
Mike: Yeah, definitely. I did look into it a little bit and there’s way more than you would actually think for a small country like that. It would be cool to just hang around. I’m personally looking forward to go and around looking at Dubrovnik itself just because it kind of mentally overlap between the stuff I’ve seen on Game of Thrones and then what the actual city looks like but I did hear that there’s a Game of Throne tour or something like that. I don’t know. I’m hoping I’ll have time to do that but we’ll see.
Rob: I agree. That’s going to be a no brainer for me for sure. This week we are answering some listener questions that have come in. With this episode, if we get through all of these, I believe that clears out our question queue. If you have a question for us you want to answered soon in the next couple of weeks, send it into us. Email us at questions@startupsfortherestofus.com or call our voicemail number. As always, voicemails and audio questions go to the top of the queue.
Our first question is about how many commitments you need to validate an idea, it’s a follow-up question to episode 410, it’s from Chris Palmer. He says, “Hey, I have a question for you. You say you should find 30 people to validate your idea. I’m working on an enterprise software concept with what I would pitch at an ARR, it’s annual run rate or annual cost, of between $10,000 and $150,000 plus. In other words, roughly based on company population plus paid-for seats. What I want to know, in your opinion, is 30 people or 30 companies still a good target number for validation? I used to work in a team. The company had 80,000 people and they will use the product. I’ve spoken to two other companies. One of the people who’s really interested is the director of communication at a large company. I’m going through my network to speak to more people. Cold contacting has not worked.”
It sounds like he has three companies that he’s at least in conversation with. Back to the question. “Given the income per customer, what number should I set? I’m confident with my validation statement and the concept’s possible success. Also, I just wanted to say thank you for your advice last year regarding a situation I was in. Your advice was super helpful. Thanks, Chris.” What do you think, Mike?
Mike: I don’t want to call it an edge case, but this is one of those situations where there’s general guidelines that you can follow, and then there’s cases like this where things fall so far out of what is normal in those situations that they don’t tend to apply. Most of the guidance that I’ve talked about in terms of how many people should you really talk to, it kind of assumes that people are paying a reasonable low monthly rate for it.
Enterprise sales are very, very different and depending on who it is you’re selling inside the company, it’s going to be a very different sales. If you’re selling to the IT director, it’s a different sale than if you were selling to the marketing director. The marketing director is only concerned about their own team versus if you’re selling to the IT director, you have to convince them not just that it is good for their team but also for the entire company, too. That’s what it sounds like this situation is because it’s based on company population versus the size of the IT team.
Rob: That’s why I’m glad he sent this in because it makes me question assumptions that we might have when we kind of call out rules of thumb. There’s always going to be an edge case with the rule of thumb and it’s neat when we can hear about one and then actually talk about, “Well, this is how we would think through that.”
Mike: Right. I think in this case it sounds to me the product is aimed at the entire company. I don’t want to use WinZip as an example, but I’m going to. WinZip is typically installed on every computer in most organizations just because—not almost all organizations—people who have it, they’re going to install it everywhere. You’re not going to buy it for just one team, for example, because it’s going to be used by pretty much the entire organization.
If you’re licensing like that, then it is a much more difficult sale because you have to convince them not only can you deliver on whatever the promises are but there’s value there for everybody and they’re going to be able to get around the training issues, any support problems, those are going to need to be taken cared of, and they’re going to want to probably test it inside of their environment.
In addition, you mentioned that you used to work on a team in a company of 80,000 people and when you have software like that that gets installed and deployed across the entire environment, what you end up with every single day of the week, there are people whose hard drive fail and they need to have either the hard drive replaced or the machine replaced and they’re re-imaging machines left and right. You have to be able to deploy that software in some way. Now, if that software can be remotely pushed, great. Otherwise, it needs to be embedded into the software image. You also need to figure out how’s that licensing stuff going to work.
Back to your question about how many people you need to validate it, it depends on how much money do you need. I would think you’d want to get commitments from enough companies that you’re able to basically do this full-time because I think it’s going to be hard to do it part time especially when you’re trying to make commitments to an enterprise company and if you’re trying to roll it out to the entire organization site unseen, I don’t know how you would get the commitment from them to buy it or maybe even an upfront payment for it without having something actually deliver to them. I feel there’s a lot of landmines here and it’s just going to be hard. Rob, why don’t you chime in here because maybe we can pass some ideas around for that.
Rob: Yeah. This is a tough one. To be honest, I don’t know if Chris is a single founder. I’m going to assume he’s bootstrapping and either single or maybe has one co-founder. It’s really, really hard to sell into the enterprise. You experienced this with AuditShark, right? It’s a lot of work, it’s a long lead time, and you kind of live or die by two customers or three customers because, again, if you’re going to sell it for $100,000 for an annual license, you only need one or two of those to go full-time on it. But landing one or two can take you a year or two years of just conversations.
It’s definitely an all-or-nothing. It’s riskier than trying to do this $10 or $30 or $50 a month thing where you can just cobble people together. I don’t know if it’s easier or harder, but I do think that there is a big barrier if you don’t already have that list of logos at your back to show you, “Hey, this is where we’ve implemented it.” because enterprises are slow-moving and they’re not very trusting of new technology in general, and rightfully so, because they’ve probably been burned by a bunch in the past.
I think that, that’s a challenge that you’ll face so know that going into it. I would recommend against this approach. But with that said, you have an idea and you are talking to three companies. I guess I feel similar to you that if you get yeses from all three, but you need more than just a yes. You need some type of written LOI, letter of intent, that if you can deliver this, they’ll go through with it because the problem is, how long is it going to take you to build this? You can get these verbal commitments and then is it going to take you six months or a year to build it? Are even the same people still going to be in the same roles at that company? Are they going to follow through on this verbal commitment they forgot about, most likely, to pay you $100,000 To that, I think that’s a challenge. How does he overcome that?
Mike: Well, you said letter of intent. I think an enterprise company is going to shy away from that just because it’s going to have to involve the legal team. You could ask them for a purchase order, you can send them an invoice, for example, that can’t be paid until 30 days or 60 days after delivery or sign-off or something like that. You’re going to have to put lines on the sand for you to be able to deliver. If you can’t meet them, then either it gets pushed out or if it gets pushed out too far, then the whole thing is dead.
One other thing that I did think of is that you could essentially treat it as a consulting engagement because if you can find enough companies to pay you on a consulting basis to deliver a solution, it doesn’t have to be yours, it can be something you cobbled together from a bunch of different places, and then you gradually morph it into your own code and your own full-blown product and then pull all the data over.
I would probably approach it from that side of things. Maybe you deliver it as a virtual machine that you give to them and then they can host it in their own environment. That’s probably more likely to succeed, but again, it’s a matter of getting them to sign off on, “Hey, we know we’re going to pay more for this than otherwise,” but there’s nothing here that says that this is a desktop application or a hosted web app. I don’t know if that would actually be viable.
Rob: Yeah. I do like the idea of consulting, actually. That’s a nice way to get that revenue upfront, the consulting revenue that you’re billing, and then be able to build that product, you have to write in the code and repurpose it to other people. I think with enterprise, that’s not a terrible way to go. You’re going to be plotting along as you go anyway. That’s going to take awhile to get these approvals.
