Show Notes
Transcript
[00:00] Mike: This is Startups for the Rest of Us episode 147.
[00:03] Music
[00:11] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
[00:19] Rob: And I’m Rob.
[000:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
[00:24] Rob: The word is Drip is in prelaunch. I have 310 emails going out and it’s basically kind of a chunk of our launch list and we’re doing as a test just to make sure that everything works and all the sign up and the trial emails and billing and all that stuff works but it’s pretty exciting. I have a four email launch sequence that I use often and two of those emails of have gone out. So tomorrow is the email that actually lets people in and gets them start using Drip. So it’s kind of the first time that we’re launching to a group of people rather than doing one off stuff.
[00:54] Mike: Yeah, that’s really nice to see.
[00:57] Rob: I want you, AuditShark here like next week or two weeks from now, that’s where I want you to be.
[01:02] Mike: Because I’ve been thinking a lot about how to deal with the issues for remediation. Just because doing things on an automated basis to like remediate them is kind of a scary thing and I’ve actually been looking at putting together kind of a hybrid model where the software does some stuff and then on the back end, there isn’t software that automates it but I can go in and do things myself. So essentially have the software cost one price and then if you want remediation in addition to that, I can charge you an additional fee on top of what the software costs and we’ll go in and manually take care of that.
[01:35] I’ve got a couple people who – there’s one guy that’s really good at operations stuff. He’s worked in a lot of larger production environments and so have I. So either one of us could actually go in and make those fixes and understand the implications of all the fixes that we’re doing. Of course that becomes something of a hybrid offering where you got some software and some services. But I think that because there’s a combined services and software offering, I could actually charge a significant higher price to do that because people are going to understand oh well here’s the cost of the software. Here’s the cost of the remediation effort beyond that and it does bring up the price of the overall offering.
[02:12] You know as well as I do when you first start launching a Saas product that the ramp up is going to be slow and I think adding in services like that is going to ramp up that revenue stream very, very quickly.
[02:21] Rob: Yeah. I think that’s a really good idea. For those who are listening, if you don’t know what remediation means, AuditShark finds problems or confines security issues and remediation means fixing those. And you’re talking about doing some manual work where a person has to be involved and you’re right. It raises your price point but it means you provide so much more value because if you think about what AuditShark probably does is it will add items to my to-do list as a server owner.
[02:46] And this is the same problem I saw with HitTail. It’s the same problem you see with a lot of apps that will cause churn like people feel guilty about it. They don’t want to pay for something that is not actually fixing something. It’s just telling them something needs to be fixed. There’s a big, big difference between those two end points.
[03:01] So I mean I’m doing it with Drip. We have a concierge service where we will write someone’s’ entire email sequence for a fee. We did it with HitTail where we automated the article publishing. We have writers who write articles for people to take that off their to-do list. It’s adding human powering your Saas app basically and it’s taking up the next level both in price point and in the amount of service that you’re able to offer.
[03:24] So yes I fully support that and I think is the future trend because so many of the low hanging fruit Saas apps are being built and they’re done. How much more can you do with invoicing and accounting and these other things? I think that over the next few years we’re going to see these hybrid approaches because most software developers don’t want to do them because they’re messy. We want everything to be code. We want everything to scale.
[03:47] So adding that human powered side to it, you just have such a chance to grow revenue faster and to offer so much more value like exponentially more value to your end customers than you can just do with code.
[03:57] Mike: I think the other significant advantage of doing something like this is the fact that you may not know upfront what its going to take to do all that remediation at least from my product there’s obviously different problems that needs to be solved for other products but for those, there’s going to be a different manual process in place. And you’re not going to necessarily know how to handle that in every situation automatically. So you’re going to have to go through those manual steps.
[04:20] You sometimes have to do things, they just simply don’t scale. And then once you get a handle on how to do them, then you try to automate them and I think this is just a natural extension of that is to be able to do these manually, try and figure out what sorts of things we going to regularly check to make sure we’re not breaking other stuff. And then make those changes, test everything, make sure everything’s still working and figure out what those additional things are that need to be done to make sure it’s still working and automate those down the road.
[04:46] Rob: Or you have a Saas app, you’re thinking about one, ask yourself this question. What can I do to do more for my customers? Even completely non-scalable requires manual labor. What can you do for them to provide them more value and therefore give you the ability to be better than your competition and to be able to charge more. And so you’re going to have a higher revenue for growth.
[05:06] Music
[05:10] So we both hired bookkeepers.
[05:11] Mike: Yeah. How was yours going?
[05:13] Rob: Mine’s going really well. I’ve been happy with him. He’s been doing all my Numa group Books for about two months and he has me setup in Xero which is xero.com and I’m pleased with the software. It’s easy enough to use and finally I’m not like dreading taxes in next year because he actually went all the way back to January and did InDinero, manually migrated my books. He charged me for it which was fair and then now he’s keeping it on a monthly basis. How about you?
[05:41] Mike: Yeah. My book keeper’s been really working out as well. She came in, I think she was here yesterday and worked through the rest of the stuff and all the bills and stuff that I had to pay for the month and I just walked her through the process. So far it’s working out great. I mean it was really nice to just hand her everything and just kind walkway and say let me know if you have questions. I just didn’t even have to think about it. It was awesome.
[06:01] Rob: Yeah. It’s definitely a way off my shoulders. It was reasonably easy when InDinero work but once we started having bugs I was spending a lot of time on it. So it’s nice to know it’s taken care of. It’s like too expensive to outsource in my opinion when you have good software that can do it or if you have a simple solution. If you have a pretty simple scenario where you have one product that’s generating revenue, I would recommend using outright and you can probably do it almost completely automated. If you setup a few rules, even with Xero, you can setup a lot of rules. You can probably most automate it and don’t need a bookkeeper. But once you get more complex or I think like you Mike, you have a lot of paper that you process.
[06:35] Mike: Yeah.
[06:36] Rob: That’s a point where your time is more valuable than sitting there. You’re doing something basically that’s not pushing your business forward. We have two congratulations, two new product launches over the past couple of weeks from long time Micropreneur Academy members. The first is Ivan. He not only launched his split testing plug-in for WordPress but he saw his first sale within a day or two of launching and that’s at abpressoptimizer.com and he gave us a coupon code for our listeners. If you use Startups25 that will get you 25% off.
[07:14] And he dropped us a little note. He said the Micropreneur Academy gave me a realistic outlook and the tools I needed to launch my first product. Having the support of the academy community gave me the motivation to finish my product and made me accountable for my progress. He says out of everything I’ve built in my career, nothing has been this gratifying as when I got that email for the first sale. So definitely, congratulations to Ivan.
[07:36] The other launch is Nitesh Singh also been with the academy for several years and he launched auctionplugin.net it’s also a WordPress plug-in. it enables you to launch an auction site in a few minutes.
[07:48] Mike: I’m just getting a lot of people going to the WordPress space and launching a lot of different plug-ins.
[07:54] Rob: Lot of opportunity there. And it’s like we’ve talked about on the podcast now for the past six months of kind of getting that early win. Because these are the first products that these guys are launching and you launch it and you get – even if it’s a few thousand a month like it shows you that you’re capable of it. It gives you that early win. It gives you confidence and it also teaches you a lot about the different elements that you need to then grow and kind of a more – maybe a more complex app or a complex market. And it’s a stair step approach right? Of starting small and kind of moving up. I think it’s really cool.
[08:26] Mike: I think what I find really interesting is I’ve seen some people launch in these WordPress plug-ins and they don’t know anything about WordPress development. They’re essentially outsourcing the entire thing to other people and then they’re simply attacking the marketing side of things to understand how to sell it, how to put the site up and everything else and really focus in on the marketing and letting somebody else deal with all the code behind it. Even though they are developers and they could theoretically figure out if they wanted to but they’re just not…
[08:53] Rob: Right. I think that’s the nice benefit of something like a WordPress plug-in over Saas is that it’s so much less complex that you can hire a developer and more easily outsource it. There are also a lot of decent WordPress plug-in developers around and they’re not super expensive. Again, building the Saas app can take four to six months of pretty heavy development whereas you can get a plug-in developed in a month and kind of what you see is what you get. There’s just a lot of fewer moving parts and I still maintain that. Right now it’s still a good strategy for someone just getting started.
[09:26] Music
[09:30] Today we are going to be answering some listener questions. Going to the back log. Our first listener question is a voicemail about the best pricing strategy for a B to B Saas app.
[09:41] Dan: Hey my name is Dan and I am representing Chart Breeze. That’s chartbreeze.com it’s charting for your Trello projects. I want to know what’s the right strategy to take when trying to price your Saas project and specifically when trying to price for potential businesses to buy your product not necessarily consumers. Thanks. I’ll listen to your answer. Bye.
[10:06] Rob: So I think Dan really has two questions. First part, he’s kind of asking what’s a general approach for it but I bet he also may appreciate some advice about his site specifically which he said is at chartbreeze.com. In terms of general Saas pricing, I think almost all Saas apps are going to be business to business. There are very few B to C Saas apps that I’ve seen actually work because consumers don’t really love subscriptions.
[10:31] I think in general when you are talking about Saas pricing, just assume that its B to B. There’s a bunch of different approaches you can take. I think that I always like to price on value meaning if it saves someone money or makes them money or saves them time, then you can somehow justify the price that way. Now I know there’s argument about whether or not that kind of pricing actually works but it helps at least shape the thought whether you use that in your marketing or not, it helps at least shape it in your mind of what could this potentially be worth to someone.
[11:00] The second approach that I think about is like a gut feeling of what I’d be willing to pay and I will also ask a handful of people what they think it would be worth. You run the risk – if you’re trying to do both do customer development and develop the product as well as ask them about what they should pay then you kind of have two conflicting things going on. Right. So you can’t do that. I feel like you need to figure out your feature set first, figure out what solves the real paying point and start building that and then ask a separate group of people here’s what I’m building, would you buy it? And how much would you pay?
[11:30] And then, once you get a number that you start feeling comfortable with, like these things are like $29. $29 a month might be a lower number, then go back to the first group and say alright, I’ve solved your problem and I’m going to charge $29 for it. Are you good with it? And then you’re going to see reactions all over the board. Some people will say that’s a no brainer and some people will say it’s way too much. And then try to figure out what’s the different between those guys. Are they both Saas companies buying your app? And is one of them just makes so much more per lead so they’re willing to pay more for it?
[12:03] Try to figure out the point which you can segment and that’s the trick. Its figuring out is it the number of emails sent per month or the number of subscribers that they have or the number of documents they upload. There’s these things to pivot on. You’ve really got to dig in to start figuring that out. It’s not a trivial process. There’s been a lot written on this. I actually like sixteenventures.com which is Lincoln Murphy’s site and he’s written a lot about Saas pricing so if you want to go deeper I would definitely check out sixteenventures.com.
[12:32] Mike: I think for chart breeze, one of the things that strikes me is the plus plan for example is listed at $29 a month and for anyone who’s not looking at it, there’s basic plus then enterprise priced at $9, $29 then $59. If you look at business class Trello, its $25 a month or $200 a year. So to me it seems a little odd to charge more for an add on than for the product itself.
[12:58] Rob: Got it. And for people, Chart Breeze is charts for Trello. It says create gorgeous charts for your Trello boards.
[13:05] Mike: The Trello business class only cost $200 a year. So to me it seems a little odd to charge more for charting capability than it does for the product itself. It’s not to say you can’t pull it off. The other end of the spectrum is that you also have to understand that this is being built on a product that could theoretically be free. So people could be using the free version.
[13:26] I have a hard time coming up with a pricing plan that is an add on for something that’s theoretically free. You can kind of look back at WordPress and say well that’s free. You’re paying for the plug-ins that extend the functionality. And that’s one way to look at it. I don’t know with chart breeze how you would justify that. I really think you need to start digging and find out what people are using it for and then try to come back with a pricing scenario that makes sense for the problems that they’re trying to solve.
[13:52] The other thing you could do is find ways that people are using Trello and build something around that such that your add on product really addresses those needs in a way that leverages the Trello back end and uses your front end. And then essentially what you’re doing is you’re using the Trello engine to power your application as a value app.
[14:10] Rob: Yeah. I think Chart Breeze doesn’t really have a pricing problem. I think it has more of a value proposition problem because I use Trello and I manage. I have now several Trello boards and I’m using it to manage some different things. But I don’t know why I would use Chart Breeze. The homepage headline says Trello plus charts, so that’s what it is, not what it does for me. And it says create gorgeous charts for your Trello boards and my next question is okay, but why?
[14:37] So then there’s three benefits listed on the homepage. See the bigger picture. Work smarter not harder and clearly communicate victories. But none of those freely apply to me or they feel so vague that I don’t understand. I almost need like a case study or multiple case studies specifically how would I use this today? How is it going to save me time, make me money or save me money? That’s really what I want to know when I come to you as a business.
[15:00] Mike: And that’s kind of why I was pointing to finding out what people are using it for and then building a front end that is going to leverage the Trello back end to specifically solve those problems and use it as their value added. Because obviously, you could use Trello for I’ll say bug tracking if you really wanted to but is it really setup for that? The answer is no. But could you build a front end that would leverage that Trello back end using the API’s and make it into a great drag and drop bug tracker and you probably could.
[15:28] So those are the things I’m thinking that would probably be applicable but I think it goes right to the heart of the matter what you just said as why would I use this? I don’t know why anyone would want to chart things in Trello and I think it really depends a lot on what they’re actually using Trello for.
[15:45] Rob: Right. And so if its only software development companies that give you an agile development using Trello then that’s it. Chart Breeze becomes are you on agile development, are you a developer? You want all of that verbiage and you want to tightly niche it to them. If it turns out that realtors want charts because I know there’s a continuum of realtors who are using it then book, that’s when charts becomes in realtors Trello charting app.
[16:08] So I think there’s more digging to be done here to really find out the value prop that you’re offering, very, very specifically boil down into one sentence and to find out the audience that needs that the most. If you don’t know that yet, that’s okay. You just have to do some digging and continue to look for it because I think at this point if you launch with this app, I don’t know if you’ve already launched I don’t think you have a pricing problem. I think you have like I said a value problem and you need to dig deeper to find that before you’re going to be able to really start attracting customers and solving a deep paying point. So thanks for the question Dan.
[16:40] Our next question comes in from Brandon Crocket. He says hey Mike and Rob. My partners and I have been listening to your podcast for a while now and find it very informing. Our company is called Qdaptive web based truly adaptive question generating app that uses class notes to generate study material. Our question is what do you recommend for a small business checking account? We have an LLC formed and we are finding tons of fees associated with the business accounts. Do you have any recommendation for us?
[17:08] Mike: Having recently gone through this process of finding a new bank for my businesses, I’ll give you the one that I think is probably the best for anyone who’s starting out and they’re essentially in a pre-revenue state. Look for local credit unions. And the reason I say that is because if you go to any of the big box banks like bank of America or Wells Fargo, what’s going to happen is you’re going to sign up with them and get an account with them. But the problem is because you’re not carrying a large balance, they’re going to start charging you monthly fees and those fees can be anywhere from $15 to $30 a month.
[17:39] And if you don’t want to be charged those fees then you have to carry this minimum balance which is probably in the neighborhood of $10,000, $15,000 or $20,000. Now when you go to a smaller bank, those smaller banks probably have a little bit more flexibility but it’s really the credit unions where you can start to leverage their business banking side which they don’t necessarily concentrate on. The smaller credit unions concentrate on consumers but they do offer business banking accounts.
[18:04] So for example near me there’s a bank called DCU and they’re digital federal credit union but they have a lot of business services and they actually have some substantial backing on the business side because they take all the stuff that they offer their members and also offer them to businesses because many of the members own businesses. So in order to offer their members more options in terms of banking let’s offer these to our members who own businesses as well.