So, yeah, it’s certainly not 30. I mean, back to his original question, he said you said to find 30 in order to validate. That is with lower-priced bootstrap SaaS in mind. This is a different case. I don’t know that I even have that. I could take a guess of if you get three commitments or five commitments, that sounds right. But then again, just as we’ve said, those commitments, what are they worth unless they’ve sign something. I don’t even know if verbal commitments from enterprise companies is worth doing.
I would venture to say that the approach needs to be something entirely different. I can see this consulting idea—he kind of call that—where start consulting with one or two of them, build that out and see if the feature sets overlap, you may get to the point where enterprise stuff is so tough because you can build a feature set and then every enterprise wants something different and they’re used to getting customizations so you really are not building a repeatable product. You’re building a code base that you then augment and do customer consulting for each one. I’ve read a […] so that maybe the road you’re going down here.
Mike: The other nice thing that can offer as consulting where offers you is that it gets you into that enterprise sales process and teaches you how to negotiate it, and you’re more likely to get somebody to sign off on consulting engagement in an enterprise company than you are to have them purchase a piece of software for every user in the organization when they don’t necessarily know for sure if it’s going to work out for them or not. But for whatever reason, they’re more than willing to pay large sums of consulting dollars for that kind of stuff.
Then based on that, you establish this list of people that you came in and did consulting for, and then maybe come back to them later and say, “Hey, we’ve left and you’re now on your own. Is this working out for you?” It’s probably not because most of those consulting engagements they get down once and then that’s it, and then people just let it drop because they’ve got other priorities, but if there’s software in place, it will help them because then they don’t have to manually do things.
Rob: Thanks for the question, Chris, always good to hear from you. Our next question is about stair stepping and where does stair step from where they are. It’s from Will Gant. He says, “Long time listener, three-time MicroConf attendee. Trying to figure out how to stair step my way out of a current situation. I thought it might be a question to discuss. A buddy of mine and I have built a podcast, The Complete Developer Podcast, completedeveloperpodcast.com. In the software development space, it’s taken us three years, we just got our 250,000th download. We’ve got about 15,000 downloads a month and we generate about 2000 downloads in the first six weeks of an episode release. We also have a meetup group, it gets 10-40 attendees once a month, and on meetup.com, the group has about 850 developers in it. It’s only in Nashville, but we’re considering expanding.”
“We’ve tried a bunch of ways to monetize this. We’ve tried sponsorships but the CPM cost per thousand rates for podcast are so low, it doesn’t seem worthwhile. We’ve tried Patreon. Our email list is very small but we’re working on it. We both have full-time jobs. I plan to stay at mine for at least three years, but I like to consider having something else to transition to if it comes time to move along.”
“We’re in the process of putting together an audio book that we’ll sell under the podcast brand. I’ve personally written a small ebook, took a couple of weeks to write. We plan to continue podcasting. We’re getting everything done with 8-12 hours of work each week apiece. That’s 16-24 person-hours. We could cut some of that by outsourcing and process improvements. My question is, what’s a good next step for stair stepping from here?”
“I feel there are four options. First thing, of course, is to build the email list and then we could, number one, try to ramp up ads sponsorships. Number two, build affiliate websites and get commissions or do affiliates stuff in the podcast itself. Number three, create digital products like ebooks, video courses, and sell those. Number four, coaching developers on their careers. How would you evaluate the above? We’ve been leaning towards products, put together individually. Given the constraints above, if you were me, how would you proceed over the next six months? Thanks.”
This is a big one. A lot of aspects to it. A lot of ways to think about it.
Mike: Yeah and I think that the fact that he’s tried a bunch of different things gives a little bit more information to work off of.
Rob: Super helpful.
Mike: Yeah. The four options there, the first one was try to ramp up on ad sponsorships. He’s already said that that’s difficult, and then Patreon has been even less lucrative, and the email list is rather small. The thing about ad sponsorships is they’re going to scale linearly with your audience. If the money that your getting from them now is relatively small, let’s say it’s a hundredth of what you need, you would need to 100x your traffic based of the your audience in order to get that to the level that you need to. It doesn’t sound to me like that is probably going to work out.
I would say roughly the same thing with affiliates and giving commissions or selling affiliate stuff on the podcast. You’re going to get some revenue from it, but it’s probably only going to be—depending on the type of product—it can be anywhere from 15% to 50% of whatever the product is. But it doesn’t seem to me like that is going to pay the bills either.
The third option was creating digital products such as books, video courses, etc, and then the fourth option was coaching developers. I think if you’re going to coach developers, you need to have something very specific that you are coaching them on. I would question how many of them would be able to pay a rate that is going to get you out of a situation that you’re in. Individually, they’re probably not going to be able to pay more than $100 an hour or $150.
You could use something like a group coaching session. I have seen that work out. My wife joined up with a business coach who basically went that route and instead of coaching people one-on-one, we’re coaching them in a group. That’s sort of like a course, but not really. You really want to have everybody starting at the same time. You’re going to have to find the right people and catch them at the right time in order to coach them on that. You’re also going to want to say like, “This is what we are coaching on.” Whether it’s how to get higher salaries or how to program in this particular language or how to deal with these types of situations, you’re going to have to think really, really hard about that.
The third option he just said is digital products. Seems to me like the better bet. I think that there’s a lot of opportunities there for books and video courses tiered info product format. That provides a significant advantage over doing affiliate stuff where your only getting a small fraction of it which is split because there’s two people in the business versus creating your own digital products and then you guys get to keep 100%.
Rob: When I initially read this question, the feeling is 2000 downloads per episode, it’s obviously a great milestone to reach, but it really isn’t enough to monetize directly. If he had written in and said they hadn’t tried Patreon or ads, I would have said, “Don’t try them.” I don’t think they’re going to work. The money is really going to be in the email list and if you don’t have much of a list, I don’t know that there is a direct way to monetize this podcast.
I mean, you and I have never directly monetized this podcast. We’ve talked recently about doing sponsorships, but we’re essentially more than 10 times the size of their podcast. One of the reasons we haven’t wanted to do it today is because we’ve gone down other roads and monetize it with mostly MicroConf and FounderCafe. That’s really what pays our time and editing and all that to put the podcast together.
You and I also sold books and stuff independently, but at that size of an audience, I’m thinking back to Sherry. Sherry started ZenFounder. She and I started ZenFounder podcast. As it’s grown, she did small info product. She did her retreat ebook, The Zen Founder Guide To Founder Retreats, and I don’t know how many copies exactly, but it’s a $20 book and she sold a few hundred copies.
It took time to write, as Will said, took him a couple of weeks to write, but that’s not a bad way to go. What’s nice is that if you release it, you make a few hundred bucks from it, you learn a lot about launching, then you have this thing that’s valuable, and you can give that away as a lead magnet in the future, you can discount it on Black Friday, and you start building up this portfolio of products. Now still, with 2000 downloads, if you don’t grow that email list, it’s never going to be something huge. It’s not going to be a full-time living unless you can grow all of that.
I think that’s the thing to think about. Is this space big enough? We know John Sonmez who comes to MicroConf and runs Simple Programmer or used to run simpleprogrammer.com. I know he’s doing a much different stuff now but he built a big audience. If I recall, it was through blogging and videos, it wasn’t through podcasting. That either says it the audience isn’t there in podcasting or maybe it’s still untapped and you haven’t hit directly on that value proposition yet.
I’d be curious if how much you’ve promoted your podcast, like have you gone on every other podcast in the space? To be interviewed not just about your podcast but just about things and then talk about your podcast and how it helps people? What are the other avenues to grow that podcast listener base and then have more calls to action to your emails list. If you want to go full-time on this, I would not do that without an email list that could support this, which is let’s say 10,000 or tens of thousands of subscribers, depending on how much they buy from you and how much content you can put out.
While coaching is a short-term thing, I think at this size, it’s just so hard to monetize. It’s so hard to get a lot of value out of a couple of thousand listeners. Those are my thoughts. Do you have any other thoughts, Mike?
Mike: No. I mean, I agree with you like the idea of putting together a small portfolio of digital products that you can offer. Some of you may relegate to using this as a lead magnet later on. That’s probably a way to go. As an example, you said that there’s was one that took him about two weeks or so to put together and then plus there is editing time after that. Call it 6-8 weeks total. If each work on one, you can probably put out five, ten of them per year? That’s pretty good. That seems that would give you a fairly significant base to work from and you can have them about very specific topics and then if you promote the podcast more and then you maybe talk about them or get them on your email list. But again, you have to grow everything and you have to have products to offer.
Rob: Right and the nice part is once you’ve written that, well, you can then put it on Amazon as a Kindle ebook and you can even buy ads for that on Amazon now. There are other ways to promote it from there and then you could use that as a way to generate leads and just generate listeners or generate email subscribers. You now have multiple things out there. It’s a tough problem to have. It’s hard to work this much and not having enough of an audience to basically make a full-time living, but it’s a problem all of us have had at one point or another. So, totally get it.
I think the last thing I want to touch on is the 16-24 person-hours a week that you’re spending on a podcast. In contrast, what do we spend, Mike? Between the two of us, it’s four person-hours every two weeks? You think? Five?
Mike: There’s the obvious time spent actually recording. But then beyond that, we’ve outsourced pretty much everything else.
Rob: That’s what I’m saying is it’s not that expensive to outsource everything else. If you get even one of these ebooks that’s selling reasonably well, you could pay for an editor, our editor posts to WordPress and does all the stuff. Given that, again, you and I, let’s say 2 ½ hours a week total person hours versus the 16-24 they’re spending. If they could get all that time back, it would be a big deal. They could put that towards doing other things whether it’s towards growing a list, towards growing another podcast, towards building these products out, I think that’s something to think about.
No, I don’t know the format of their podcast. Maybe it’s just a lot more labor-intensive than ours is. Maybe it’s scheduling guests and it’s doing a bunch of things. But I would guess that a lot of that could still be outsourceable. Chicken and egg, right?
Mike: Yeah, it is. I wonder if there’s other options as well. If you could reclaim eight hours per week, that’s a full day. If you’re doing consulting or other stuff that is able to generate even remotely enough money to cover time or cost or something else, you could definitely outsource that. Let’s sa, you did four hours of consulting work per week. Finding that is a completely different topic, but you get paid $100 an hour for each of those. If you’re each doing that, that’s an extra $800 a week, $1600 between the two of you. It costs a lot less than $6400 a month to edit a podcast. Now, you’re cutting your time in half and you’re adding that money in.
I’m not saying consulting is the answer, but there are other ways to get that done. I would think more consciously about that 8-12 hours that your spending and how much value you’re actually providing. Are there other ways to pay for that, is what really comes down to and then to reclaim that time and use that time to generate revenue as opposed to do stuff that’s essentially a cost sink.
Rob: Thanks for the question. I hope that was helpful. Our next question is about derisking product founder fit and it’s from Heather. She says, “My day job is all about finding product market fit. I can usually figure out a way to test my side project ideas but I struggle to commit to any because I’m not sure if I’ll end up hating the everyday tasks. Do you have any idea for a lean approach for finding product finder fit or to de-risk that side of the equation?” It’s a good question. We’ve never had this before.
Mike: This is a good question and I actually addressed this to some extent in my book, The Single Founder Handbook, and it’s in Chapter 12. It’s on Idea Filtering. I did not call it this at the time because I don’t think I was either well aware of the term but it basically talks about that to some extent in terms of filtering out ideas that you’re brainstorming and trying to figure out if you should go after one idea or another based on your personality and interest.
I laid it out in terms of, there’s pros and then there’s cons, and then there’s also disqualifiers. In terms of the disqualifiers, I put things in there like two-sided markets or difficult customers or indirect revenue streams because it’s just difficult to get those businesses off the ground.
But there’s also the idea that some of your ideas are things that are going to require things of you that you are simply not going to want to do. For example, when it comes to enterprise sales, I’m good at it but I’m not good at finding the enterprise deals to actually then go in and do the sales stuff. I can do the sales stuff but I’m not good at all the prospecting stuff and I hate that stuff. There’s a difference in being good at it versus not enjoying it. Could I find somebody else and hire to do that stuff? Sure, I could. Could I do it temporarily? Yeah, I could. But at the same time, I know that I wouldn’t want to do that long term or manage that entire process.
I think I would come up with a short list of things that you absolutely, under no circumstances, ever want to have to do, and those become your list of disqualifiers. Every idea that you come up with, fit them up against that list and your can throw it into a spreadsheet, see if it’s going to work for you. If it’s not, then don’t do it. You can also test things to some extent and do it a little bit to see if you would be able to do them long term. For everyday tasks that you have to do, a lot of them you can outsource but there’s certain ones that you simply can’t. Again, for enterprise sales like that prospecting, you have to be the one to do it initially and if you hate it that much, the business is never going to work.
Rob: I like the way you framed that. I think that’s super helpful. I think that’s one reason why I never launched a super sales-intensive application is I’ve just known that I want to be low touch or mid touch. Later into the lifecycle, Drip became of higher touch app once we started getting these big contracts to get $20,000, $30,000, $40,000 a year and up. You’re going to talk face-to-face with people, but I always aim for lower touch and that’s because that’s one of my deal breakers is I don’t want to be doing sales in the early days. Later, I can hire people to do that once we grew to a team, it was fine. But if that’s the main driver of sales, you have to do that in the early days. Typically, you want the founder doing that.
Maybe it’s a good framework. What are your deal breakers? What do you like and dislike? This is hard to answer if it’s your first project because it’s hard to know what you like and dislike. You can take a guess but the more experience you have, the more you learn about yourself. I would totally go and take StrengthsFinder and maybe even the Enneagram. These are just personality test that give you more insight into who you are and I think those can help you determine some more things about what you like and dislike, but then it’s also, like you said, singlefounderhandbook.com, if you want to read that section on de-risking it from a product founder fit perspective.
I like this question. I actually want to think on it more. I would bet in a future episode it will come back around and we’ll have more thought. This is one of those that, one the spot, I don’t have the entire framework mapped out, but I know that I’m going to mull on it while doing dishes and kind of come back to it. Thanks for the question, Heather.
Our next question is a voicemail and you know what, Mike? This should have been top of the show. I messed up because voicemails typically go to the top of the queue but I kind of forgot. This is from Tim Burgen. He called in a couple of episodes ago from Brisbane, Australia and we could hear the audio. I did a call out and he basically emailed us a very high quality WAV file. Let’s listen to that now.