[18:32] And they’ve kind of grown that so they will offer stuff to a business even if you don’t have personal accounts with them. But because it’s a digital credit union, they are trying to move everything online so for someone like me, that works out really, really well. But you can leverage that too. You go to a local credit union, find out what sorts of business options they have. I did a search in Massachusetts and found half a dozen credit unions that offer business banking and almost all of them were no fee. Almost all of them did not have a monthly minimum that you had to maintain. $5 is a small price to pay to be able to get that business banking account and not have to pay any fees.
[19:08] Rob: I was going to answer this with a BofA (Bank of America) account. I’m not a huge fan of BFA but they do have a nice online banking and you can deposit checks through their mobile app and I don’t pay any fees on any of my accounts but then you pointed out that it’s because I keep a minimum balance. So when you’re first starting out, you’re right, a big bank is always going to charge you fees until you get to that point of having whatever the minimum balance is typically $10,000 to $20,000 for a business checking account in order not to not pay the fee.
[19:36] Mike: Thanks for the question Brandon. Hope that helps.
[10:38] Rob: Our next question is from Sean Walberg about segmenting customers. He says hey Rob and Mike, I enjoy your podcast each week. Thanks for taking the time to share your experiences. I created a tool over at isithacked.com that checks a website for hard to find spam and it’s been doing a great job at catching infections that other tools have missed. People have been asking me to add a subscription feature that will notify me automatically rather than having to go to my site to check their own sites.
[20:04] I’m not sure how I should build pricing plans to segment my potential customers. I’d like to have some way of making product available to micropreneurs but also make sure I have higher price plans that cater to larger customers. Any guidance you can offer will be appreciated.
[20:16] Mike: There’s to different ways that I can see of kind of segmenting the market. The first one would be for those people who only have a limited number of either websites or servers. I don’t think it would actually be all that difficult to figure out whether or not somebody has one website on the same server or 15 different websites on the same server. What I think you’re going to have to deal with is of somebody has 10 websites are they a large business or are they a small business?
[20:43] It can fall either way and I think that’s going to be the challenging part is trying to figure out whether or not they fall into more of a higher tier business plan versus somebody who just has 5 or 6 small products that they’re trying to work and they happen to all be on the same server but they’re just trying to figure out what is going to work for them and that’s what’s not and they just throw away the other ones.
[21:05] Because the problem that they’re going to have is even if they’re making a fair amount of money from one of their products maybe let’s say its $500 or $1,000 a month and the rest of them are making almost zero, you still want those other ones protected if they’re on the same server because if something gets on to one website, it could theoretically cross infect all the other ones or infect the entire server. So you may need to do a little bit of leg work on an individual customer basis and set up pricing tiers to say okay, well based on this number of servers or this number or this number of websites, you’re going to end up in a different tier.
[21:36] You can also combine those a little bit and say one server or up to five websites and kind of say they’re the same thing. I think WP engine talked a little bit about in a podcast I heard about how they segmented their customers and they realized that if somebody had 10 websites, chances were really good that only 2 or 3 of them have a lot of traffic and the rest of them had virtually none and that was applied primarily to bloggers but it has to do with the distribution of how those are spread out.
[22:03] Another way that I can think of to segment the market a little bit is to identify how many times you’re going to hit their website in either a day or a week or a month to say okay we’re going to check it on this time period to see if it’s been hacked or not. Multiple business are going to say I want to know at least once a day or maybe I want to know every hour because I want to make sure that website or the web server isn’t getting hacked. And if it is, I want to know immediately versus somebody who’s just doing it on a more casual basis once a day or once a week is probably fine for them especially if they’re not making any money from it. So those are kind of my thoughts on how to monetize the site.
[22:39] Rob: I think those are all good thoughts on it. The other thing I would look at is I would go to pingdom.com and look at their pricing going to I’d go to sucuri.net because these are related services. Pingdom checks your up time and some other stuff frankly and then Sucuri is malware detection alert and clean up for websites. So they’re more of a competitor for you. And I imagine when you said that you pickup stuff that others don’t, it might be Sucuri whose not because I think they’re kind of the leader.
[23:07] If you look at how they do it, they say one website is $90 a year. Two to five is $190 a year and then six to ten is $290 a year. They kind of do all inclusive plans. I think it’s a reasonable way. You can think about having a one website. If you really want to help out micropreneur you could have a one website tier that’s a little cheaper and then as you get more websites realize well they’ve probably have more revenue so kind of increase the price accordingly as they go up in bulk from as an enterprise that has many websites should be paying more.
[23:38] The other thing, but they’re all these things that Mike said you can pivot on and Pingdom has them as well its like how many SMS alerts do you get? How many email alerts? Do you multi user capabilities? Because if you want multiple users to log in, you have a team of people, then you should definitely be paying more. And these are things you probably don’t have built yet and may just be on your feature list but those are ways to start segmenting your audience.
[24:04] The other thing is if you start doing integrations with anything whether its reporting, pulling in data or pushing data out that in order to use your API you can move that into like a middle tier or a higher tier because just the basic person who simply wants the basic scans might be willing to forgo that in order to pay a lower price. So good question Sean. Thanks for sending that in.
[24:24] I also like the website I have to admit. I think he did a good job here because the headline is “is it hacked?” and then you can enter a URL and they’ll take a look to see if its hacked. And then below that he has want to know more about keeping your site safe? Subscribe to our mailing list. I bet by now he has a decent mailing list of people that when he does go to launch a Saas version or subscription version of this, he actually has a head start.
[24:47] If he hadn’t had that in, I mean you basically have – you’re starting from scratch and even though you site’s been up all this time you don’t have assets. So even though he’s basically doing a free model at this point, Sean is still getting something out of having this site live. He’s basically building a list of people who may be interested in his subscription service down the line.
[25:04] Mike: The other thing I can think of is this type of service just in general I think is aimed more at business than it is at consumers anyway. So I would think that most people are going to be willing to pay for it. I almost feel in many ways if you start down the road of looking at security then changes are good that for somebody to be interested in paying for security, they have to have something that they’re willing to protect or that is on the line that they want to protect.
[25:32] So once you get to that point, changes are good that you probably have money to spend on that anyway. So I don’t know as I would worry too much about the pricing. I understand if you want to try and give back to the community, there are certainly ways to do that. I mean you could have regular pricing plans and then after that, underneath you can say are you a single founder or do you run a small business with one employee? Click here and let us know and we’ll work with you with special pricing or something along those lines.
[25:58] Rob: Our next question is about building a Saas app for a client and turning it into a product. It comes from long time listener Scott Underwood who his emailed before. He says I have a client who requested a proposal for a web app. I have a feeling the bid to develop the app will be higher than he’s expecting. It’s in a niche that I think I might have some promise to market the app as a Saas app.
[26:17] The client has three similar businesses that he would like the app customized for. The apps will be similar but will apply to three distinct business types. So I think it would appeal to a wide market and could be further customized for other similar businesses. My thoughts on how to work these are 1) provide the client with a proposal to create the app for a fixed fee with a monthly maintenance fee and I would retain the intellectual property rights to use the code, to resell it, create a Saas app etc.
[26:42] Option 2) offer to create a Saas app providing him with the functionality he needs and he can be customer 1. I would require him to commit to a minimum 12 month subscription paid monthly so he has an initial lower upfront cost and I have a customer for 12 months. I would also utilize his input and his industry knowledge to improve the app by getting feedback from him and his employees.
[27:01] Option 3) try to get an initial payment of 50% of his first year subscription and then give him 50% off the monthly fee for the first 12 months. There are only one or two similar Saas apps out there in the space and they’re dated so there is room for improvement. The price points for plans are $99 minimum for one location. $600 average for six locations and a high end of about $1,000 for ten locations. I don’t have industry experiences in these businesses but the initial client could provide a lot of feature request and improvement so that the app provides more value.
[27:30] I’ve emailed 10 similar businesses to get their feedback and whether they would be interested in it, benefit from and subscribe to this web application. I’m leading towards option 2 where he agrees to subscribe for one year minimum to the app. The app isn’t overly complex so I think it’s something I could create the initial version of it in a reasonable amount of time to get them up and running and then use his monthly payments to cover improving the app over time. Looking forward to hearing your thoughts.
[27:52] Mike: I think the first thought that comes to mind for me is in your question, there are a couple different ways that you’re trying to get the customer on in committing them to 12 months and paying you on a monthly basis. I would think if this customer really has three different businesses that they’re trying to get this application built for, then it would probably make a lot more sense to charge them upfront a year fee for the entire thing. And that way you don’t have to worry about monthly recurring payments that collections process. You don’t have to worry about it. It makes things a little bit easier. You can probably just get them to cut you a check and be done with it.
[28:24] That does alleviate a lot of the issues with providing them with a price quote that’s going to be well outside of their price range and I think I would first go to them and say flat out look, I think this price quote is going to be far outside your price range. What do you think of this as an option? Let’s just kind of talk through that. So you can kind of float that to them without bringing together a full blown proposal and that’s probably where I would start.
[28:47] In terms of going through and actually making it work I would definitely just try and get them to pay the 12 months and commit upfront to the whole thing. The problem that you’re going to run into that you and the customer are going to need to decide on is when does that time period start? When does that day one of that 12 month contract start because there’s going to be a lot of things that you do that you’re going to try and put these things into the program and you’re just not going to have time for all of it on day one.
[29:15] So there’s going to have to be a line in the sand that you draw to say look, at this point we’re going to pull the trigger and this is when the time period is going to start otherwise you’re going to run into problems down the road as to when the customer thinks that the time should start versus when you think it should start. And you may want to go down the road of having a deadline set at some point. So let’s say right now it’s August. Let’s say you decide December 1st that’s when you’re going to pull the trigger and that’s when the time period is going to start. At some point before then you collect the 12 months.
[29:42] So those are my thoughts on it like I said I would lean towards that initial 12 month subscription and try to get them to just pay all of it upfront and then you can provide them a yearly plan from then on.
[29:53] Rob: My initial thought is this is complicated. While I don’t think it’s a bad idea, I think it’s a last resort. And I think if you could possibly fund this yourself for doing on off hours it’s just going to be easier. It’s going to be less complicated. Because while you’re not technically taking on a partner who has equity, you are going to have someone who maybe thinks that they can dictate every aspect of the app. What if they request a feature and you don’t want to build it? It doesn’t apply to anyone else. It takes a long time to build it. There are a lot of potential conflicts that could come up here.
[30:29] And so I think dealing with the right partner who has an open mind and is willing to work with you on this and is pretty easy to deal with, I think this is realistic. But I think if that person is demanding and or entitled and thinks that by paying you an upfront payment of say $600 a month to about $7,000 for an annual, if they think they could suddenly dictate every aspect of your app that would have otherwise cost him $50,000 to build then that’s a real problem because its going to sideline you. Its going to cost you a lot of time. And potentially a lot of money.
[31:04] If you think about it, building this app, it would be good to have this person’s input because they do have the industry knowledge but frankly marketing it and trying to find that next market, because if you build three versions, I don’t know if you’re going to own all three of those, how you’re possibly going to market all three of those, that’s the real concern. That is an enormous amount of time. If they really are Saas apps that need full on kind of marketing and scaling and all that. It’s not something that one person could easily do.
[31:33] Mike: I think what he’s trying to do is solve the same problem for three different businesses and he’s charging the person for three different subscriptions.
[31:42] Rob: Yeah. That is the thing. You would need to charge for three subscriptions because although you may not have to write the code three times you are going to have to support three different apps, three different instillations, three different deployments, all that stuff. If your client thinks that he can basically pay once and then get three versions out of it, I think that’s another thing to think about is that there’s always a lot more with having three apps than just writing that shared codebase. So in general, I’m not wild about this idea. I don’t think it’s terrible but it’s not an ideal situation. It’s not a scenario I personally would embark upon.
[32:14] Mike: Would you be more comfortable with it if he built the whole thing first and then basically work through the issues with the person and then said okay, if this meets your needs then I’ll charge you for those? Because it seems like that’s really the sticky issue is getting the customer involved so early on the they feel they’re involved in the development effort and its really being customized for their environment.
[32:36] Rob: That’s right. That’s my big concern is you have kind of a marriage there that needs to be well defined as to what their role is and your role is in the specific ownership and who can dictate what gets in the product. Because if stuff goes down in the middle and they request a feature and you say no we’re not going to build it and they get really upset about it and what are you going to do? How do you resolve that? So thanks for the question Scott.
[33:00] So our last question today comes from Brian Donahue. He says hi guys I’m a newbie academy members and I attended my first MicroConf in April. I was very glad I was able to attend. There was one idea that was espoused repeatedly that I’m struggling to understand how to put into practice, the idea that you should sell your product before you’ve written any code. That sounds great but gives me all kinds of anxiety just thinking about it. I’m wondering how the looks in practice.
[33:25] What is the sales pitch? What promises do you make? Are you promising a delivery/lawn schedule? If they actually give you their credit card and you take their money, how long can you reasonably wait before they have something usable? If you have any experience or stories you can relate about this was done successfully, what things need to be in place and how to pre-launch customers engage in and get value from the process, I think that would make for a great show. Well if there’s some info you can point to me that I missed that explains in more specifics, I’d love to find it. Thank again for all your hard work. It’s usually inspirational.
[33:54] Mike: I think one of the things you have to keep in mind when you’re asking people for money or you’re asking them to commit is not necessarily that you’re asking them for the money. It’s asking them for a commitment to at least give the product a fair shot. When push comes to shove and you deliver the product or you’ve handed it to them, put it in front of them and said hey this is what I built. Let me know what your thoughts are. Is this something you’re willing to pay for? And that’s really what you’re trying to get. You’re just trying to get that commitment.
[34:20] It’s not about the money. That money could be a dollar. It could be down payment on a house and to the actual dollar amount in some cases are somewhat immaterial which you really just want is them to give it a fair shot and be in enough pain that they’re willing to come back to your site later on based on an email to actually follow through and sign up. And that’s what you want. You want that commitment. It’s not about the dollars. It’s not about them saying yeah, I want this and I want it in three weeks or three months. Chances are really good if they have this problem now they’re still going to have this problem in three months. They’re still probably going to have this problem in six months.
[34:54] And depending on how painful that is, if the problem is so incredibly painful that they need a solution immediately, there are going to be other people out there like them. So I don’t know as I would worry too much about them finding another solution because if they do find another solution that’s market validation for you. It means there are other products in the market that are solving that problem and you’re going to be able to carve out a space for yourself in that market.
[35:17] Rob: I think Brian’s talking about – a few people pointed out that you should actually get a credit card and charge their card or get a check from them maybe and don’t cash it. As a true commitment that until you have that, you don’t have a true commitment that they actually are going to value what you’re building. I’ve never done that. I don’t think it’s necessary. I do think it’s probably better or I know it’s better than getting a list of emails.
[35:43] But I find that asking someone for a purchase commitment upfront before you’ve built it will – if you do it online in pages in example, it will substantially reduce the number of people who you’re actually going to be able to engage with later on because you have to really sell hard on that page in order to get them to put their credit card number in. Whereas if you promise what the app is going to do and then you get email addresses, you then have a way to contact them and a way to explain what you’re doing and give them updates and get buy-in on the process and hopefully convert them by engaging with them over time and showing them what it is you’re building.
[36:18] So if I was going to do a solely online, that’s definitely how I’d do it. That’s how I’ve done Drip. And for an example you can go to getdrip.com right now you can see the landing page and that’s the promise that I make to people. That’s how I sell before coding. On the flip side, I do know there are people who cold call or get in face to face conversations and then do actually ask for the credit card. I think if that feels odd to you, if it feels scary then maybe don’t do it this time around and wait until you have your legs under you or wait ‘til you have an app that you’ve launched you feel more confident about it and consider at that point.
[36:51] I don’t think that there’s only one right answer to this question. I don’t think the end all be all way of doing it is to always get credit cards because again I think it limits the number of people – not only limits the number of people who you can kind of get in to your early access but it means you really have to flush out early on exactly what you’re building. Because if you explain kind of a vision or a value prop, it’s hard to get someone to write a check for the first month or the first six months of that. It’s really hard.
[37:17] But once you have something to show them then you can say alright, does this do it and how can I chance it so that it does provide you with the value to write that first check? There’s a range here of things you can do and what you feel comfortable with is probably what’s going to work best for you and I do think multiple options are viable here.
[37:34] Music
[37:37] If you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or email it 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 or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.
Episode 146 | Product Companies Vs. Service Companies
Show Notes
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I discuss product companies versus services companies. This is Startups for the Rest of Us: Episode 146.
[00:08] Music
[00:17] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:26] Mike: And I’m Mike.
[00:27] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Mike?
[00:31] Mike: Well I just got back from vacation. Naturally because of that, I’ve gotten nothing done over the past week or so but other things have still been moving along as the different contractors. I have been working on things here and there. And because of the way some of the things in AuditShark work, I can just make things up and they’re like I didn’t know I could do that and I’m like well, it can now but only because I designated that role case.
[00:52] Rob: Nice. Because you were like off the grid for a few days.
[00:55] Mike: Yeah. We went over to Niagara falls first and spent some time out in that side of New York and then we went to the Adirondacks. From the beach I had 4G wireless access which is kind of awesome.
[01:07] Rob: Awesome. Yeah that is cool, so you could go down there and watch the kids play and get some stuff done.
[01:11] Mike: No, I got nothing done. I sat in the beach and got sunburned.
[01:15] Rob: But you said hey look, I have 4G and I’m not going to do any work.
[01:19] Mike: Exactly. That’s really what happened.
[01:20] Rob: Because whenever I come back from vacation I find that I’m either totally charged up to hit work really hard or I come back and I’m completely unproductive because I would want to stay on vacation. Do you have a typical mode that you come back or does it vary? And how do you feel coming back off of this one?
[01:36] Mike: Because it was such a long drive on Friday and when I got back, I wanted to do nothing for the rest of the day but then on Saturday I spent 5 or 6 hours doing work and I actually got a lot of work done on Saturday. But the past two days, because today’s Tuesday, I really haven’t gotten very much done because I just haven’t really felt like it. I had that burning desire to get things done when I first got back and then it just completely went away for a couple of days.
[02:02] Rob: Yeah. Well we want to send a congratulations to Josh Pigford. He’s a MicroConf attendee this past year and he runs pop survey. He just launched a new app called temper and it’s ate temper.io basically it’s a way to survey your customers on an ongoing basis and to find out how your customers feel about every aspect of your business. So it’s kind of like a little mini survey tool. It’s pretty neat. And he’s basically created a little coupon code for our listeners. It’s a SAAS product so it’s a monthly subscription.
And if you used coupon code podcast, you’re going to get 50% off forever, for as long as you are a customer. So if that’s something, and I’m definitely going to be looking at getting something like this into Drip especially in the early days to figure out how frustrated people are. There’s a bunch of different options but the one I like is kind of the multiple faces and there’s like a sad face, a medium face and a smiley face. And then you can prompt them from their based on what someone clicks when they log in.
[02:55] Mike: Yeah. That’s really cool. I really like the way he’s kind of built the website on and the design and the product itself looks really interesting. It’s very crisp.
[03:03] Rob: I feel the same way about pop survey. The other thing I like about this is I’ve seen it, this functionality custom built in several apps that I use and I’ve never wanted to custom built, and I am so willing to pay for something like this that allows me to – I’m assuming it’s just a snip of a java script that you drop in. I’m so much more willing to do that than to have someone, one of my developers taking off the core app to build a little off shoot product like this.
[03:30] Mike: Yeah, so congrats to Josh on that. Have you checked out the Gmail tabs at all?
[03:35] Rob: Yup. I’ve disabled them after about three days. It was like I had three inboxes to check and I hated flipping through the tabs.
[03:42] Mike: Yeah. I’m kind of in the same boat. I’ve been using it for two days now and you’re right. It feels like I’m flipping through different inboxes and its just like why am I doing this again?
[03:53] Rob: Yeah. I understand the gist of it. I think it depends on how you use your inbox. I actually stuck with inbox zero for 6-8 weeks and just last week I got an inrush of emails and I probably have 20 in my inbox right now but I’m trying to get back to inbox zero. And since I do that and I put things in my Trello list instead of trying to keep in my own inbox. Having the three inboxes – it just didn’t work with my workflow.
[04:18] Mike: I think what bugs me about it is it doesn’t seem that you can customize it be on the tabs that they give you. They give you these certain tabs and that’s it. But I don’t really see them as any different than the labels and stuff that you can apply to things as they come in. You can just say oh well, if it matches these criteria then mark it with this label or that label. I just don’t see it as any different because those labels all appear on the left for me as opposed to the tabs which go right along the top.
[04:43] Rob: Right. I think they’re supposed to learn a little more than your filters. Your filters are static when you set them but…
[04:49] Mike: Yeah. And you can drag and drop things. It will learn but I just don’t really see the point. As you said, I mean if you got one inbox that you’re trying to keep to inbox zero, you feel like you’re switching between 3 or 4 different inboxes. And it kind of sucks.
[05:04] Rob: so I was on the bootstrap web podcast came out a day or two ago and its by Brian Casel. He launched sweetprocess.com we’re actually putting together your SOP docs, your standard operating procedures and other ways of organizing docs for VA’s and other processes. So he interviewed me about scaling a portfolio of software products and it was a pretty fun interview because it wasn’t stuff that I – it was some specific questions that I haven’t answered in the past on other interviews.
[05:31] It’s nice we spend almost maybe 50-55 minutes going into this stuff that we don’t have time necessarily to cover on this podcast and never going to talk on it. So I’ll like that up in the show notes and if you go to casjam.com you can check out that episode.
[05:48] Robert Graham who’s a lifetime academy member, been to every MicroConf, he posted a really insightful comment on episode 144 and it was regarding Dave Ganoe who has sent us a question. And he was considering building an expense tracking apps for engineers and construction firms. So Robert’s comment, the full comment is there. You can read it but I just want to excerpt that.
[06:11] He basically said if you’re serious about the engineers/construction niche, I have a few pieces of advice. There are professional organizations with local meetings for civil engineers in particular. They’re always looking for speakers. Be a speaker. Additionally, go talk to some engineers out there. It’s not hard to send out some hand written emails after researching some promising targets. 5-10 in person meetings will change a lot about how you approach the niche. You can get that done in less than 4 weeks without any trouble. I validated an idea for consulting engineering firms and I built a list and did this in the Austin Texas area.
[06:41] One thing that Rob and Mike did not mention about outbound sales but I think is really important to keep in mind is you may have to do it to get jump started. Jason Cohen’s MicroConf talk included an anecdote about scratching and clawing to get your first 50 customers. You do need a repeatable and affordable channel to build the business but you shouldn’t quit until scratching and clawing and totally unscalable ways doesn’t work. Also happy to chat by email, Dave.
[07:03] So Dave, if you’re listening to this and you would like to get connected with Robert, you can click through to his site. He’s at coldcallingbook.net or you can drop us a line and we’ll connect you with him. So thanks Robert for the obviously good comment and for offering to help out with Dave.
[07:17] Music
[07:21] Mike: So this week we’re going to talk about some of the differences between product and services companies and kind of contrast them a little bit, talk about where the overlap is, talk about some of the pros and cons of where they might be jealous of each other I’ll say.
[07:35] This particular episode is inspired quite a bit by Patrick McKenzie’s blog article where he actually – there’s two different blog articles where he does products versus services and then services versus products. And discusses some of the pros and cons but he also talks about how each of them can learn from the other.
[07:51] Rob: So the purpose of this episode is so product companies can realize that they might not have it as good as they think and service companies can realize that the grass is not always greener on the product side. Is that the idea?
[08:05] Mike: Yeah, that is the idea. And especially when you’re first getting started on the software side, I mean there’s a lot of pressure to go move more towards the services side just because it’s so much easier to build your business in the beginning when you’re doing services because services, it’s very easy to customize those things. Whereas when you build a product is its very much set. It’s trying to solve a very, very specific problem.
[08:27] But with services, you can talk your way around those things. Say well this can’t do that right now but I can make it do that and here’s how much it’s going to cost and how much time etc. When you’re offering a product, it’s very much pre-packaged. It’s hard to do that unless you’re doing an in-person sales. We’re going to talk about some of the pros and cons of each of the different types of companies.
[08:46] So why don’t we start with the pros of being a product company? Running a product company. I think the first one is with the product company, you can typically scale it a lot higher with less people. Usually when you’re trying to scale out the business in terms of the problems that its solving, you use automated resources like you’re throwing additional servers at the problem or you’re writing more codes to solve additional problems or to do it for more people.
[09:10] This is one of those classic draws for product companies where you don’t have to hire more people to process more data from your customers. You simply write more code or you distribute it among more servers and you’re paying for more servers as opposed to paying for more employees to process work.
[09:26] Rob: Right. So when you say scale higher you mean in terms of revenue right? Growing company?
[09:30] Mike: Well both in terms of growing revenue but also in the size and scale of the problems that your solving. Let’s say that you’re analyzing data for customers and whatever that analysis might be, let’s say that you reach this tipping point where one server isn’t enough to solve the problem. You can add another server.
[09:50] Versus if you’re running a services company, somebody gets to the point where they’re overworked, you have to hire somebody else. Well the problem with hiring a new person is you’re doubling your cost which is fairly substantial for having an employee. But when you’re adding a server, the cost of adding a new server to you infrastructure is monumentally less than it is to hire an employee.
[10:13] Rob: Right. And this is I think the holy grail of product companies and why anyone who’s doing services are – I’ll say most people who are doing services do have their eyes on doing products. My eyes were first opened to this when I was reading Joel Spolky’s blog back in probably 2001-2002. He just talked a lot about the economics and product companies and now something takes off, you get a product that really does start scaling up. it can be just astronomically different in terms of having to hire employees.
[10:41] You can just have a much smaller team and yet still like you said, solve bigger problems or have a lot more revenue which I think is probably been the goal for most of us.
[10:52] Mike: Another pro of having a product company is that you’re typically a lot less dependent upon a single customer. When you have services companies, obviously you have to deal with selling those services to the customers and there’s a lot more revenue involved. However, you’re trying to spread that revenue out amongst multiple customers as a product company because you don’t want all of your eggs in one basket. You want lots of people paying you smaller amounts of money so that there’s not one single source of revenue if they decide oh, I don’t need your services anymore, then you’re going to go out of business. Whereas with a product company its really the opposite.
[11:26] Rob: Yeah. This is a big one. I worked with a couple of confuting clients back when I was still doing it who yeah, they just weren’t that easy to work with. And since they were either 50% or 100% of my revenue, I couldn’t really turn them down. It’s so hard to fire a client when you only have one or two of them. I really do think perhaps one of the biggest perks of owning a software company that’s building products is that you really shouldn’t be reliant on any single customer or even any small group of customers.
[11:58] And if you are, I’ve heard of some folks who do this who get this really big contracts and there might be one customer who is 40% or 50% of their revenue and that’s something to get out from other as soon as possible if you find yourself in that situation because at that point, that customer has a lot of control over you. So that’s something like I said, definitely consider trying to solve if you find yourself in that problem.
[12:20] Mike: Yeah and that kind of lands into the next positive thing about having a product company is you control the direction. If a customer wants something out of their products, you can just say well no, it doesn’t do that and it’s not going to ever do that. Very similar to what you just said, if a single customer is locking up 75% or 80% of your revenue then it’s very difficult to tell them no, because then they can just turn around and walk away.
[12:46] But with products, because that is distributed amongst different customers, if one of them comes to you and says hey I want you to build XYZ, you can just tell them no, that doesn’t fit in with our product strategy and you can essentially just move on right there.
[12:58] Rob: One of the big perks of being able to control the direction I think is you’re able to express some of your creativity. You’re able to come up with unique ideas, interesting approaches to solving a problem within your app. You just don’t have to do what a team of people or some committee is deciding. Again, back when I was consulting, it seemed like there were always five people that had to be notified of making any type of decision. So we’d go on to do something what I consider like an innovative or a cool approach to doing something.
[13:28] By the time you get to all these people who just want to keep their jobs and really want to do the same thing, then they’d say well we’ve been doing it this way forever and you’re basically just – you do more or I wind up doing just more boring stuff. that wasn’t not only not creative but I actually think it wasn’t as good a way to solve the problem. And so if you’re able to control that direction, I think like job satisfaction goes up because you’re just able to build something that’s more interesting to you that you can be more proud of.
[13:56] Mike: The biggest pro that you can take away from a product company is that you can take time off and customers generally don’t notice this especially if you have already built your marketing funnels and your sales funnels. And you have most of the product pipeline automated customer support has to be dealt with in some way, shape or form.
[14:12] But that again is something that you could potentially outsource as opposed to when you’re doing services and providing services, if you take off for three weeks, the customer’s probably going to notice and they are not going to be happy about paying you for those three weeks. Whereas if they’re using a product that you’re making available from your website or you’ve already sold them, then they use that and whether you’re around or not, they’re still going to be able to use it and things should still work properly.
[14:37] Rob: Yeah, taking time off is way easier than when you’re consulting. In addition, your mobility tends to increase and your ability to work when you want even when you are working. So if you’re a night owl, you can work then. You can kind of wherever. With MicroConf Europe happens in October, I’m actually bringing my wife and my two kids and we’re going to be in Europe for a month.
[15:00] I’m going to do some work from there. I’m going to do maybe 1-2 hours a day to keep up on things but that’s a lot of flexibility that I really wouldn’t have if I was consulting. A lot of consultants have to be on site and even if you don’t have to be onsite you tend to have to work certain hours even if you’re working remotely so there’s definitely a lot of time and location independence that products can bring.
[15:23] Mike: And if you’re a services company you wouldn’t be able to put in one or two hours a day and still expect to be able to be compensated for the entire day or the entire week. It’s a completely different story. So let’s talk about some of the cons of running a software company. I think that most of these cons tend to be much more front loaded.
[15:44] So if you are starting up a software business and you’re just getting started, you don’t really have a full pipeline of sales. You haven’t really quite hit the product market fit. I feel like these problems are a lot more pervasive into people’s thinking. The first one is that your software tends to solve a very fixed problem.
[16:03] Again if your software solves just one problem but it does it really well for lots and lots of people, that’s great. But when you’re first getting started, you don’t have the revenue to be able to rely on it. So because it just solves a single problem, you’re looking at the services company saying man, I wish I could just turn this a little bit so I could use this in addition to maybe doing consulting and charge them extra for this and do more of a scope of work where you’re reliant on the product but you’re also bringing in your skills to solve the problems that the customer has.
[16:33] Rob: Maybe a sub point to this is since you do solve that fixed problem, if you get a couple of years down the line and your app has become mature and its really solving the problem well, you can find yourself not feeling as creative as you did before, maybe not being as interested in the work you’re doing. I think that you’re less likely to get bored if you’re doing services, if you are a consultant and I think product companies at a certain point when you hit a success level, they do become a little mundane.
[17:01] You have a lot of legacy code to maintain. There are certainly some drawbacks that you wouldn’t see with services companies in terms of it moving to new projects all the time because its often learning new technologies and really being challenged typically with Greenfield development.
[17:17] Mike: Another problem with product companies is it really takes time to hit scale and you’ll read about a lot of these product companies that feel like they come out nowhere but the reality is they’ve been at it for a very, very long time until they got to the point where you even heard about them. And suddenly they’re wildly successful because you didn’t hear about them until yesterday. Reality is most have been working at it for 3, 4, 8, 10 years before they really achieve that level of success that they are more well known by the general public.
[17:47] Rob: Yeah. We talk a lot about that 4-6 month timeframe just to get to launch which is kind of when the journey begins and I would say at least another 4-6 months to kind of learn about your customers and just learn about who gets value out of it and tweak. So now you’re 8-12 months is a reasonable estimate. That’s just about the time you can maybe start figuring yourself out and get to product market fit and actually start doing enough marketing to scale your business.