“Hi, Mike and Rob. It’s Tim Burgen from Brisbane, Australia. My question is around offering a free trial. Is offering a free trial the only recommended next step to bring prospects into the fold? Or are there alternatives that you’ve also seen work? Most discussions that I’ve read just seem to assume that offering a free trial is given. The only exception that I’ve ever heard was Jason Cohen talking about the early days of the WPEngine where he removed trial for a money-back guarantee. What’s your impression of that approach and are there other options that you’ve seen too? I look forward to hearing your thoughts.”
Mike: I’ve tried the money-back guarantee instead of a free trial and it does work but the problem that you do run into is that if you’re selling—and this is specifically with Bluetick I saw this, where somebody wanted to sign up and they decided against it because it was going to require a credit card, and they didn’t want to use their personal credit card even though there is a money-back guarantee because then afterwards they would have to go to their boss and if they liked it, they said, “Oh, I need to be reimbursed for this.” it was extra paperwork they didn’t want to have to do.
Going with the trial route was a better option than the money-back guarantee. Again, who you’re selling to is going to make a difference there. If you’re selling more to consumers then a money-back guarantee is probably going to work better, but if you’re selling to somebody who’s on a team, then they don’t want to expend their own social capital in front of the eyes of their boss by signing up with the company credit card when it’s something that they don’t know if it’s going to work. There’s pluses and minuses of both approaches.
I was actually just talking to my wife about this the other day. There was a time where money-back guarantee was a fantastic option because you could also just refund somebody’s money, and it didn’t cost you anything. Stripe used to eat those costs, for example, and then they stopped doing that because it just got to be too costly because there were info marketers out there that were selling $1000-$2000 products, and then they’d have to issue refunds for 50% of them, so Stripe basically, just killed that. Depending on how many of those refunds you have to do, it may or may not work. You may just want to eat those costs, but it may not be viable for you to do.
Another option I’ve seen people try is having an onboarding fee. Instead of just saying, “Hey, here’s a free trial,” or whatever, say that there’s also an onboarding fee of $300 or $500 or something like that, which sounds outrageous like, “Why would you ask somebody to pay more when you’re just trying to get them in the door.” But it’s a prequalification process. You’re saying, “Hey, if somebody’s willing to sign-up and they’re willing to pay this extra $750 just to get on-boarded, that’s a great way to do it,” just because you’re going to filter out the people who aren’t necessarily serious about the product.
Rob: I know that you get a chargeback fee if you’re charged back, if it’s a dispute, but I don’t believe there’s any expense for refunds unless you have an unusually high refund rate.
Mike: I have seen that there were. I could be wrong. I could be misremembering this.
Rob: Maybe someone can write in and let us know. I’m on their pricing page, and it’s talking about chargebacks, but if the chargeback dispute is in your favor, you don’t have a fee. If it’s a chargeback and you lose it, then it’s $15. I’ve been on services every 25 or 30 for chargebacks. The only articles that mentions that I can find on Stripe refunds talk about how the entire fee, and it says right here in the docs, “There’s no fee to refund a charge.” Someone write in if you know because Mike and I have different memory. There’s always a chance that this stuff is out-of-date. I’m looking at a page that hasn’t been updated, and they just changed that.
That’s one thing. It’s kind of beside the point if it’s a couple percent. It’s not a big deal. Your refund rat will be higher if you do a money-back guarantee upfront, but it’s not going to bankrupt you as a SaaS app. Your margins are high enough that they can handle it even if there is a a cost.
I think there are a handful of apps that I’ve seen do the money-back guarantee. WP Engine was one, I remember. Pluggio, Justin Vincent did that. I believe, ConvertKit used to do that. I’m not sure. I think they still do. They charge you right up front, there’s no trial, and then they have a money-back guarantee there. There are certainly other apps that do it.
I think the default and normal assumption is to have a free trial rather than money-back guarantee for exactly the reason that you mentioned. If you’re at a company, and you put your own credit card on, and then it gets charged, you need to go reimbursed. It’s kind of a hassle. It’s just one more piece of friction.
Like I said, it really depends on who you’re selling to because if you’re selling to individuals or nascent entrepreneurs or people who it’s like, “Hey, they’re pulling up their personal credit card to buy this and they are convinced that it’s the tool. It’s being recommended by some expert they know and they think it’s going to help them start their business,” then yeah, maybe this isn’t an issue.
But if you’re selling B2B, money-back guarantee will be a blocker. I’ll tell you that right now. Even just asking for credit card upfront for a free trial can be a blocker and you will get a lot of people who won’t go through with the sign-up because of that. You have to look around. There’s a couple of things. Figure out who you’re selling to and if it’s truly your business says, I would shy away from a money-back guarantee, not saying I won’t do it, but the added friction will eliminate actual prospects who probably would buy from you because it can just become a deal breaker of some.
I would also look around at competition and actually in Tim’s email, he mentions that some of his competitors offer a one-year money-back guarantee and a discount for the first year because the churn is very low and because the switching cost are high. That right there tells me, “Oh, that’s interesting.” Could there even be a really limited free plan much like MailChimp, kind of one that ESP space early on because they were the only one that can get a free plan to work.
It’s risky as a bootstrapper, but if the switching cost are high, you can just get this massive funnel coming in. There can be value there. But even if you don’t do free plan, I would say I would lean towards as little friction as possible to get someone into that trial because the more people you get in if the switching cost are high, that’s how you’re going to build value in your SaaS app.
He says another competitor is actually seen to be free but then they have back-end per-transaction charges. What these competitors have figured out is since churn is low and you’re all fighting for new customers, that the least amount of friction upfront is the way to go. That’s where again, I would personally—as a rule of thumb that could be broken—I would lean away from money-back guarantees and I would look much more at a trial.
Then you have to ask yourself, “Do I have to do credit card upfront or not?” If you don’t do credit card upfront, you’re going to get a lot more people in that trial. Can you convert them? Are they still qualified? This is an experiment I would run. I may start with lower friction, given the load churn and the fact that people don’t switch out after they become customers.
Mike: Just a confirmation on that last piece where, in terms of Stripe, right on their refunds page they say, “There are no fees to refund a charge but the fees from the original charge are not returned,” so whatever the percentage is. That changed I think in 2017 because they couldn’t afford to do that.
Rob: Which is 3% plus 29 cents or something?
Mike: Yeah.
Rob: Okay. If it’s $100, you’re to pay him $3, essentially you’re eating $3.30 per refund and with the SaaS app, with the margins you have, that’s probably trivial. That wouldn’t be the reason I wouldn’t do it. If would be the other reasons I think I talked about.
Awesome. That’s a good question. Thanks for the question, Tim.
Mike: I think that about wraps us up for the day. If you have a question for us, you can call into our voicemail number at 1-888-801-9690 and Rob will put it to the top of the queue or be fired.
Rob: Next time, yeah.
Mike: Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. 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 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. Croatia, sir. When this goes live, you and I are at MicroConf Europe.
Mike: Yes, that should definitely be fun. People have asked numerous times like, “What was it that made you select Croatia?” and it’s like, “Well, we’ve never been there before and it becomes a business expense.” Seems like a good reason as any.
Rob: And it’s hard for us to get to from the States but it’s reasonably easy to get there from within the EU. It’s gorgeous. It’s where they filmed a lot of Game of Thrones like the exterior scenes. Obviously, we do MicroConf Europe because we love to see everybody and it’s fun to get the people together and offer the value that we do through the MicroConfs, but we have always been pretty deliberate about where to place it.