[18:13] So that’s on the low end. That’s when you’re just starting. And then if you nail everything, maybe it’s another 6-12 months after that, then things are really picking up. So it’s a multi year time frame to hit some that brings in as much as say a consulting firm even if you’re just a one person consultant could bring it on day one.
[18:31] Mike: The next major problem with a product company is there’s no statement of work that clearly tells you what the customer wants. So this is a problem for every product company. I almost don’t think that it is limited to the smaller ones or the ones that are just getting started. Even when you’re trying to make big changes or you’re trying to offer new things to the customers, it can be very challenging to figure out what those are even if you are talking to them because you’re not always on the same page with them. You’re not always using the same terminologies for customers.
[18:58] So it can be very, very difficult to figure out exactly what it is that they want and to be able to present it to them in a way that’s completely understandable such that they’ll look at and say yes that’s exactly what I was looking for, heres my credit card.
[19:10] Rob: Yeah. There is a challenge coming from both being just a software developer or as a like a developer who’s also a consultant is that coming into products is a different game since there isn’t someone there telling you what to do and how to do it. It’s a learned skill and it takes a lot of – there’s a bit of luck in it, of actually getting something that people want but there’s a lot more of talking to a large number of people rather than being able to just sit down with a client who’s writing a really big check and saying what do you want me to build? How should we build it? And working with them to do that, so that’s definitely one of the challenges of building products.
[19:42] Mike: the next problem that product companies usually run into is that when their customers are looking at the product that they’re selling, they are usually going through a lot of comparisons that you as a software vendor not probably to and you can’t talk your way around them because you’re not in those conversations. So you essentially have to build the marketing material on your website in such a way that it addresses those objections that the customer might have and is able to present them at the right times when the customer is making those evolutions.
[20:10] Because they’re going to be looking at not just your product but some other products as well and any of your competitors products, they’re going to take a look at those too. And they’re going to be evaluating pricing, they’re going to evaluate features and possibly even support. Maybe they’ll call up the competitor and find out how quickly their support gets involved. Or they’ll send emails, things like that.
[20:28] I’ve seen customers do this where they’ll – in order to figure out which vendor is the best vendor, they’ll send out emails and contact their support before they actually follow through with the purchase in order to figure out which ones are going to be the better vendor for them moving forward. Sometimes it’s not all about the products. It’s not all about the features. It’s about the support that you provide. And if you’re not providing that timely support, they’re going to walk.
[20:50] Rob: It’s hard to sell a product when you’re not talking to them face to face or when you’re not involved in the conversation that’s going on in their head and that is definitely one of the drawbacks of running products the way that we do like doing the more low touch scalable model you really need to know you customers well and you didn’t know how they think about your product because your copy everywhere will find your website, and your emails, just anywhere they see it, in your app, your help, everything has to be perfectly honed because as soon as you lose someone, you don’t have a chance of explaining something twice. As soon as you lose someone, it’s just so easy for them to wander off and try a competitor.
[21:29] Mike: I think the last major obstacle that product companies have is growing monthly revenue is extremely hard. And although you’re running a SAAS company is really the kind of Holy Grail of software companies, it is notoriously difficult and if you doubted it in any way, shape or form goes take a look at Gail Goodman’s talk from the business software from last year about the long slow SAAS ramp of death. And it’s an hour long but it’s very good. Watch that and you’ll see just how difficult it was for constant contact to get to where they are. And although they’re wildly successful, it was not an easy road.
[22:06] Rob: It can be kind of a crap shoot. We know that there are ways to improve your odds but consulting, you tend to go sell a project and the odds are good that you’re going to get paid, you’re going to get paid well. You’re going to know in a few weeks if you’re not going to get paid. Whereas building a product, you can spend months, years toiling away and still not have success. Its way easier to fail when building a product than it is when you’re just consulting one on one with folks or even starting a small consulting firm.
[22:35] Mike: So now that we’ve talked a lot about the different pros and cons of running a product company, let’s talk about services companies and what sort of things they bring to the table. With a services company, you’re essentially selling consulting services. It can be anything from custom programming to systems management. It can essentially even be as little as outsourced systems administration for example.
[22:56] I mean if somebody could pay you to go to their website everyday and do the same thing day in and day out and essentially what you’re providing them is a service that you have to manually go in and you have to execute them. But you’re really relying on human resources at that point to execute on whatever those tasks are.
[23:14] One of the biggest pros of having a services company is that you typically charge more per customer. And in fact you tend to charge exponentially more per customer. And the reason for that is because everyone knows that when you’re buying professional services, it doesn’t matter who you’re buying it from, there is a human on the other end of that who has to deliver those professional services and that human is going to be expensive in terms of what it cost to keep them employed and all the different benefits that go along with it.
[23:41] There’s an expectation that the customer has that they’re going to generally pay more for that than they would if there was just a pre-packaged off the shelf solution that they could buy, that would execute that process.
[23:53] Rob: The nice part about this is you can actually have a pretty low traffic source, something like even a blog that just gets mildly popular. If you get one lead a month, one consulting leads a month that you’re able to close or one every 2-3 months, you can make a full time living from that. I actually back in the early days, software by Rob where I was one more about coding and that kind of stuff, I would get 1 or 2 inquires a month for consulting services and that was it.
[24:23] Some of them were for $50,000 and $100,000 projects. I didn’t need many of those to kind of fill out my year. Whereas when you’re trying to sell a product for a couple hundred dollars or $20 a month, you just need so much more volume. There’s just a bigger challenge there.
[24:39] Mike: Another nice thing about running a services company is that in some ways it can be easier to avoid working with problem customers. The way you can take a problem customer that you have and you can essentially push them out is to either charge more or fire them. If all of your revenue or the vast majority of your revenue comes from 1 or 2 customers, it could be very difficult to fire that customer but you can always go to them and start charging them more.
[25:02] And essentially what you’re doing is you are justifying the pain that it takes you to deal with them by charging them more. That’s one strategy that you can use to essentially deal with some of these problem customers. And it doesn’t make the problem go away. It just makes it more palatable.
[25:16] Rob: Yeah. With my experience, I actually find it easier with products to not work with problem customers. They’re just easier to fire, to let go off, because the revenue is such a small percentage. But I will say that I found there are a lot more problem customers. A lot of people paying us $20 a month have higher expectations of what we should be doing than the people who used to pay me $20,000 a month for consulting. It’s pretty funny.
[25:42] Mike: Yeah, I was talking more in terms of avoiding working with problem customers like you can tell when you’re talking to somebody when you’re trying to work through the terms or the scope of work or something like that. You can tell when you’re talking to somebody whether they’re going to be a problem customer. And it’s usually fairly obvious. There are a lot of red flags that people send up.
[26:00] You can just tell sometimes that somebody’s going to be a problem customer and then you can just say oh well, other things have come up. Versus – I think that’s a different position than if you are already working with somebody and then they essentially turn into a problem customer or they already were and you just didn’t notice.
[26:16] The next pro for a service company is that it’s easier to customize your service offering on a per customer basis. One of the nice things about running a service companies is if you have a standard set of things that you’re doing for a customer, you can pre-package your service offerings as if they were product.
[26:30] And that allows you some flexibility, allows you to do a lot more standard marketing through SCO and a lot of things that you would do for a product company. And you can essentially have this off the shelf package that somebody can buy and they know what they’re getting. You’ve already essentially laid it out for them but in addition to that, if there are things that somebody wants that aren’t in there, you can customize that for them and say hey, you know what, I know that we said we would do these 17 things but you’ve expressed interest in these four other things that our service offering doesn’t do, I‘m willing to do those and this is how much extra it’s going to cost.
[27:06] Versus if you’re selling an off the shelf product, you’re not involved in those conversations. It’s difficult to say oh well we can also do that for you or we can add those into the product and its gonna take an extra amount of time. You’re not involved in those conversations; it’s difficult to let them know that.
[27:22] The last pro for services is that people understand paying for services. They get that if they’re buying consultant services for software development, they’re paying for a software developer to go and build software for them. When they’re paying for a product especially something like a SAS application or even something that goes into a database and documents it. It can be very difficult for somebody to get a sense of how much value is this providing to me, how much value is this providing to the business? Is this price that I’m looking at paying justified? What does the pricing that the competitor is charging?
[27:57] And they’ll go and try and figure out those things but it’s still very difficult for most people to understand them. And that’s why when you go to some of the different product companies websites and they’re able to lay out all of the different value propositions for the software that they’re providing. Those are the ones that tend to do really well versus the ones that don’t really have those comparisons and its difficult for them to essentially justify their own existence.
[28:22] Rob: And I think especially if you’re dealing with more consumer oriented markets like the mobile app market. The pricing there has just been devastated by the app store specifically apple’s launch of the ios app store. So that people expect to pay $1 or $5 per software now. And I’ve heard from some developers I know that people are paying 99 cents for something they’d be super demanding about like specific features they want built and they would actually like basically try to extort them or blackmail them by saying I’ve going to leave you a one star review unless you do this.
[28:57] Its 99 cents like it’s crazy. Whereas most people pay for someone for some service at some point whether its lawn person or someone to come do your plumbing or your mechanic or something. So you’re right, it is just a little more palatable even in the consumer space for doing that and then definitely any type of B to B situation, people know the cost of developers and that kind of stuff. So there’s going to be so much more flexibility with pricing and then you’re sitting on a five figure bill in front of someone makes a lot more sense if they’re actually getting a specific human being to do something rather than just having an off the shelf software.
[29:33] Mike: So now that we talked about some of the pros of a service company, let’s talk about the cons. I think there are a lot of them who kind of filtered out the list a little bit. One of the first things is if a customer asks for something that can be done you usually end up doing it even if you don’t want to. The primary reason for this is they’re footing the bill.
[29:51] So if the customer puts their foot down and says hey I really want this, then you generally have to do it because you’ve agreed to work for them for whatever the amount is per hour per week and they’re basically calling the shots or making the rules and they’re saying I want this done and this is how much I’m paying you for it.
[30:07] And a lot of times, if you’re under some sort of a contract like that, you really don’t have a choice. I mean you really need to go through and get those done versus a software company where you’re selling off the shelf stuff you can essentially tell the customer look, that’s not in our roadmap or it’s not going to be useful to other people. It’s not something that we’re going to follow-through and do because we never committed to doing that. It was never part of the long term goal or the current implementation of the product.
[30:29] Rob: Yeah. When you’re building a product like I said before, you just have a lot more creative control and when you’re working for someone as a consultant, you need to be a little bit political about things. You often need to be very diplomatic. And sometimes that works and sometimes it doesn’t and so like you said, sometimes you wind up doing things you don’t really want to do but maybe you can’t. You just kind of can’t say no because they are the client after all.
[30:51] Mike: The next major downside to a services company is that cutting costs generally mean firing people. I’ve had to go through this before and its absolutely awful. And it’s not so say that’s going to happen with every single consulting company or even most of them. You can certainly structure the business in such a way that you’re hiring subcontractors yourself and at that point those people are responsible for their own salaries and you don’t have to worry about it.
[31:17] But the reality is you do have to worry about it because if you’re not paying them, they’re going to go elsewhere and you’re going to lose them to either competitors or they’re just going to go off on their own and you’re not going to have access to those resources. You really want to be able to provide the same resources to people over and over again as if you were a product company even though you’re not because you want at least some form of consistency between one offering and the next. You want to be able to leverage the feedback from one customer to help you land the next engagement.
[31:44] Rob: Yeah. I think the other part of this is I found my revenue when I was consulting to be fairly erratic. If you have long term arrangements, obviously that’s different but even with some of the long term gigs I had, they would end abruptly and then I didn’t have other relationships so I’ve kind of scrambled to find other people. And since you only have one client or two clients often that are paying, such a big percentage of your revenue, it does make it more of a challenge than if you have some type of recurring revenue with a product or even if you have one time sales from a product, those, they do tend to be what I found a bit more stable than consulting income.
[32:19] Mike: I also think in general if you take aloof at services companies versus product companies, I think services companies tend to have lower margins than product companies. And part of the reason for that is as we said before, as part of the pros of having a services company, people understand what they’re paying for. They understand paying for somebody’s time. And the problem with that is they also know how much that person’s time is worth so it can be very difficult to charge exurban amounts of money for spending an hour or three hours with somebody unless you’re able to justify that with a solid marketing value and proposition.
[32:52] Next, if you or your employees are not working as a services company, you’re generally losing money. Also once you get to a certain scale as a services company you tend to have middle management. And because those middle managers are not actively working for customers, they’re essentially managing the people underneath them. They’re not contributing to your bottom-line.
[33:11] So especially you have a lot of additional overhead there anytime you bring in middle management and then in addition if you don’t keep those people busy and even if it’s just yourself, if you’re not working as a consultant, you’re generally losing money. Using a subcontractor will shift the overheard burden to them but at the same time, using subcontractors cost more.
[33:31] But in some ways it feels like it hurts less when you’re using a subcontractor and you just don’t have them booked versus having to pay for an employee and they’re not booked for let’s say two weeks at a time and you have to pay for that person even though they’re not working and they’re not contributing any billable hours to the company.
[33:47] Music
[33:52] So I think that about wraps this episode up. I think one of the points Rob and I want to make is there are pros and cons to each different type of company and although we run software companies and that’s kind of the direction that we’re going it’s not necessarily that running a product company is the best decision for everybody. There are perfectly valid reasons to go down the road of building a services company.
[34:12] But I think it’s important to understand there are pros and cons to each of them and it’s not like going down the road of product companies is going to magically remove all of the problems that you could’ve ever possibly thought that would happen to you as running a services or a consulting company. In short, the grass is not always greener on the other side of the fence.
[34:28] If you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or email it to us at question questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 145 | Does Lean Startup Work for Bootstrappers?
Show Notes
- WordPress Digital Signature Plugin
- Nice slideshow overview of Lean Startup Tenets
- Lean Startup Wikipedia page
- Lean Startup book on Amazon
- Lean Startup website
Tenets discussed:
- #1: Startup Defined
- #2: Validated learning
- #3: Build-measure-learn feedback loop
- #4: Minimum Viable Product (MVP)
- #5: Innovation accounting
- #6: Pivot
Lightning Round
- #7: Customer development
- #8: Problem-solution fit & Product-market fit
- #9: Continuous Deployment
- #10: Split testing
- #11: Actionable metrics (vs. vanity metrics)
Transcript
[00:00] Mike: On today’s episode of Startups for the Rest of Us, Rob and I are going to be talking about lean startup. This is Startups for the Rest of Us: Episode 145.
[00:07] Music
[00:14] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
[00:22] Rob: And I’m Rob.
[00:23] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
[00:27] Rob: I noticed that you have a really cool email opt in widget on auditshark.com as well as a nice email mini course that looks like you launched this week.
[00:36] Mike: I did. Did you like that?
[00:36] Rob: I did. Mike is now using Drip. I logged into the Drip dashboard and I noticed that his account was all setup went to Audit Shark and it looks like your conversion rate is going really well. Your subscription rate is going well and your course is frankly one of the better ones that I’ve seen. Yours has a lot of data and a lot of research and I’m looking forward to the rest of it. I‘ve only seen the first email at this point.
[00:56] Mike: Yeah. I’ve sent it out to a few different people and they forward it on to some other contacts in the industry. I think that might be influencing the conversion rate a little bit but you and I did track through and it looks like the conversion rates are pretty good anyway but it’s nice to see that – and just in talking to a couple of people, the information they’re seeing in there is really good so far.
[01:15] So I kinda want to wait ‘til people get through the entire course to give me feedback on the entire thing but I’ve re-read everything a couple of times, gone back and forth through some of the emails and the sequence, just to make sure that I’m not repeating myself too much and that it naturally leads from one email into the next.
[01:32] Rob: Yeah. Very good. What’s nice is every subscriber you get to that would’ve just come and left the site even if you get 20 or 30. I mean there are some people getting a few hundred a week, yeah, just nice to be able to follow-up with them later. It’s kind of building your early access or your beta list depending on the stage you’re at.
[01:47] Mike: And of course the obvious benefit since I’m seeing their email addresses is to be able to track them back to see the types of companies that are taking a look at it. Obviously you can’t really do that with Gmail account. But when you start getting corporate domains in there for the email addresses, it’s really nice to go in there and say they’re a PCI compliance company. Maybe they’ll look and use Audit Shark for their customers or they’re a health insurance company and it looks like maybe they want to lock down their servers and do HIPAA compliance on those machines.
[02:13] Rob: Yeah I’ve been doing the same thing. So Drip is continuing to move forward there at the point where I frankly don’t even have account on the number of people who are in there using it. It’s in the low to mid 20’s at this point. Another paying customer this week, the trial ended. Like I said, I’m doing trial period based on I log in and I say hmm, I think they’ve received enough value from this and I’m going to email and say do you think you’ve received enough value? Are you interested in paying? We’ve got one more this week and think I’m going to email another guy today. It’s cool.
[02:42] So revenue’s in the mid three figures, that’s the SAAS ramp. That was in July and I’d expect to double or triple that this month and then move on from there. The plan is in the next – we have about 2-3 weeks left of features that we need to get in because to this point I’ve been doing so much stuff one off in terms of on boarding people and the trial emails and just all that touching base. So we need to get all of that automated because I want to email a couple hundred people on the launch list. And before I do that, I’m going to need to get stuff in place to automate it because I just can’t do that part manually. So that’s about it.
[03:19] So hopefully it’ll probably be a couple more weeks before things really start to move with Drip. Busy behind the scenes building a lot of features but nothing new to report for a couple weeks until that email goes out. And then I’ll be running frantically.
[03:30] Mike: Yeah. I’m probably a bit behind you. I’ve been going through – and there’s about a little bit more than a dozen machines that are currently being audited through Audit Shark. It’s good to see that those things are going in there. And I’m talking to two different people that have been added in this week. It’s kind of funny that there are sections of Audit Shark that I spent just a phenomenal amount of time and effort and making sure that they would work and that they were simple because they are far from simple by any stress of the imagination.
[03:57] And both of the early access people who went in this past week, both of them just kind gave it a hand wave or one liner and said “oh, well I did this and then now what do I do?” And they just completely glossed over all the complexity of that. And on one hand it’s like “oh, I can’t believe you didn’t notice how hard that is” but at the same time it’s also a really good feeling to say the time and effort that I spend on that was justified because it’s so incredibly simple to use that they didn’t even notice how hard it was.
[04:24] Rob: Right. You don’t want them to notice how complex it was.
[04:26] Mike: Right. Going the big things I’ve gotten back is that they’re interested in immediately skipping to the remediation pieces which is not something that I had really planned on tackling right away because remediating people’s servers is kind of a risky thing anyway. But it seems to me like they’re really looking for that guidance and input and to what they should be doing, how they should be prioritizing things and what their next steps are once they get the information back.
[04:52] So it looks like I’m going to have to go through and start implementing those remediation steps that I was thinking that people just would not be interested in because they’re production level servers and it turns out they are interested in that. So I’ve got my work cut out for me there.
[05:04] Rob: Right. And by remediation you mean your auditing software finds that these things are wrong and now how do we fix them right?
[05:10] Mike: Yeah.
[05:11] Rob: I received an email from a listener this week. He had just kind of a success story to tell. He’s building a SAAS app and then he decided after reading my book and kind of fall in love with you to build a WordPress plug in to get an early win. He said “here’s a short back story about how you guys have altered the course of the project.”
[05:28] “Initially I started building a SAAS app for approval management and that’s at approveme.me” he said “but after $1,500 and a development cost and not knowing at the end of the day if anyone actually wanted what I was building I came across your writings, the chapters about…” he calls out specific essays and then he says “I immediately put the brakes on the development of the SAAS and I started brainstorming about a better way to build a list in the same market space before trying to tackle the goliath of SAAS.” He said this is how WP digital E signature was born. So it’s a WordPress plug in to help people do digital signatures.
[06:00] He says “per your advice, I outsourced the programming, built the marketing landing page alongside my team, ones who got the very first premium release with bugs and all. I setup the store just to see if anyone was interested. One guy emailed. I gave him a 50% discount and he’s been super helpful. Just the other day we received our very first real order from start to finish on the product without any direct human interaction. It’s the best feeling in the world to know that someone somewhere was willing to pay money for a product that I’ve created. Taking your advice has helped save thousands of hours and brought us much closer to the starting line.”
[06:31] That was from Kevin Gray thanks a lot for writing in Kevin, definitely good to hear. Like I said, his SAAS app is at approveme.me and from there he has a linked to WP digital E signature.
[06:41] Mike: That’s a really cool idea for a WordPress plug-in. I hadn’t even thought of that.
[64:45] Rob: Yeah I know. I’ve been seeing a lot of web apps that are then being encompassed or built into a WordPress plug-in. So there’s like kind of an event registration system that’s in a WP plug-in. You can take almost any SAAS idea and put it into a WP plug-in. It’s a pretty interesting concept for finding new businesses I think.
[07:02] Mike: Definitely. The only there news I have is MicroConf Prague is now sold out.
[07:07] Rob: Yeah that’s very cool. It was by 8 or 9 days. So sold out house at this point. We’ll see you in October if you’re going to show up otherwise maybe you can make it Vegas next April.
[07:16] Music
[07:19] This week we’re going to be giving our thoughts on lean startup. This topic has been requested in the past but I think since we just talked about Dan Norris’s stuff about his article of is startup validation bullshit, we received another email. We received a voicemail basically saying you guys commented on lean startup. We’d love to hear your thoughts on. I guess the pieces that we feel that apply to our businesses, the pieces that maybe we feel are less applicable to bootstrappers, less applicable to people launching small apps.
[07:48] The challenge with this and the reason we’ve never done this before even though people have requested it is that lean startup is huge and it’s getting bigger all the time and its changing constantly. So lean startups started with a few key concepts and its now – frankly its more than we could define in a podcast episode much less, actually give our thoughts. And so this makes it hard not only because it’s a big subject but it just seems to be a moving target.
[08:10] So basically, what we’ve done, I went through all the lean startup principles and tenants and try to boil them down to the ones that we know the most about. Frankly since it is so big, neither you and I are experts in it. You’ve read most of the book. I read the book. We’ve both seen Eric Riese speak and give his overview of it and certainly you just hear people talking about it and all that stuff.
[08:33] So we know the concepts of validated learning and minimum viable product and the buzz words in that. But I think we want to get into giving our thoughts on specifically on some topics and some will have to define and then others will just kind of run through.
[08:47] I guess to start off with, if you’re only kind of familiar with lean startup, it basically started in 2008, Eric Riese standing on the shoulders of people like Steve Blank who came up with customer development, Marc Andreesen who coined the phrase product market fit, agile software development practices, lean manufacturing which is used by Toyota, lean management which was morphed off lean manufacturing.
[09:10] Eric Ries took all of that and complied it into kind of a single methodology and so he started blogging about it and then it started picking up steam. He knew Steve Blank. I think he was a student of Steve Blank. So Steve Blank encouraged him to push this forward. So he was blogging about it then he did a lot of speaking and then finally he wrote the book.
[09:30] Mike and are going to be talking about 11 topics lean startup topics and giving our thoughts on them. The first six we’re going to define because we think some people may not what they are. The last five were just going to run through them in a lightning round and kind of give our thoughts. Now the challenge here is that if you work in – let’s say you’re in a huge enterprise and you’re trying to launch a new product, well lean startup says it can apply to you.
[09:54] If you’re launching Brick and Mortar lean startup says it can apply to you. If you’re launching a bootstrap startup or a venture funded startup, lean startup tries to apply to all of those. So we are going to give one point view on each of these topics but I would never go out and say well validated learning never works or it’s a dumb idea because maybe it just doesn’t work for this specific group of people or in my specific experience.
[10:14] The first thing I want to talk about is how lean startup defines a startup. The quote is “a startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.”
[10:28] Mike: If you take a look at that exact definition then sure it can apply but I almost feel like when you start talking about startups, you’re really talking about – I guess my world is more of the software startups but it just seems so incredibly overly broad. I think that’s my big issue with it. And pretty much anything is when you’re building a new product or service, doesn’t a new product or service kind of define itself as being under extreme uncertainty. I mean how can you have a new product or service that doesn’t have a lot of uncertainty that goes along with it?
[11:02] Rob: I think that’s what the definition is saying though. I think this definition in particular is clever. I think he encompassed a lot of possibilities with this single sentence and in a way that no one had done before. I like the definition. I agree with you that it is brought by saying human institution because he’s covering his basis and saying well, it could be a nonprofit. It could be someone doing it within Proctor and Gamble or another Fortune 500 company or it could be you starting a new bar down the street.
[11:28] Lean startup principles have been applied to all of these business types and their examples given in different books on customer development and they do cover all those businesses. I think that would be my one quip. Maybe not what this definition itself, but with lean startup is that by being so broad and by trying to encompass every potential thing of anyone launching a new product, I think it actually provides less value.
[11:51] Mike: So topic number two is validated learning. The idea here is everything that a startup does should be an experiment and whether that’s marketing campaign, your ability to feature, the entire product itself. Any effort that’s not absolutely necessary for learning is wasteful and needs to be eliminated. And really what you’re trying to do here is you’re trying to ask questions about what are we trying to accomplish? How are we going to measure whether or not that was successful?
[12:18] What you’re really trying to do is make sure that when you’re doing stuff, so move the product forward that you’re making the right measurements that need to be made so that you could repeat those and scale them up and things will not fall apart on you later on because you are measuring the wrong things. You’re not making assumptions but you’re using hard data to make decisions that are going to move you forward.
[12:38] Rob: Yeah. I think the key sentence here is the effort that is not absolutely necessary for learning is waste and should be eliminated. This is an insight that I hadn’t heard. I wasn’t aware of before at lean startup and I’m pretty sure this came from lean manufacturing. I think that Eric did a really good job with this, that validated learning was it was always present in startups and that’s what a lot of the lean startup stuff is. It’s just putting a label. Its putting a name to something that already existed but that we didn’t quite know how to talk about.
[13:07] I think that maybe the number one thing that lean startup has done well is its accomplished something, it’s given us a common vocabulary for a lot of things that didn’t have names before. So take something like validated learning, problem solution fit, product market fit are two that I use all the time on the podcast. And MVP is another. All these concepts existed before lean startup but now I can say two words and most people in our world know what you’re saying. Lean startup accomplished that and I also think that validated learning as a concept and the fact that it now has a name I think for me has been helpful.
[13:43] Mike: Yeah I think one of the things you have to keep in mind when you’re thinking about validated learning is that let’s say you’re building a new marketing campaign and its going to be email marketing. Well if you don’t necessarily know what you’re doing then you’re going to have to try a bunch of things.
[13:58] The key to this validated learning piece is to figure out what your theories are, what your hypotheses are. figure out how to go about testing them. Make sure that the results that you’re getting back can be quantified and that you’re learning something from it. And anything that you’re doing that you can’t quantify or you’re not going to be able to learn from or that you are not learning from, just get rid of it.
[14:19] And the fact is that this doesn’t apply to scaling the business. this just really applies to finding out what works and what doesn’t. Once you figure that out, then you can basically blast it out to the masses, scale it up and do it very, very quickly. But this is kind of the fundamentals that you’re working on here with validated learning. You need to identify what works, what doesn’t, and then you start throwing resources at it.
[14:42] Rob: So topic number three is the build, measure, learn feedback loop. This concept basically says you should build something. You should build the minimum that you need to build in order to learn. Then you should so something and measure it. So if it’s a landing page then you launch it and you send traffic to it and you split test it or if it’s a new feature then you see how many people use and see their reactions and see whether they like it.
[15:05] Then you learn from that and you look back and build again. I like this topic. I have kind of mixed emotions about this. I literally have this exact diagram that Eric Ries uses in my notebook that I had written in like 2007. So it was before lean startup was around at all. I didn’t use build measure learn but I was thinking to myself what were the systems that I’m doing over and over? What is this cycle? And I realized I was basically building something – I think I put build, test, adjust or something like that but it’s the same concept.
[15:35] It’s like you build it and then you get someone to use it and then you adjust and tweak and come back in a circle. I’ve done it, a lot of people have done it and this is another place where I think Eric did a job of putting a label, a common label on something that already existed and that people were doing a lot I startups already. So not a new insight, maybe just a new label for it.
[15:56] Mike: Yeah I almost feel it’s a new application of that terminology because if you go into any sort of electrical engineering there’s all these feedback loops. I mean the one most people are going to be familiar with is like cruise control on a car. If you go too fast and there’s a feedback loop that says hey the car needs to slow down a little bit and if you’re going too slow there’s a feedback loop that says hey you need to speed up a little bit in order to get to that steady state speed.
[16:20] And this is really just the exact same thing. You’re saying build something, put it out there, measure, figure out what needs to be done to fix it or improve it and then go through that process again. I think the thing that Eric has done that’s really important is that he’s takeng those concepts and ideas and apply them to startups where I just don’t think that’s really been quantified or codified in terminology before.
[16:42] So our next topic is minimum viable product. The minimum viable product or MVP is the fastest way to get validated learning so you can make it through that feedback loop. You need to be able to have a product that some software or whatever your service is in place in order to get that process started because you can make all the theories in the world. You can make all the assumptions that you want and talk to all these different people.
[17:07] But until you actually have a product or a process or service in place and start implementing it, you’re not going to know what the deficiencies are. You’re not going to know how things actually workout. So just for example, let’s say that you’re trying to sell something for – you think its going to cost you $60. Well until you build it and you start going through and the process of building it and figuring out oh, you sure it only cost $60 to build one but 1 out of every 10 is a bad widget and we have to throw it away. So it actually increases your cost of production by 10%. So it’s no longer $60. Its $66.
[17:42] But until you go through that process you wouldn’t know what your defect rate is. So those are the types of things that are really important to find out but you don’t know those until you’ve built your minimum viable product.
[17:50] Rob: So minimum viable product is interesting because some people think that the MVP is as simple as putting up a landing page and figuring out if people want to buy your product. And that is like the way over simplified version of it. Really what lean startup is saying is the MVP is the minimum step you can take in the next week or two weeks to get more validated learning.
[18:12] So depending on what phase you’re at, the minimum viable product can be just a single feature or it can be just a single adjustment or it can be something that you do manually. Actually there was an example I heard the other day on Steve Blank himself who basically came up with customer development was saying that your MVP isn’t a prototype. It doesn’t have to be a prototype of what you’re trying to do. It can be a manual version of the same thing.
[18:38] And we’ve talked about this on the podcast in the past of like don’t build a whole SAAS app to do X. Go ahead and do X manually or hire a VA to do it. Send out emails manually. I mean that’s basically what you and I are doing with early access right now. We haven’t built all the trial emails and the on boarding emails unless we’re sending them manually. And that essentially is a minimum viable product and for Drip to have 20 something people using it right now but really to not have a billing engine built but I’m still billing people. And then not have trial emails going out but they’re still receiving them means that I took that minimum step to get there.
[19:41] So again, the interesting thing is I was doing this before it was named right? Before MVP, a lot of us were doing that. And so I don’t think this was some – it wasn’t a brand new concept, however him putting a title to it that we can all talk about I think is something that’s very valuable and I also think that people who weren’t doing it have started to do MVP type stuff and I think that’s helpful.
[19:37] On the flip side, this is what maybe gets people in the most trouble is your judgment of what an MVP is, putting out a crappy product and sending your entire email list to it and seeing who converts is not the right way to do it either. Right? That’s a big mistake and it can cost you a lot of money and a lot of time if you do it that way. And there’s nothing in lean startup that says don’t do that. There’s no explicit kind of warnings so people I think are making a lot of mistakes with this concept in particular.