First couple of years, we’re in Prague, and that was actually suggested by our coordinator at the time, Dan Taylor, and it turned out really cool because Prague was a fun city to be in. And then next, we picked Barcelona because you and I hadn’t been there and people want to go there. Then we went to Lisbon last year. Croatia is I think a nice next step. We’ve looked at Berlin and Greece, and a bunch of other cities and countries, and I think someday we’ll obviously move it to another place but I, for one, am very excited about this.
I’m going there with my family, wife and kids for two-and-a-half weeks. We’ll be in Dubrovnik itself for about a week but we will be surrounding cities kind of exploring. I don’t know if you’ve looked at images of Croatia or even just read up on it but there’s a lot to do there.
Mike: Yeah, definitely. I did look into it a little bit and there’s way more than you would actually think for a small country like that. It would be cool to just hang around. I’m personally looking forward to go and around looking at Dubrovnik itself just because it kind of mentally overlap between the stuff I’ve seen on Game of Thrones and then what the actual city looks like but I did hear that there’s a Game of Throne tour or something like that. I don’t know. I’m hoping I’ll have time to do that but we’ll see.
Rob: I agree. That’s going to be a no brainer for me for sure. This week we are answering some listener questions that have come in. With this episode, if we get through all of these, I believe that clears out our question queue. If you have a question for us you want to answered soon in the next couple of weeks, send it into us. Email us at questions@startupsfortherestofus.com or call our voicemail number. As always, voicemails and audio questions go to the top of the queue.
Our first question is about how many commitments you need to validate an idea, it’s a follow-up question to episode 410, it’s from Chris Palmer. He says, “Hey, I have a question for you. You say you should find 30 people to validate your idea. I’m working on an enterprise software concept with what I would pitch at an ARR, it’s annual run rate or annual cost, of between $10,000 and $150,000 plus. In other words, roughly based on company population plus paid-for seats. What I want to know, in your opinion, is 30 people or 30 companies still a good target number for validation? I used to work in a team. The company had 80,000 people and they will use the product. I’ve spoken to two other companies. One of the people who’s really interested is the director of communication at a large company. I’m going through my network to speak to more people. Cold contacting has not worked.”
It sounds like he has three companies that he’s at least in conversation with. Back to the question. “Given the income per customer, what number should I set? I’m confident with my validation statement and the concept’s possible success. Also, I just wanted to say thank you for your advice last year regarding a situation I was in. Your advice was super helpful. Thanks, Chris.” What do you think, Mike?
Mike: I don’t want to call it an edge case, but this is one of those situations where there’s general guidelines that you can follow, and then there’s cases like this where things fall so far out of what is normal in those situations that they don’t tend to apply. Most of the guidance that I’ve talked about in terms of how many people should you really talk to, it kind of assumes that people are paying a reasonable low monthly rate for it.
Enterprise sales are very, very different and depending on who it is you’re selling inside the company, it’s going to be a very different sales. If you’re selling to the IT director, it’s a different sale than if you were selling to the marketing director. The marketing director is only concerned about their own team versus if you’re selling to the IT director, you have to convince them not just that it is good for their team but also for the entire company, too. That’s what it sounds like this situation is because it’s based on company population versus the size of the IT team.
Rob: That’s why I’m glad he sent this in because it makes me question assumptions that we might have when we kind of call out rules of thumb. There’s always going to be an edge case with the rule of thumb and it’s neat when we can hear about one and then actually talk about, “Well, this is how we would think through that.”
Mike: Right. I think in this case it sounds to me the product is aimed at the entire company. I don’t want to use WinZip as an example, but I’m going to. WinZip is typically installed on every computer in most organizations just because—not almost all organizations—people who have it, they’re going to install it everywhere. You’re not going to buy it for just one team, for example, because it’s going to be used by pretty much the entire organization.
If you’re licensing like that, then it is a much more difficult sale because you have to convince them not only can you deliver on whatever the promises are but there’s value there for everybody and they’re going to be able to get around the training issues, any support problems, those are going to need to be taken cared of, and they’re going to want to probably test it inside of their environment.
In addition, you mentioned that you used to work on a team in a company of 80,000 people and when you have software like that that gets installed and deployed across the entire environment, what you end up with every single day of the week, there are people whose hard drive fail and they need to have either the hard drive replaced or the machine replaced and they’re re-imaging machines left and right. You have to be able to deploy that software in some way. Now, if that software can be remotely pushed, great. Otherwise, it needs to be embedded into the software image. You also need to figure out how’s that licensing stuff going to work.
Back to your question about how many people you need to validate it, it depends on how much money do you need. I would think you’d want to get commitments from enough companies that you’re able to basically do this full-time because I think it’s going to be hard to do it part time especially when you’re trying to make commitments to an enterprise company and if you’re trying to roll it out to the entire organization site unseen, I don’t know how you would get the commitment from them to buy it or maybe even an upfront payment for it without having something actually deliver to them. I feel there’s a lot of landmines here and it’s just going to be hard. Rob, why don’t you chime in here because maybe we can pass some ideas around for that.
Rob: Yeah. This is a tough one. To be honest, I don’t know if Chris is a single founder. I’m going to assume he’s bootstrapping and either single or maybe has one co-founder. It’s really, really hard to sell into the enterprise. You experienced this with AuditShark, right? It’s a lot of work, it’s a long lead time, and you kind of live or die by two customers or three customers because, again, if you’re going to sell it for $100,000 for an annual license, you only need one or two of those to go full-time on it. But landing one or two can take you a year or two years of just conversations.
It’s definitely an all-or-nothing. It’s riskier than trying to do this $10 or $30 or $50 a month thing where you can just cobble people together. I don’t know if it’s easier or harder, but I do think that there is a big barrier if you don’t already have that list of logos at your back to show you, “Hey, this is where we’ve implemented it.” because enterprises are slow-moving and they’re not very trusting of new technology in general, and rightfully so, because they’ve probably been burned by a bunch in the past.
I think that, that’s a challenge that you’ll face so know that going into it. I would recommend against this approach. But with that said, you have an idea and you are talking to three companies. I guess I feel similar to you that if you get yeses from all three, but you need more than just a yes. You need some type of written LOI, letter of intent, that if you can deliver this, they’ll go through with it because the problem is, how long is it going to take you to build this? You can get these verbal commitments and then is it going to take you six months or a year to build it? Are even the same people still going to be in the same roles at that company? Are they going to follow through on this verbal commitment they forgot about, most likely, to pay you $100,000 To that, I think that’s a challenge. How does he overcome that?
Mike: Well, you said letter of intent. I think an enterprise company is going to shy away from that just because it’s going to have to involve the legal team. You could ask them for a purchase order, you can send them an invoice, for example, that can’t be paid until 30 days or 60 days after delivery or sign-off or something like that. You’re going to have to put lines on the sand for you to be able to deliver. If you can’t meet them, then either it gets pushed out or if it gets pushed out too far, then the whole thing is dead.
One other thing that I did think of is that you could essentially treat it as a consulting engagement because if you can find enough companies to pay you on a consulting basis to deliver a solution, it doesn’t have to be yours, it can be something you cobbled together from a bunch of different places, and then you gradually morph it into your own code and your own full-blown product and then pull all the data over.