[20:05] So I think it’s a pretty dangerous concept if you don’t have a high standard of what you need to deliver and if you don’t take it pretty seriously and really understand what an MVP is rather than read the ones in this description and then go off and think that kind of building a crappy product is enough because you can call it an MVP.
[20:21] Mike: I guess the confusion and the mistake that people make is the word product is in the name so they think oh well I have to create a version of the product that needs to do X,Y and Z and that’s how I’m going to put this out there and that’s how I’m going to be successful. And if you read the definition which from Wikipedia’s page, it says a minimum viable product is the “version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”
[20:49] Really what that can mean though is you’re just building a single feature and that’s the next version of your product because its different than the previous one. And adding this new feature is really the key to that new product and that’s what you’re testing. It’s not you’re testing the whole thing. You’re just testing this one little piece of it which is why terms like minimum viable feature have come out of lean startup because minimum viable product itself is just kind of confusing people, what constitutes a product. And as you said, that’s where people just get into trouble especially if they don’t have this minimum quality bar that they’re adhering to.
[21:23] Rob: Right. I think that’s one of the tricks with lean startup is it is quite academic. This might be one of the negatives of it. It comes out of academia which is different than actually being in the industry and building startups. So a lot of the stuff is complex, its nuanced and it’s hard to take complexity and nuance and turn that into an actual piece of code or an actual decision of what then do I build? So the nature of it being high level almost allows it to avoid taking responsibility for the actual steps you take.
[21:53] Lean startup, I mean I guess I’m going into a con here. Its not super actionable and I think that’s probably a side effect of it being created more by academics rather than people who are actively day to day launching startups. Because most of the writing, most of the books that are being written on lean startup and lean entrepreneurs and that kind of stuff are being written by people who aren’t launching startups now. For the most part they’re not as experienced as some of the people who read day to day who are just blogging about startups.
[22:20] Our next topic is innovation accounting. Innovation accounting refers to the rigorous process of defining impeccably measuring and communicating the true progress of innovation such as customer retention and usage patterns whether for startup companies, for new products or business units within established companies.
[22:38] Basically, typical accounting metrics often don’t work for startups. You have to adapt different metrics and make sure they’re not vanity metrics. So that’s the concept of innovation accounting.
[22:48] Mike: I was one of the reviewers of the Lean Analytics book by Ben Yoskovitz who was also a MicroConf speaker this year. This topic is very well covered in that book. There are tons and tons of different ways of measuring things and based on what if you’re trying to gather, what the underlying purpose of gathering that information is, I mean you can look at the same data and slice it 10 different ways and have 10 different – even 15 different conclusions that come out of that set of data just because of the types of things that you’re looking at or you’re that you’re trying to do.
[23:22] So innovation accounting I would recommend just going out and getting the Lean Analytics book to figure out how it is that you go about measuring things but I like the idea of innovation accounting because you’re not looking at these vanity metrics. You’re not looking at things that they make it feel like you’re growing your product but you’re really not.
[23:39] One of the things for example is how many people are coming to my website? People say well my product is growing I’m getting a lot more people to my website and the fact is you may not be because as you add customers to your product, if they’re coming to your website to log in then they are indirectly counting towards your statistics towards your new visitors. And that’s just not accurate at all. It’s not accurate to include those people who’ve already been to your website and are actively using your product in your website to visit your account.
[24:07] Rob: I have mixed feelings about innovation accounting. I like the concept that if you’re in a Fortune 500 company that maybe you shouldn’t be held accountable to the standard accounting principles for the first 6 months or a year because you’re looking at different metrics and that you should avoid vanity metrics. That I all agree with.
[24:24] The problem is this doesn’t help anyone who is starting, trying to bootstrap a SAAS app today. If you’re going to bootstrap a SAAS app, don’t try to understand what innovation accounting is. It’s basically an astronaut’s view of what are the key metrics that you need to look at? Like Mike said I’d recommend buying Lean Analytics and reading it but I’d also say let’s say you’re going to launch SAAS app, here’s what I would look at. Not unique visitors to website but I’d say what’s a percentage that that are converting to your email list? What’s the percentage that are converting to trial? What’s the percentage that you’re converting to paid? What’s your lifetime vale per customer and what is your return rate?
[24:59] With those five things, if you could show that to me, just those five numbers, I would have no idea about your business, I can tell you whether or not your business is doing well, whether its going to do well, whether you should drive more traffic or less traffic. So that in my opinion is the short version and that’s where a more specific laser focused resource that’s actually talking about these individual things I think could be more helpful because for bootstrappers, bootstrapping, a SAAS app, that’s what they need to know.
[25:25] What about someone with venture fund and go after a B to C app? There’s a different list. Well what is that list then? You can define innovation accounting but that doesn’t help the guy who’s sitting there trying to figure out what things do I need to look at. And if you’re in that Fortune 500 company trying to launch a new product out of Proctor and Gamble, what is the list that I need to look at because I bet you could get pretty close.
[25:45] I bet you could define a short list of things that everybody needs to know and that’s where I wish innovation accounting had actually taken that next step and gotten more specific for people who actually want real actionable answers rather than a high level definition of something.
[25:59] Mike: I think the other problem with innovation accounting is the fact that because of the way that its phrased, it makes it seem like if you’re following lean startup principles then you should be doing innovation accounting. And there’s this massive chapter in the book about innovation accounting and how to use it, how to leverage it. And the fact is depending on where you are in your business, it has completely different meaning. It has a completely different application and a scope of application in your business.
[26:28] In the early stages you’re just trying to figure out what works, what people are interested in so that your minimum viable product will actually get some traction. But when you’re much, much further on, it’s a completely different story. You’re going to be measured all these different things. As you said, when you’re first launching a SAAS app there’s like five things that you’re looking at. When you get to the point where you have hundreds of thousands or millions of dollars from revenue, you’re looking at probably 30 or 50 different things and they all mean something different.
[26:55] There’s a scale that you have to take into account from when you first get started to when you’re much further down the road and you’re trying to scale the business. I don’t think the lean startup book really covers that or explains that very well and says hey look, if you’re in your early stages, you don’t need to worry about most of this stuff. Know that it exists but just kind of ignore it for now until you get to this stage.
[27:15] Rob: Yeah I think that’s an issue. Lean startup is so big and has so many concepts but some of them are completely not relevant for bootstrappers on the web or bootstrappers doing mobile stuff and others are and there’s no real place that designates that that I know of. So you kind of get information overload with all these concepts. Maybe I should call it concept overload where you’re just trying to get your head wrapped around them and it can be more of a distraction for someone.
[27:40] If you’re really boots on the ground and you’re trying to launch something tomorrow, I would go to the Wikipedia page and I would read through these concepts and I’d listen to these podcasts and maybe read like a summary of the concepts but just getting deeper into them than that doesn’t help you take that next action of what you actually need to get launched.
[27:56] Mike: So topic number 6 is to pivot. This really is based on validated learning. It really requires somebody to take a look at the information and you need to be able to decide whether or not you’re going to pivot or whether you’re going to continue down the path you’re on. It’s a very hard thing to quantify into a book and say well if you’re in this situation, you should pivot. If you’re on this other situation, you should persevere. It’s really kind of a gut feel and I think that’s one of the things I don’t like about this is because there’s no real hard rules around it.
[28:28] I think part of the reason I went into computers because there’s 1’s and 0’s and its some very easy to define when you should do what. But when you get into other subjects like this, it can be very, very difficult to make those decisions especially because you don’t have a lot of information. You’re making a decision based on incomplete information and sometimes that’s very difficult and sometimes you’re going to make the wrong decision but most of the time it’s really just the gut feel of where you want to go and what the data is telling you.
[28:54] Rob: Yeah. I’ve heard the phrase pivot or persevere and that’s your choice at any given moment. As soon as you do that build, you measure and you learn. At that point you choose to pivot or to persevere. And this reminds me of the concept of The Dip that Seth Godin had a book called The Dip. And the number one question he’s asked about that book is when is the dip? How do I know that I’m going to make it through the dip or that it’s not a long term thing? And that’s the question I see asked about pivots.
[29:18] How do I know if I should pivot or not? And so I think that’s a challenge of a concept like this. I think the introduction of this concept I was intrigued by it. I liked that it was basically defined that you could be actually going along with a certain business model or you’re building a certain app that you expect people to use a certain way. And then when they don’t, what do you?
[29:28] I’m not sure that I had ever actually talked about wow I could take this app that’s going to be a time tracker and suddenly turn it into an invoicing app or an expense tracker instead because everybody wants to use it like that. And so the concept of a pivot, my mind was opened when I first read about it. So I do like it and I think it expands your thinking but I also think like anything, this gets over used and people are talking about starting a game.
[30:02] I think the story is that Flickr started as some game and then became a photo sharing app and they’re completely different. I totally don’t see that as a pivot. It’s more like it can be used as an excuse for yeah, we just failed at one business and we started another one under the same shell company name with the same funding and we’re going to now call it a pivot.
[30:21] So I’ve also seen I think this has been used by venture capitalists or people who are starting VC backed companies as kind of a reason or as an excuse for you being able to just abandon the idea all together and go to another direction. The pivot is supposed to be based on validated learning and that you’re only supposed to pivot if you have data pointing you in that direction. There is a gut feeling component to it but I don’t think everybody’s doing that from my observation and what I’m hearing called pivots.
[30:46] Mike: I know exactly what you’re saying. I mean you hear a lot of these VC backed companies and they pivot into some completely different direction or its kind of tangentially related but there’s no clear evidence of why they would have gone in that direction. A lot of times just the plug isn’t pulled on them because the VC’s have invested in the team not necessarily the technology or the product and they’re investing the team to say hey, we trust you guys to make the right decisions to go in the right directions that you feel are appropriate and that’s what we’re investing in. We’re not necessarily investing in technology or the software that you’re building. it’s what you guys think is best and in you guys.
[31:24] Music
[31:28] Rob: Alright, so right now we’re going to dive into the lightning around where we’re going to cover five topics and we’re not going to define them because we’re going to assume that you can either go look them up or that they’re common enough that you know what they mean. We’re basically just going to give our thoughts on what we think about them. Do we think they’re valid for bootstrappers and so on.
[31:44] So topic number seven is customer development originally developed by Steve Blank and included the umbrella of lean startup. I am a big fan of customer development. I think it’s very hard to get right but I do think there are resources out there that you can buy that have more specifics, that have those tactical things like what interview questions should I ask?
[32:02] You can look at Running Lean by Ash Maurya and you can look at coldcallingbook.net by Robert Graham who we’ve had on the show. I think both of those are exceptional resources for learning how to do in person customer development. There’s also some pretty good examples on the web of how to do email customer development. That’s something I’ve done a lot with Drip and maybe I’ll wrap it up at a later point. This may be my favorite concept in all of lean startup. This is the idea of customer development.
[32:26] Mike: I really love the idea of customer development but I also see a lot of people who are doing it wrong or just not doing it or thinking that they’re doing it when they’re really not. I think there’s a lot of misconception around how to do it right and I think one of the big issues that most people run into, when you get into customer development, it’s very easy to look back into the past and say oh I should have asked that.
[32:50] And unfortunately when you’re in the position of trying to ask the questions, you don’t always know what questions to ask. So you do the best that you can and then in retrospect, hindsight is 20-20 so it’s obvious that you should have asked a specific question because you went through this process and it failed miserably and you say oh, I didn’t realize that this was important. I should have asked that. And it’s really hard to figure out what questions you should be asking upfront.
[33:16] And the types of people who are successful are the ones who are asking those questions who are kind of insightful and I don’t know if there’s a good way to teach that. I really wish there was or I wish there was some material out there that I could find that says these are the types of questions you should ask based on these types of businesses but that’s just a giant matrix and obviously product types are changing all the time so it’s not feasible to come up with that kind of a list.
[33:37] But I do think there are probably different types of questions that people could ask or you can put together in a spreadsheet and say this is why you would ask this question and it will help you avoid this particularly situation. And then based on the type of business you’re building, you can look at those and say okay I’ll ask this and this but not that one because the end result of that is not applicable to me.
[33:57] Rob: Our next topic is problem solution fit and product market fit. After customer development, these might be my next favorite concepts. I’m a big fan. You hear me talk about them a lot on the podcast. The steps of starting with a problem that a group of people have and striving for problem solution fit meaning you’re trying to solve a problem and at a certain point you know that you’ve done that, that’s a milestone. Then the next phase you’re trying to do is you now have a product and you’re trying to find the market for that.
[34:27] So I love thinking of that as steps and I think the 2 and 3 phase idea of solving a problem and then moving onto marketing and learning during that, really reshapes the way I thought about how software products are developed when this concept was introduced.
[34:43] Mike: I really like this as well but the problem I have with it is its very difficult to do both at the same time and I would be so nice to be able to shortcut a lot of the time that you waste if you can do them both at the same time.
[34:55] Rob: Yeah. I think you’re supposed to do them in sequence. That’s my understanding. But it takes a long time. That’s why there are Audit Shark early access and the Drip early access are months long because you’re still trying to figure out how we’re really solving a problem.
[35:07] Our next topic is continuous deployment. And you remember this one? This one was a big part of lean startup early on and now it’s almost nowhere to be found. I see it on the Wikipedia page but it’s really downplayed in a lot of the places that I looked.
[35:20] Mike: I remember hearing Eric talk specifically about continuous deployment and how they would go push things into production and how its jarring as a developer to you write some code and then you check it into the repository and it just gets pushed out into production. I can see that as a developer being a little bit schizophrenic about that especially if you’re a product manager saying okay who pushed that feature out and why did they go out today? We wanted to really push that out as part of this marketing effort.
[35:49] And I think that’s one of the things that makes continuous deployment a little difficult because there’s certain types of things that you want to push out and you don’t want to immediately deploy it because you want to build a marketing buzz around it. You want to be able to solicit feedback from people and have things go out on a specific schedule.
[36:05] You launch a new feature or a new version or something like that solves this new problem and you want to tell everybody about it. But if you’re doing continuous deployment it gets pushed out there and then hopefully nobody makes a big deal out of it and you don’t lose control of the story. I think that’s why this has been downplayed a little bit.
[36:23] The other reason I think that it’s been downplayed is that it’s actually very difficult to do continuous deployment and it’s a significant engineering task and it’s not something I would probably do in most cases just because of the fact that you have to do a lot of engineering effort to be able to make it so that things can get pushed out and do all the tests such that if it fails, then you are able to automatically roll back because that’s where continuous deployment to me kind of falls on its face is because that engineering effort is so incredibly complex and difficult, I mean you’ve got enough problems just building the product and making sure that it’s what people want.
[36:58] Do you really want to add in all the complexity of creating all these unit testes and everything else? I mean it slows down the process. I think that’s where it falls short is it’s so hard. It’s so complicated. It slows down your iteration process. If you push things out and they fall in their face, you have to rip them out of production, fine go ahead and do it. Do it manually. But the idea would be if you’re pushing things out on a regular basis, hopefully you’re making things better over time and you don’t have to resort to completely ripping them out of production.
[37:27] Rob: Yeah. I think some would argue that continuous deployment is intended to speed up your cycle rather than slow it down.
[37:33] Mike: I agree that’s the intent but I don’t think that it does because as part of continuous deployment and Eric Ries specifically talked about this was writing unit tests such that it would detect whether or not let’s say you push out some new code that affects the sign up process. Well as part of that you’re going to have code in place that measures the rate of signups that you’re getting. Well if the rate of signups drops from 50 per hour to 0, then the code that you pushed out probably broke your sign up process and it needs to be rolled back.
[38:02] So you have to take those things into account when you’re pushing that out and you have to build all of those cheeks that will verify whether or not a number of signups in the past hour drops to 0 or drops by some significant margin. And that’s the other piece of continuous deployment is being able to make measurements to say is it making the product better? Is it increasing performance? And if it’s not, then roll it back. And because of all these things, it just makes things more difficult.
[38:27] Rob: I think continuous deployment is a nice theoretical idea but like you I’m not a fan of it in practice. When I first heard it I was very skeptical as a software developer. I’ve never done it myself but I have used a couple apps from two startups that were doing continuous deployment and maybe it’s just selection bias but both of the apps were really crappy like they were very buggy. These were funded startups with teams and they were doing lean startup stuff.
[38:53] There were just bugs all over the place and I was like this is really crazy. I think a big part of that is they were pushing, they were moving so fast and they were trying to really espouse the MVP and the containers deployment. So that point I kind of wrote this off. I agree with you. I think the amount of instrumentation and reporting and testing that you need to make this work is probably impractical.
[39:15] So our next topic, second to last topic is split testing. I’m not sure this is even a tenant of lean startup as much as it was included in a lot of the talks and the books and such. I’ve been split testing for 10 or 11 years and even doing the manual, the poor man split testing of modifying something from one week to the next before we had good tools to do it. But lean start did include this in their concepts of validated learning and the build measure loop.
[39:40] Mike: I think split testing is a good idea. If you have any questions about split testing, I would go to the guru of split testing which is Patrick McKenzie. Check out his blog. He has a lot to say about it. He’s got a ruby gem out there that will help an AB test. And there’s all these different frameworks out there for doing AB testing and there’s very clear research and results that show the AB testing provides measurable improvements in a business. So I don’t think there’s any question that split testing is kind of a fundamental thing that everyone should be doing whether you’re doing lean startup or not.
[40:12] Rob: Indeed and to know we just launched split testing inside Drip which I’m very excited about. I already have a test running right now on some subject lines. Our last topic for today is actionable metrics versus vanity metrics. I think it’s a valuable concept and I think it helped a lot of people when it came out that realizing that certain metrics are what he calls vanity metrics that they’re just things that are useless like page views how often times its like time onsite, really aren’t that actionable.
[40:41] Whereas actionably seeing your churn rate or your trial to paid conversion, that kind of stuff, something that’s much more actionable. I would give this concept, this idea a thumbs up.
[40:51] Mike: Yeah, this concept just talked about a lot in the Lean Analytics book that I talked about earlier. They do devote some time to figuring out what is an actionable metric versus what is not. One of the things that really comes out of that is the rate of change of something. So just knowing that your number of website visitors this month or this week is 1,000 and next week say that its 2,000 that’s not necessarily important in it of itself that you went from 1,000 to 2,000. It’s just really the rate of change over the course of that week is what she should be looking at.
[41:23] So rate of changes become very, very important when you’re talking bout action ability because let’s say that you went from 501,000 to 502,000. Well grant it you’re going up and you went up by 1,000 visitors on a weekly basis but the rate of change over the course that week with regards to how much traffic you had is almost insignificant. So those are the types of things that really become important. I think this is a very important concept.
[41:48] Rob: So we’ve covered 11 topics under the lean startup umbrella. I feel we’ve kind of scratched the surface and gotten into it a bit. Hopefully it’s been helpful if you’re listening that it gives you an idea of how we think about it from a bootstrapper’s perspective. I think we raise a lot of things that we like about lean startup. I think overall, lean startup has moved that higher understanding of a startup and thinking of it as you can’t do a blue print for it but you can start putting these words and concepts in place that make it easier to understand the moving parts of it.
[41:28] I also think we talked about some things that we don’t necessarily like about lean startup like that it’s not focused enough and that it tries to cover bootstrappers, venture backs, dry cleaners, new product launch inside a Fortune 500 company. I think that’s a real drawback to it.
[42:34] I was actually put off by the first 3 or 4 examples in the lean startup book were like Intuit and other massive companies and I almost stopped listening because I tend – in general, if it hadn’t been this book, I would’ve turned it off because at that point, I typically bailed and said this book is not going to have anything insightful for me.
[42:50] We also talked about the language feeling maybe high level and academic and that it can’t quite be laser focused and provide action for people. I also think anything that gets this big, certain people want to rebel against it and when you hear the word like MVP and pivot and these concepts that are thrown out so much, it does get a little irritating. It’s like a hit song that you hear too many times. And you kind of want it to stop.
[43:12] I think the other common criticism in lean startup is that it pulled together a lot of existing stuff, maybe some things that were already obvious and just pulled them together under one roof, I don’t think that’s necessarily a bad thing but it is lean startup itself. the concept is unique but most of the concepts underneath it were not original. But most of them existed maybe under different names before this.
[43:35] So certainly I’d love to hear your feedback as well. Feel free to send us a voicemail, email or post a comment on this episode. And you can do that by calling our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 144 | The Viability of Inbound Marketing, Challenges for Non-Technical Founders and VOIP Options for Entrepreneurs
Show Notes
- TryCelery.com – Take pre-orders
- BehaviorCon – Conference on consumer psychology
- InternshipWithRob.com
- Trak – Expense tracking for the Enterprise
- Grasshopper – Phone system for Entrepreneurs
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be talking about the viability of inbound marketing techniques, hidden challenges and non-technical founder phases and the best service provider for VoIP Line. This is Startups for the Rest of Us: Episode 144.
[00:15] Music
[00:22] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:31] Mike: And I’m Mike.
[00:32] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Mike?
[00:37] Mike: We’ve got a listener who commented on episode 142 around startup validation. He pointed us to an app called trycelery.com which allows you to accept pre-orders for a product. So instead of just asking people if they would buy it or trying to put them on a mailing list, that allows you to completely accept pre-orders and it will charge them and it integrates with Stripe and everything. So looks like it might be a good way for somebody to do additional startup validation.
[01:03] Rob: That is very interesting. I could see using this as a second step after a landing page where you collect emails based on just a simple value proposition. Then a few months later once you’ve had enough emails, then trying to flush that out more with some comps and some demos and sending out and an email and then saying if you’re really interested in this, if you want to be on the early access list, you have to commit to paying.
[01:27] And then using it as a two-step rather than making this the first thing because I think if someone comes to a landing page and they read a two sentence description and then you ask them to pay, I don’t think it will work as well but I think this could be a really nice piece of that multistep arsenal of trying to find out who your true early adapters are.
[01:45] Mike: The one thing I really like about this is that because its integrated with Stripe and they charge you an additional percentage on what Stripe charges so you don’t have to pay them anything or at least it looks like you don’t have to pay anything until you’re taking those pre-orders.
[01:59] Rob: Yeah. That’s really cool. Even with an extra 2% so Stripe’s like 3% and these guys are another 2% and that’s still way cheaper than all the junk you’ll pay if you get an authorized .net account or a merchant account. Cool, so that’s at what? trycelery.com
[02:13] Mike: Yup.
[02:14] Rob: We have a bunch of iTunes reviews. We haven’t talked about them in a while. This was my favorite. I was dying. It’s by a guy named Bricksky from Australia and his review is much better than Techzing so that’s a shout out to Jason and Justin. He says “love the podcast. You guys are focused and professional but with enough personality to keep it light. Well prepared and will give you actionable info every time. Keep up the good work.”
[02:34] And then from Adam, no9to5callo in the UK, he says not just for geeks. Says I wanted to get the point across with his no9to5 nickname there. This podcast helps everyone. I am non-technical and get so many actionable points from Mike and Rob. Thanks guys. Keep it up.
[02:52] The other one is from DwebOttawa from Canada. He says simply amazing. I listen to this podcast everyday on my ride to work. I don’t think I can articulate the amount of values being provided. Rob and Mike pack a ton of useful advice, information and tips into each podcast. So thank you guys so much for the reviews and if you have not left us a five star review, we really encourage you to log into iTunes. You can search for startups and we will be in the top couple there and give us a review please. Even if you don’t do an entire written out review, a five star rating is very helpful to us. I heard you’re speaking at a conference soon?
[03:25] Mike: Yes, so in a couple of weeks at the end of August I’ll be speaking in Behavior Con that will be the August 23rd and 24th and that’s put on by Ramit Sethi he’s got a lot of interesting speakers there. He’s got BJ Fog and Michael Norton and Michael Fishman, a few others than our audience might have heard. Hiten Shah’sgoing to be there as well as Derek Halperon from socialtriggers.com
[03:48] It’s mostly a conference about how people think and why people buy things, things that make people – psychologically make the decisions that are somewhat marketing related but it will be interesting to get up there and hear what they have to say and contribute my own thoughts on it.
[04:02] Rob: For those who are interested its Behavior Con and it’s Stanford, Connecticut August 23rd and 24th.
[04:08] Mike: I hear you’re looking for an intern.
[04:11] Rob: I am. So I’m looking for like a marketing internet/growth hacker intern and basically you can work from anywhere in the world, learn what I know about growing SAS apps. So I have a job description and an application form at internshipwihtrob.com it’s basically a Google doc that I shared, I made public, linked to a video of me talking about it and give a better idea of the position. I won’t go to all the details here but it’s a pretty unique position so I’m looking for a unique person.
[04:42] I don’t expect to get that many applicants but so far I’ve gotten just a couple applicants and people are bringing their game so it’s very interesting to see the people who are interested in this.
[04:54] I mean the idea here is Drip is launching in the next 4-6 weeks and there’s a lot of marketing work to be done and I realized that I’ve done a lot of it before and I know that I can execute on it but you can learn so much doing this yourself. I can definitely use the extra help. So there is a stipend. It’s not a free internship. I am paying you something. So I feel like everybody can potentially win from an arrangement like this.
[05:21] Mike: Very cool. I have a little bit of AutoShark news and AutoShark is actively auto in about a dozen servers right now in a daily basis. So it’s pretty exciting to see its actually active in production and I’m getting some feedback from people. It’s nice to see that it’s on production servers and as I’m doing updates, everything’s updating properly. Its sending out emails at the right times and letting people know what’s going on.
[05:45] And there’s only been I think a couple of sticky points where things are just not quite running the way that they are supposed to. So those are kind of in the queue right now to be fixed but it’s nice to be able to go fix them and then everything just straightens itself out on the rest of the environment. It’s really cool to see that stuff’s working again.
[06:03] Rob: Yeah, after your two steps back week that you had a couple weeks ago where you’re like everything’s going wrong, it’s good to hear that you’re up and moving forward with this. Would you call this early access?
[06:13] Mike: I would. So right now I’m looking through the email list that I have and trying to do more identification of people who would be able to get value out of it in terms of where it is now. And I’ve also got an email campaign that you were kind enough to let me into early access for Drip and I’m adding all that stuff into Drip right now and hopefully that will be live within – maybe even by the end of the week.
[06:36] Music
[06:42] So today we’re going to be answering a bunch of listener questions. The first question we have is from Dave Ganoe and he writes – I’m going to paraphrase here but he writes this about an application, it’s a SAS app he’s putting together called get tracked.
[06:52] Its essentially for expense reporting and time tracking for companies that are under 100 employees and the employees spend a lot of their time roughly up to an hour a week submitting their expense reports. And having done expense reports I can tell you that submitting expense reports for a contractor is just a real pain in the neck. It takes forever. But it’s nice to see somebody going out and trying to address this.
[07:17] One of the things that Dave asked in his question is what is the viability of inbound marketing techniques and what price point would justify the time involved in doing some outbound or direct sales techniques?
[07:28] One of the challenges that he has is the product is very rarely going to be used by the person who’s responsible for buying it so how does he get in front of those types of people and he also says I know Rob has .net invoice but it seems a little enterprisey. Would you describe your customers as enterprises or is this mostly used by freelances? If enterprises use it, how do you sell to them?
[07:46] Rob: So .net invoice is a little enterprisey. I would describe my customers as the developers who work for those enterprises. Since .net invoice is priced at $300 they don’t need some massive PO approval from a VP somewhere. They can basically put it on a credit card. That’s typically what happens. We don’t charge enough to do enterprise sales whether it’s outbound or even some people want to do Skype chats and all that stuff and we’re not able to support that.
[08:16] If we were to do that, we could have an enterprise version that was $1,000 or $2,000 and that would then justify at least some upfront effort. Selling into enterprises is not something I do or that I really have any desire to do. You know Dave, I might recommend you go back and listen to episode 16 of this podcast. If you come to the website you can find it but it’s called selling to enterprise customers.
[08:36] The other thing I have in looking at your landing page is I’m wondering what your unique value that you offer is because there are a lot of time trackers and they could all claim the same value that you are. His headline, Dave’s headline is time wasted tracking expenses is costing you thousands. Let’s fix that.
[08:52] Mike: Not a time tracker, it’s an expense tracker.
[08:54] Rob: Or an expense tracker, sorry, I misspoke. But there are a lot of expense trackers as well. So I’d want to know – I do agree that time wasted is costing you thousands, let’s fix that. But there are a lot of other apps that could do that as well. So I’m wondering is he going to market it differently than other people are marketing or is he going to have a unique feature set or a unique way of doing it? So that would be something that I’d be interested to know right here on the landing page.
[09:17] Mike: One thing I think I would do is kind of zero in on your specific target customer a little bit more because let’s say you’re a consultant or you run a consultant company and your consultants are out there billing for their time. You don’t necessarily care whether your employee spends an hour doing an expense report on the customer’s time. You also probably don’t care if your employee does that expense report outside of the time.
[09:42] So at that point, it becomes questionable why do I even need this software? So I think you to zero in a little bit more and try and identify the type of customer that this type of software really addresses a problem or a need for because in those types of companies and I’ve worked for them before, they don’t necessarily care when you do the expenses because either the company’s getting reimbursed for the time that their employees spend or the employee is not getting reimbursed for it because they’re independent contractors or they’re employees on salary.
[10:11] So at that point it’s a question. Just why would I even pay for this? And I think that’s a question that you need to answer and identify the type of company a little bit better that would pay for this type of thing. Where is it going to become a problem? When is it that they are actually losing that $1,500 a year for every employee because of all the time wasted?
[10:30] Rob: Yeah. I think selling into the enterprise as a single founder, the product that’s basically competing with existing products that are already selling into the enterprise and already have experience doing that is going to be a real challenge because you can build a better product than them but that’s not what counts in the game. It’s knowing all those rules of enterprise sales.
[10:49] So this is tough marketing going to. I like the idea of making a really nice expense tracker, doing a better job than other people but I’m not sure the enterprise is going to really respect that. If you go in there and say yeah, mine’s much easier to use, they’re not going to care. They’re going to need more than that basically because that’s just one element of a long checklist of things you’re going to have to look at.
[11:09] Mike: The other thing I would point out is when you start looking at customers or the types of customers who would use something like this. It tends to be a feature of functionality that is bundled into like enterprise project management software. I can’t remember the name of the software that we have used but there was a product where what it did was it was intended for arranging consulting engagements and managing them through the process.
[11:32] So you could almost use a kind of like SharePoint where you’re putting documents into it and you’re communicating with the customer almost like Basecamp for consulting companies. And there was also a module in there that did expense tracking. And as a consultant, when you’re on a project, you would go in there and you would enter all your information and stuff.
[11:48] But that was all lumped in as part of that functionality. So I think that there are probably other products out there that you’re going to be competing with indirectly that just already offer this feature and functionality that they won’t even look for this type of software because they don’t need it. Its ready built into whatever their already using. And it’s hard to justify paying for something when you already have access to something for free. And maybe it’s not as good but customers have a hard time justifying buying an additional product that already does something that they have in place already.
[12:18] Rob: You know, the one other thing I noticed is in his email he said his dream customer is an engineering/construction firm with less than 100 employees. Basically, that part, if you’re really building it for engineering and construction firms then that should be on your landing page. Like you should say this is the best engineering/construction firm expense tracker in the market because that’s how you’re going to do it unique is only compete against that small sublet. That’s actually a way to win.