I would probably approach it from that side of things. Maybe you deliver it as a virtual machine that you give to them and then they can host it in their own environment. That’s probably more likely to succeed, but again, it’s a matter of getting them to sign off on, “Hey, we know we’re going to pay more for this than otherwise,” but there’s nothing here that says that this is a desktop application or a hosted web app. I don’t know if that would actually be viable.
Rob: Yeah. I do like the idea of consulting, actually. That’s a nice way to get that revenue upfront, the consulting revenue that you’re billing, and then be able to build that product, you have to write in the code and repurpose it to other people. I think with enterprise, that’s not a terrible way to go. You’re going to be plotting along as you go anyway. That’s going to take awhile to get these approvals.
So, yeah, it’s certainly not 30. I mean, back to his original question, he said you said to find 30 in order to validate. That is with lower-priced bootstrap SaaS in mind. This is a different case. I don’t know that I even have that. I could take a guess of if you get three commitments or five commitments, that sounds right. But then again, just as we’ve said, those commitments, what are they worth unless they’ve sign something. I don’t even know if verbal commitments from enterprise companies is worth doing.
I would venture to say that the approach needs to be something entirely different. I can see this consulting idea—he kind of call that—where start consulting with one or two of them, build that out and see if the feature sets overlap, you may get to the point where enterprise stuff is so tough because you can build a feature set and then every enterprise wants something different and they’re used to getting customizations so you really are not building a repeatable product. You’re building a code base that you then augment and do customer consulting for each one. I’ve read a […] so that maybe the road you’re going down here.
Mike: The other nice thing that can offer as consulting where offers you is that it gets you into that enterprise sales process and teaches you how to negotiate it, and you’re more likely to get somebody to sign off on consulting engagement in an enterprise company than you are to have them purchase a piece of software for every user in the organization when they don’t necessarily know for sure if it’s going to work out for them or not. But for whatever reason, they’re more than willing to pay large sums of consulting dollars for that kind of stuff.
Then based on that, you establish this list of people that you came in and did consulting for, and then maybe come back to them later and say, “Hey, we’ve left and you’re now on your own. Is this working out for you?” It’s probably not because most of those consulting engagements they get down once and then that’s it, and then people just let it drop because they’ve got other priorities, but if there’s software in place, it will help them because then they don’t have to manually do things.
Rob: Thanks for the question, Chris, always good to hear from you. Our next question is about stair stepping and where does stair step from where they are. It’s from Will Gant. He says, “Long time listener, three-time MicroConf attendee. Trying to figure out how to stair step my way out of a current situation. I thought it might be a question to discuss. A buddy of mine and I have built a podcast, The Complete Developer Podcast, completedeveloperpodcast.com. In the software development space, it’s taken us three years, we just got our 250,000th download. We’ve got about 15,000 downloads a month and we generate about 2000 downloads in the first six weeks of an episode release. We also have a meetup group, it gets 10-40 attendees once a month, and on meetup.com, the group has about 850 developers in it. It’s only in Nashville, but we’re considering expanding.”
“We’ve tried a bunch of ways to monetize this. We’ve tried sponsorships but the CPM cost per thousand rates for podcast are so low, it doesn’t seem worthwhile. We’ve tried Patreon. Our email list is very small but we’re working on it. We both have full-time jobs. I plan to stay at mine for at least three years, but I like to consider having something else to transition to if it comes time to move along.”
“We’re in the process of putting together an audio book that we’ll sell under the podcast brand. I’ve personally written a small ebook, took a couple of weeks to write. We plan to continue podcasting. We’re getting everything done with 8-12 hours of work each week apiece. That’s 16-24 person-hours. We could cut some of that by outsourcing and process improvements. My question is, what’s a good next step for stair stepping from here?”
“I feel there are four options. First thing, of course, is to build the email list and then we could, number one, try to ramp up ads sponsorships. Number two, build affiliate websites and get commissions or do affiliates stuff in the podcast itself. Number three, create digital products like ebooks, video courses, and sell those. Number four, coaching developers on their careers. How would you evaluate the above? We’ve been leaning towards products, put together individually. Given the constraints above, if you were me, how would you proceed over the next six months? Thanks.”
This is a big one. A lot of aspects to it. A lot of ways to think about it.
Mike: Yeah and I think that the fact that he’s tried a bunch of different things gives a little bit more information to work off of.
Rob: Super helpful.
Mike: Yeah. The four options there, the first one was try to ramp up on ad sponsorships. He’s already said that that’s difficult, and then Patreon has been even less lucrative, and the email list is rather small. The thing about ad sponsorships is they’re going to scale linearly with your audience. If the money that your getting from them now is relatively small, let’s say it’s a hundredth of what you need, you would need to 100x your traffic based of the your audience in order to get that to the level that you need to. It doesn’t sound to me like that is probably going to work out.
I would say roughly the same thing with affiliates and giving commissions or selling affiliate stuff on the podcast. You’re going to get some revenue from it, but it’s probably only going to be—depending on the type of product—it can be anywhere from 15% to 50% of whatever the product is. But it doesn’t seem to me like that is going to pay the bills either.
The third option was creating digital products such as books, video courses, etc, and then the fourth option was coaching developers. I think if you’re going to coach developers, you need to have something very specific that you are coaching them on. I would question how many of them would be able to pay a rate that is going to get you out of a situation that you’re in. Individually, they’re probably not going to be able to pay more than $100 an hour or $150.
You could use something like a group coaching session. I have seen that work out. My wife joined up with a business coach who basically went that route and instead of coaching people one-on-one, we’re coaching them in a group. That’s sort of like a course, but not really. You really want to have everybody starting at the same time. You’re going to have to find the right people and catch them at the right time in order to coach them on that. You’re also going to want to say like, “This is what we are coaching on.” Whether it’s how to get higher salaries or how to program in this particular language or how to deal with these types of situations, you’re going to have to think really, really hard about that.
The third option he just said is digital products. Seems to me like the better bet. I think that there’s a lot of opportunities there for books and video courses tiered info product format. That provides a significant advantage over doing affiliate stuff where your only getting a small fraction of it which is split because there’s two people in the business versus creating your own digital products and then you guys get to keep 100%.
Rob: When I initially read this question, the feeling is 2000 downloads per episode, it’s obviously a great milestone to reach, but it really isn’t enough to monetize directly. If he had written in and said they hadn’t tried Patreon or ads, I would have said, “Don’t try them.” I don’t think they’re going to work. The money is really going to be in the email list and if you don’t have much of a list, I don’t know that there is a direct way to monetize this podcast.
I mean, you and I have never directly monetized this podcast. We’ve talked recently about doing sponsorships, but we’re essentially more than 10 times the size of their podcast. One of the reasons we haven’t wanted to do it today is because we’ve gone down other roads and monetize it with mostly MicroConf and FounderCafe. That’s really what pays our time and editing and all that to put the podcast together.
You and I also sold books and stuff independently, but at that size of an audience, I’m thinking back to Sherry. Sherry started ZenFounder. She and I started ZenFounder podcast. As it’s grown, she did small info product. She did her retreat ebook, The Zen Founder Guide To Founder Retreats, and I don’t know how many copies exactly, but it’s a $20 book and she sold a few hundred copies.
It took time to write, as Will said, took him a couple of weeks to write, but that’s not a bad way to go. What’s nice is that if you release it, you make a few hundred bucks from it, you learn a lot about launching, then you have this thing that’s valuable, and you can give that away as a lead magnet in the future, you can discount it on Black Friday, and you start building up this portfolio of products. Now still, with 2000 downloads, if you don’t grow that email list, it’s never going to be something huge. It’s not going to be a full-time living unless you can grow all of that.