[12:45] Then you niched it. And that was one other suggestion I was going to give but it seems like you’re already thinking about that. You’re just not representing it well on the landing page and I think that’s something I definitely consider doing is calling out – if you are going to pick a niche, then call that niche out specifically because then if I’m in that niche then it makes me feel good like you’re actually going to have some unique features that are going to correspond to my business.
[13:04] Mike: Another question that he has is what price point justifies time involved in doing outbound or direct sales techniques. Is it $5 per employee per month or $10 and I think what’s he’s really asking is in terms of the people using it, let’s say they have 50 employees and I’m charging them $5 an employee then that’s theoretically $250 a month.
[13:25] And I think for you and I, it really depends on what that total number is going to be and you don’t necessarily know until you call them and ask well how many employees do you have? So it’s almost a crap shoot I’d say in terms of calling them and doing that outbound marketing but if you are specifically targeting the engineering or construction companies of less than 100 employees, you have to figure out what your maximum price is going to be.
[13:47] And then understand that there are going to be companies out there that are only going to pay for it for 10 employees or 15 or 20 even though may have 100 or 200 or 300 employees
[13:57] Rob: There’s a difference between outbound and just high touch sales right? High touch is when people come to you and then you nurture them and you do talk to them and you do demos and all that stuff. Outbound is truly outbound like to me, that means making phone calls and cold emails ad really going from cold leads. And with high touch sales I think you will get killed if you’re not charging at least $99 a month per account and I would try to get to $199 per account.
[14:24] And then with true outbound stuff, that’s where you need to be in the $200 to $500 a month range. And that’s why enterprise products are expensive. The stuff is not attributable cost. They’re absolutely enterprise SAS apps that are almost four figures a month. If not into four figures a month then it’s strictly excuse of all the leg work and stuff involved and making these kinds of sales.
[14:47] Mike: So Dave we hope that answers your question. Our next question is from Denny and he says hi guys I love your show and I’m super interested in starting a SAS app myself soon. I was wondering what your thoughts are on non-technical founders. I don’t know anything about coding and I’m a big fan of Dane Maxwell who teaches a method for building SAS apps for non-technical funders.
[15:03] Obviously you guys are super technical so I’d love to hear your thoughts on the challenges people will face, trying to have apps built for them rather than building them yourself. Do you have any advice for finding or working with developers? Keep up the great work. Denny.
[15:15] So I think we’ve given a lot of advice on finding developers over the years and in fact in our last podcast episode with Laura we talked a little bit about it. But in terms of the types of challenges you’re going to run into as a non-technical founder, I think the biggest one is that its going to be very difficult for you to estimate whether or not the times that you’re getting from the technical people who are implementing things for you are accurate enough or they’re reasonable.
[15:40] Something else that you’re going to have an issue with is that if you only hire one developer to work for you, you have to rely on the fact that developer is going to have to be an expert for you. You can’t spread out knowledge between 2 or 3 different people on a team who may all have insight into a particular problem.
[15:58] If you’ve got one person runs into a problem they at least have a couple of people they can ask. Whereas if you’ve only hired one person, they tend to not have other people that they can ask for help on that problem because that’s their job. That’s what they’re working on for you.
[16:09] And if you’re hiring them on an hourly basis, they may not necessarily even care how much time they send solving that problem. You have to stay in constant communication with them and find out when they’re running into problems and figure out whether there are shortcuts you can take or whether there are certain feature implantations that you can just axe from the entire product if they start to become a problem or time sync.
[16:30] Rob: Yeah, finding develops as a non-technical founder is really hard. I think it’s hard as a technical founder because development work, there’s more under the covers. There’s so much complexity that you just can’t see. Like when you hire a designer or a copywriter, we can all judge. We may have our own opinions but you can all judge by just looking at something or reading a couple paragraphs whereas code, there’s so much complexity there.
[16:53] So someone could write a working app but it might not be maintainable or it might use five year old standards or they can just easily stir you wrong. You won’t know. So my advice is try to work your network.
[17:06] To be honest, if you really are a non-technical fonder. Just anytime you’re going with someone cold ad you’ve never worked them before whether they are a designer, copywriter or anything, you’re always going to have more points of failure or potential points of failure that they’re going to be reliable, they’re going to do crappy work. So the more recommendations, that’d probably where I’d start.
[17:23] Right now I’m trying to hire a developer. It’s a challenge. It’s a lot of work and I’m either looking at code or I’m having one on my team do that and so if didn’t have that ability, there’s not really a one word or a single tactic answer to get around this challenge. It’s similar to me trying to hire an accountant or trying to hire a lawyer. You don’t really know how good they are upfront right?
[17:45] I mean all you can do is get a referral and go with them and try them out and then you’re going to know your – or many down the road whether or not they worked out because you can’t really judge – it’s not like they can give you a contract you can read through and say wow that’s a really good contract. You can’t actually judge the value of their work. Because they’re doing something that’s more complex. They’re an expert in the field that you’re not. I guess no issue answers start by trying to find out from people you know who they’ve used.
[18:08] Mike: I think one thing you might be able to do to help you out is figure out how well they explain things because if somebody – if you ask them for a code sample and then ask them to walk you through that code sample then they should be able to explain to you why it is that they made certain decisions and talk about those decisions, talk about the complexity of what it is that they were doing and explain any edge cases that they were encountering and the code that they were writing.
[18:34] Just by working through that with them, figuring out and watching how they explained it to you will give you a good sense of how well they understood what they were doing at the time. And they should be really relatively familiar with their own code sample but even if they’re not, they should be able to at least read it if they wrote the code in a well thought out and easy to understand manner to begin with. And you want to be able to find those people who can explain those things to somebody who is non-technical.
[19:00] And if you could do that, I would think that you’re probably in a much better situation than you get a code sample from somebody and they just say I don’t know what I did here. I just don’t remember. And if they can’t explain it to you well when they’re looking at that code sample then chances are good that down the road when they’re trying to explain something else to you that is more complicated, they’re not going to be able to do it then either and you’re going to run into problems and misunderstandings.
[19:22] Music
[19:26] Andrew: Hey Rob and Mike, my name’s Andrew Erickson. I’m a healthcare company and I’m actually getting into the app space now and the product space really because of you guys. Its sort of – have much employees to manage and constantly fighting for that next skill basically as a bunch of people like me, consultants trying to manage that and it’s been challenging.
[19:46] I’ve had an executive assistant for about a year but paying her about $15 $16 an hour. Recently she’s moved to another role in the company and I watched the training video for hiring a VA. I have a few good candidates now that I found on Odesk.
[20:00] My question is actually what is the best service provider for like a VoIP Line, Skype, or are there some other options that I should look into? Any help will be greatly appreciated and by the way, your wife did an awesome podcast on bootstrap with kids. Huge shout out to you guys. Thanks again.
[20:19] Rob: Okay, so Andrew’s asking about not a VoIP Line like for your house, like a physical line but I think what he’s saying is the new VA he’s going to hire will probably need to answer inbound calls and essentially be like kind of a front desk receptionist type person.
[20:33] The way I’ve heard the most people do this is using Skype because you can get essentially a US telephone number and you pay for it through Skype and you pay a monthly fee and then it rings to your Skype installation. So as long as you have Skype open and you’re online, it will right through and the person will never know that they’re calling to your Skype account. And if you have your headset ready, you can answer calls.
[20:55] That’s the way I’ve heard people do it and that’s what I’d recommend. I don’t know if there are fancier approaches or something more exotic than that but I’ve definitely known a lot of that approach.
[21:05] Mike: I would probably recommend Skype as an option as well. The other one that I can think of that might be useful is if you look at grasshopper.com, what they pitch is the entrepreneur’s phone system and it allows to have a bunch of different phone numbers. They can be local or toll free or do call forwarding and things like that.
[21:20] Essentially it allows you to configure it online and you don’t necessarily have to buy hardware and software to use their website and their tools to redirect calls and have call queues and waiting and things like that.
[21:34] So that’s probably a step up from what Skype offers. I think the only problem I’ve run into Skype on occasion is that if you’re using Skype for extended periods of time for a specific account I think you’re limited to a certain number of hours per day for a non-commercial account. I don’t know whether there’s commercial versus non-commercial accounts within Skype.
[21:52] But they basically say oh well if you use it more than X number of hours per day then essentially with happens is they cut you off for I think it’s a full 24 hours and you’re not able to use your Skype account at all if you go over that timeline.
[22:05] So that’s something I would definitely be a little bit careful of. I’ve tried to use my own Skype account for long conference calls or remote engagements and stuff like that and if you hit that limit, you’re done for the next 24 hours. So then you’re reduced to basically creating a second Skype account and kind of alternating between them.
[22:20] So Andrew I hope that answers your question. Our next one is from Keith James and he says any thoughts on an annual versus monthly pricing for a SAS startup? It seems like a no brainer to charge monthly for a SAS ad versus annual. My target price is $9.95 a month and my annual price is $49.95. There’s a lower barrier of entry and a 240% increase in revenue. What concerns me is return rate. The other concern is initial cash flow.
I bring on 200 initial seat customers at $49.95 a year, our initial users will generate $9,900. Using the monthly model it would generate $1,999 a month. This amount is fine for proof of concept. There’s barely enough to cover infrastructure cost. Thanks a lot. Keith.
[23:00] Rob: So first question is if you charge – he says $9.95, let’s just say $10 a month to make it easy. If you’re charging $10 a month, your annual price shouldn’t be $50 a month. It should be either $100 or $110. That’s kind of the standard is that you do 10 or 11 months for the annual contract. So I think you’re discounting it way, way too heavily to do an annual that’s basically 5 months of payments gets you the whole year.
[23:24] Second thing is when starting out I’ve always done monthly. I focus on monthly recurring revenue. That’s a big metric for me because I want to see that number growing every month. And if you move to annual pricing, you can definitely get a big spike in revenue but that goes away as soon as you stop marketing because you’re kind of killing that flywheel effect that a SAS app gives you that it does bring in the revenue every month.
[23:46] However, there’s a big cavvy up to this. Exactly the reason you’re mentioning it is if you sell annual upfront, you do get that big influx of cash and it will help you fund development and employees and early on you really need that money. And Jason Cohen also talked about this in his Micro Comf talk that if you get to the point where you’re actually collecting annual from everyone, then you have essentially like a negative customer acquisition cost that you can acquire an infinite number of customers because you’re spending…
[24:14] Let’s say send $100 to acquire a customer but you make $400 or $500 from them right when sign up, then you have this infinite bucket of money in with which to acquire them. So all that to say, I’ve always been a fan of monthly but I think that annual definitely has its place.
[24:34] I know some apps are doing annual only. They’re actually SAS apps and you could only do an annual plan. I would definitely consider that. I don’t think that’s out of the question. I have not done that with any of my apps to date but it is on some to-do list essentially when we have time to rewrite the marketing and redo the billing and change all that stuff. Because you have to have different trial sequences. You have to have a lot of changes from monthly to annual.
[24:55] So I would think it through. But if you’re in a position where you can do annual, I would not rule that out. I would think about doing it early on at a minimum as an option and maybe as the preferred option for people because it gets you that cash flow upfront and then it can really help you build your product.
[25:10] And then at some point you could go annual only if it’s really working out or if most people are picking monthly then you know that maybe your audience isn’t resonating with a larger upfront purchase price and they want a smaller price overtime so you can always vary to that but this is it. It really is an interesting question. I actually feel like my thoughts and I think other people’s thoughts on it are changing overtime.
[25:30] Mike: Yeah. I was going to point out the difference or the discrepancy between what he had lifted as the annual price and the fact that only comes out to the five months of revenue. The other thing I would point out is that this question becomes a little bit clearer once you get to the point where you have people coming into your funnel and you know what your customer acquisition cost is when you’re first starting out and you don’t know what those numbers are is really, really difficult to tell whether an annual plan or a monthly plan is going to be better off for you because you don’t know how much it costs you to acquire a customer.
[26:01] So you’re still kind of working out the pricing. And because of that, you may say I’m going to charge $10 a month and then you start charging people $100 for an annual plan let’s say and then you go trough and then you start finding out that its actually costing you $110 or $130 or $150 to acquire a customer.
[26:20] Well if you’re only making $100 a year from that customer and they’re canceling right after that because the service is not valuable to them, then that becomes a very, very big problem because you’re going to essentially stunt the growth of the business. And you’re going to have to increase the price point at some point along the way but you won’t know that until you’re so far in that its actually going to hurt you to do that.
[26:44] So those are the types of things that you need to take into consideration and knowing your cost of customer acquisition is a really, really important metric. And if you don’t know it then doing the annual plans can be risky. So thanks for the question Keith.
[26:57] Our next one comes from Mike Truman and he says hey Mike and rob, I have a question about email courses. I’m having trouble coming up with a subject for a course that is applicable to my business which is an online in and out board at blilo.com how closely should the subject matter of an email course be tied to what a business actually does in order to successful generate leads? Thanks have a great day. Mike.
[27:18] Rob: So what’s interesting is I don’t think your course needs to correspond with your app in order to get people to subscribe. But in order to get them to actually do a trial after they’ve gone through the mini course, there has to be some kind of tie in because as an example, blilo.com is an in-out board and the question it asks on the homepage is who’s going to be in the office today?
[27:44] So this is a very horizontal product which means that it’s kind of a challenge. You don’t really know who your demographic is per say. I guess its small business owners, medium business owners. I guess it is only with offices. So its small businesses only with offices, so maybe you think of a way to provide value like how to run a more efficient office or how to encourage more people to come into the office or why you should study some numbers on the benefits that people get when they work together in an office or maybe there is no benefit.
[28:13] Just do research on that and try to offer something around the concept of coming in versus remote work ad that kind of stuff because now actually at least keep people’s interest and even if you only do with 3 or 4 day course if you don’t have enough content at this point, just giving them some type of education and showing that you are actually an expert in the field even if you’re just researched it but you are more of an expert than they are.
[28:36] I agree with a horizontal product is more challenging than let’s say something that’s catering to dentists or only to tech companies because then you’re going to have a much better idea of what provides value for them.
[28:51] Mike: Thanks for the question Mike. Our last question is from Pralie and he says hi there, I just started listening recently and love the show. I was wondering what your thoughts are on when the right time is for a college graduate to start their own company? I graduated over a year ago and I’m worried that my student loans are going to get in the way of my plans of funding a startup in the future. Should I focus on paying off my student loans before starting my own company or do you think I’d be able to go ahead even with the debt? Thanks for the help.
[29:15] I would say the sooner you start the better. I don’t know as I would wait for paying off your student loans. I mean student loans tend to be pretty hefty and its going to talk you a long time to pay those off but I would probably also kind of caveat this with the underlying assumption that you have some sort of a revenue source and you aren’t just dipping into your savings and living off of credit cards to try and get a business off the ground.
[29:39] If you’re working or have a consulting engagement or something like that where you’re getting revenue of some kind and making a living and starting something on the side, you’re going to be in a much better position and its going to be a lot less stressful than if you try to just do everything solo.
[29:53] And since you’ve been graduated for over a year, I would guess that you’re probably working full time or at least part time at this point. So starting a business now is probably a better bet but I don’t know your full situation. The way I would lean is definitely towards starting sooner rather than later because the best time to start a business was yesterday and the best time before that was the day before and it just keeps going back. So there’s no better time to start a business than there is today.
[30:18] Rob: Yeah, I agree. Most student loan terms are like 10 years. Are you going to wait 10 years to start your business? Because in 10 years you’re probably going to be married with a mortgage. Maybe a car payment, all that kind of other stuff comes up. It only gets worst the older you get.
[30:32] So like Mike said, with showing some restrain and not just throwing it all to the wind and losing all your money or whatever, spending it all on you startup but taking a bit more conservative approach a lot like we talk about that Mike and I followed when we started ours as well as they approach – we kind of – a spouse here on the podcast, there’s no reason I can see to wait on this. I don’t think student lands should be reason to not start a business.
[30:54] Mike: So Pralie for the question.
[30:55] Music
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