I think that’s the thing to think about. Is this space big enough? We know John Sonmez who comes to MicroConf and runs Simple Programmer or used to run simpleprogrammer.com. I know he’s doing a much different stuff now but he built a big audience. If I recall, it was through blogging and videos, it wasn’t through podcasting. That either says it the audience isn’t there in podcasting or maybe it’s still untapped and you haven’t hit directly on that value proposition yet.
I’d be curious if how much you’ve promoted your podcast, like have you gone on every other podcast in the space? To be interviewed not just about your podcast but just about things and then talk about your podcast and how it helps people? What are the other avenues to grow that podcast listener base and then have more calls to action to your emails list. If you want to go full-time on this, I would not do that without an email list that could support this, which is let’s say 10,000 or tens of thousands of subscribers, depending on how much they buy from you and how much content you can put out.
While coaching is a short-term thing, I think at this size, it’s just so hard to monetize. It’s so hard to get a lot of value out of a couple of thousand listeners. Those are my thoughts. Do you have any other thoughts, Mike?
Mike: No. I mean, I agree with you like the idea of putting together a small portfolio of digital products that you can offer. Some of you may relegate to using this as a lead magnet later on. That’s probably a way to go. As an example, you said that there’s was one that took him about two weeks or so to put together and then plus there is editing time after that. Call it 6-8 weeks total. If each work on one, you can probably put out five, ten of them per year? That’s pretty good. That seems that would give you a fairly significant base to work from and you can have them about very specific topics and then if you promote the podcast more and then you maybe talk about them or get them on your email list. But again, you have to grow everything and you have to have products to offer.
Rob: Right and the nice part is once you’ve written that, well, you can then put it on Amazon as a Kindle ebook and you can even buy ads for that on Amazon now. There are other ways to promote it from there and then you could use that as a way to generate leads and just generate listeners or generate email subscribers. You now have multiple things out there. It’s a tough problem to have. It’s hard to work this much and not having enough of an audience to basically make a full-time living, but it’s a problem all of us have had at one point or another. So, totally get it.
I think the last thing I want to touch on is the 16-24 person-hours a week that you’re spending on a podcast. In contrast, what do we spend, Mike? Between the two of us, it’s four person-hours every two weeks? You think? Five?
Mike: There’s the obvious time spent actually recording. But then beyond that, we’ve outsourced pretty much everything else.
Rob: That’s what I’m saying is it’s not that expensive to outsource everything else. If you get even one of these ebooks that’s selling reasonably well, you could pay for an editor, our editor posts to WordPress and does all the stuff. Given that, again, you and I, let’s say 2 ½ hours a week total person hours versus the 16-24 they’re spending. If they could get all that time back, it would be a big deal. They could put that towards doing other things whether it’s towards growing a list, towards growing another podcast, towards building these products out, I think that’s something to think about.
No, I don’t know the format of their podcast. Maybe it’s just a lot more labor-intensive than ours is. Maybe it’s scheduling guests and it’s doing a bunch of things. But I would guess that a lot of that could still be outsourceable. Chicken and egg, right?
Mike: Yeah, it is. I wonder if there’s other options as well. If you could reclaim eight hours per week, that’s a full day. If you’re doing consulting or other stuff that is able to generate even remotely enough money to cover time or cost or something else, you could definitely outsource that. Let’s sa, you did four hours of consulting work per week. Finding that is a completely different topic, but you get paid $100 an hour for each of those. If you’re each doing that, that’s an extra $800 a week, $1600 between the two of you. It costs a lot less than $6400 a month to edit a podcast. Now, you’re cutting your time in half and you’re adding that money in.
I’m not saying consulting is the answer, but there are other ways to get that done. I would think more consciously about that 8-12 hours that your spending and how much value you’re actually providing. Are there other ways to pay for that, is what really comes down to and then to reclaim that time and use that time to generate revenue as opposed to do stuff that’s essentially a cost sink.
Rob: Thanks for the question. I hope that was helpful. Our next question is about derisking product founder fit and it’s from Heather. She says, “My day job is all about finding product market fit. I can usually figure out a way to test my side project ideas but I struggle to commit to any because I’m not sure if I’ll end up hating the everyday tasks. Do you have any idea for a lean approach for finding product finder fit or to de-risk that side of the equation?” It’s a good question. We’ve never had this before.
Mike: This is a good question and I actually addressed this to some extent in my book, The Single Founder Handbook, and it’s in Chapter 12. It’s on Idea Filtering. I did not call it this at the time because I don’t think I was either well aware of the term but it basically talks about that to some extent in terms of filtering out ideas that you’re brainstorming and trying to figure out if you should go after one idea or another based on your personality and interest.
I laid it out in terms of, there’s pros and then there’s cons, and then there’s also disqualifiers. In terms of the disqualifiers, I put things in there like two-sided markets or difficult customers or indirect revenue streams because it’s just difficult to get those businesses off the ground.
But there’s also the idea that some of your ideas are things that are going to require things of you that you are simply not going to want to do. For example, when it comes to enterprise sales, I’m good at it but I’m not good at finding the enterprise deals to actually then go in and do the sales stuff. I can do the sales stuff but I’m not good at all the prospecting stuff and I hate that stuff. There’s a difference in being good at it versus not enjoying it. Could I find somebody else and hire to do that stuff? Sure, I could. Could I do it temporarily? Yeah, I could. But at the same time, I know that I wouldn’t want to do that long term or manage that entire process.
I think I would come up with a short list of things that you absolutely, under no circumstances, ever want to have to do, and those become your list of disqualifiers. Every idea that you come up with, fit them up against that list and your can throw it into a spreadsheet, see if it’s going to work for you. If it’s not, then don’t do it. You can also test things to some extent and do it a little bit to see if you would be able to do them long term. For everyday tasks that you have to do, a lot of them you can outsource but there’s certain ones that you simply can’t. Again, for enterprise sales like that prospecting, you have to be the one to do it initially and if you hate it that much, the business is never going to work.
Rob: I like the way you framed that. I think that’s super helpful. I think that’s one reason why I never launched a super sales-intensive application is I’ve just known that I want to be low touch or mid touch. Later into the lifecycle, Drip became of higher touch app once we started getting these big contracts to get $20,000, $30,000, $40,000 a year and up. You’re going to talk face-to-face with people, but I always aim for lower touch and that’s because that’s one of my deal breakers is I don’t want to be doing sales in the early days. Later, I can hire people to do that once we grew to a team, it was fine. But if that’s the main driver of sales, you have to do that in the early days. Typically, you want the founder doing that.
Maybe it’s a good framework. What are your deal breakers? What do you like and dislike? This is hard to answer if it’s your first project because it’s hard to know what you like and dislike. You can take a guess but the more experience you have, the more you learn about yourself. I would totally go and take StrengthsFinder and maybe even the Enneagram. These are just personality test that give you more insight into who you are and I think those can help you determine some more things about what you like and dislike, but then it’s also, like you said, singlefounderhandbook.com, if you want to read that section on de-risking it from a product founder fit perspective.
I like this question. I actually want to think on it more. I would bet in a future episode it will come back around and we’ll have more thought. This is one of those that, one the spot, I don’t have the entire framework mapped out, but I know that I’m going to mull on it while doing dishes and kind of come back to it. Thanks for the question, Heather.
Our next question is a voicemail and you know what, Mike? This should have been top of the show. I messed up because voicemails typically go to the top of the queue but I kind of forgot. This is from Tim Burgen. He called in a couple of episodes ago from Brisbane, Australia and we could hear the audio. I did a call out and he basically emailed us a very high quality WAV file. Let’s listen to that now.
“Hi, Mike and Rob. It’s Tim Burgen from Brisbane, Australia. My question is around offering a free trial. Is offering a free trial the only recommended next step to bring prospects into the fold? Or are there alternatives that you’ve also seen work? Most discussions that I’ve read just seem to assume that offering a free trial is given. The only exception that I’ve ever heard was Jason Cohen talking about the early days of the WPEngine where he removed trial for a money-back guarantee. What’s your impression of that approach and are there other options that you’ve seen too? I look forward to hearing your thoughts.”
Mike: I’ve tried the money-back guarantee instead of a free trial and it does work but the problem that you do run into is that if you’re selling—and this is specifically with Bluetick I saw this, where somebody wanted to sign up and they decided against it because it was going to require a credit card, and they didn’t want to use their personal credit card even though there is a money-back guarantee because then afterwards they would have to go to their boss and if they liked it, they said, “Oh, I need to be reimbursed for this.” it was extra paperwork they didn’t want to have to do.
Going with the trial route was a better option than the money-back guarantee. Again, who you’re selling to is going to make a difference there. If you’re selling more to consumers then a money-back guarantee is probably going to work better, but if you’re selling to somebody who’s on a team, then they don’t want to expend their own social capital in front of the eyes of their boss by signing up with the company credit card when it’s something that they don’t know if it’s going to work. There’s pluses and minuses of both approaches.
I was actually just talking to my wife about this the other day. There was a time where money-back guarantee was a fantastic option because you could also just refund somebody’s money, and it didn’t cost you anything. Stripe used to eat those costs, for example, and then they stopped doing that because it just got to be too costly because there were info marketers out there that were selling $1000-$2000 products, and then they’d have to issue refunds for 50% of them, so Stripe basically, just killed that. Depending on how many of those refunds you have to do, it may or may not work. You may just want to eat those costs, but it may not be viable for you to do.
Another option I’ve seen people try is having an onboarding fee. Instead of just saying, “Hey, here’s a free trial,” or whatever, say that there’s also an onboarding fee of $300 or $500 or something like that, which sounds outrageous like, “Why would you ask somebody to pay more when you’re just trying to get them in the door.” But it’s a prequalification process. You’re saying, “Hey, if somebody’s willing to sign-up and they’re willing to pay this extra $750 just to get on-boarded, that’s a great way to do it,” just because you’re going to filter out the people who aren’t necessarily serious about the product.
Rob: I know that you get a chargeback fee if you’re charged back, if it’s a dispute, but I don’t believe there’s any expense for refunds unless you have an unusually high refund rate.
Mike: I have seen that there were. I could be wrong. I could be misremembering this.
Rob: Maybe someone can write in and let us know. I’m on their pricing page, and it’s talking about chargebacks, but if the chargeback dispute is in your favor, you don’t have a fee. If it’s a chargeback and you lose it, then it’s $15. I’ve been on services every 25 or 30 for chargebacks. The only articles that mentions that I can find on Stripe refunds talk about how the entire fee, and it says right here in the docs, “There’s no fee to refund a charge.” Someone write in if you know because Mike and I have different memory. There’s always a chance that this stuff is out-of-date. I’m looking at a page that hasn’t been updated, and they just changed that.
That’s one thing. It’s kind of beside the point if it’s a couple percent. It’s not a big deal. Your refund rat will be higher if you do a money-back guarantee upfront, but it’s not going to bankrupt you as a SaaS app. Your margins are high enough that they can handle it even if there is a a cost.
I think there are a handful of apps that I’ve seen do the money-back guarantee. WP Engine was one, I remember. Pluggio, Justin Vincent did that. I believe, ConvertKit used to do that. I’m not sure. I think they still do. They charge you right up front, there’s no trial, and then they have a money-back guarantee there. There are certainly other apps that do it.
I think the default and normal assumption is to have a free trial rather than money-back guarantee for exactly the reason that you mentioned. If you’re at a company, and you put your own credit card on, and then it gets charged, you need to go reimbursed. It’s kind of a hassle. It’s just one more piece of friction.
Like I said, it really depends on who you’re selling to because if you’re selling to individuals or nascent entrepreneurs or people who it’s like, “Hey, they’re pulling up their personal credit card to buy this and they are convinced that it’s the tool. It’s being recommended by some expert they know and they think it’s going to help them start their business,” then yeah, maybe this isn’t an issue.
But if you’re selling B2B, money-back guarantee will be a blocker. I’ll tell you that right now. Even just asking for credit card upfront for a free trial can be a blocker and you will get a lot of people who won’t go through with the sign-up because of that. You have to look around. There’s a couple of things. Figure out who you’re selling to and if it’s truly your business says, I would shy away from a money-back guarantee, not saying I won’t do it, but the added friction will eliminate actual prospects who probably would buy from you because it can just become a deal breaker of some.
I would also look around at competition and actually in Tim’s email, he mentions that some of his competitors offer a one-year money-back guarantee and a discount for the first year because the churn is very low and because the switching cost are high. That right there tells me, “Oh, that’s interesting.” Could there even be a really limited free plan much like MailChimp, kind of one that ESP space early on because they were the only one that can get a free plan to work.
It’s risky as a bootstrapper, but if the switching cost are high, you can just get this massive funnel coming in. There can be value there. But even if you don’t do free plan, I would say I would lean towards as little friction as possible to get someone into that trial because the more people you get in if the switching cost are high, that’s how you’re going to build value in your SaaS app.
He says another competitor is actually seen to be free but then they have back-end per-transaction charges. What these competitors have figured out is since churn is low and you’re all fighting for new customers, that the least amount of friction upfront is the way to go. That’s where again, I would personally—as a rule of thumb that could be broken—I would lean away from money-back guarantees and I would look much more at a trial.
Then you have to ask yourself, “Do I have to do credit card upfront or not?” If you don’t do credit card upfront, you’re going to get a lot more people in that trial. Can you convert them? Are they still qualified? This is an experiment I would run. I may start with lower friction, given the load churn and the fact that people don’t switch out after they become customers.
Mike: Just a confirmation on that last piece where, in terms of Stripe, right on their refunds page they say, “There are no fees to refund a charge but the fees from the original charge are not returned,” so whatever the percentage is. That changed I think in 2017 because they couldn’t afford to do that.
Rob: Which is 3% plus 29 cents or something?
Mike: Yeah.
Rob: Okay. If it’s $100, you’re to pay him $3, essentially you’re eating $3.30 per refund and with the SaaS app, with the margins you have, that’s probably trivial. That wouldn’t be the reason I wouldn’t do it. If would be the other reasons I think I talked about.
Awesome. That’s a good question. Thanks for the question, Tim.
Mike: I think that about wraps us up for the day. If you have a question for us, you can call into our voicemail number at 1-888-801-9690 and Rob will put it to the top of the queue or be fired.
Rob: Next time, yeah.
Mike: Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
