Show Notes
In this episode of Startups For The Rest Of us, Rob and Mike talk about building a killer email launch sequence. Drawing from their collective experiences launching various books, software products, SaaS apps, and membership websites they discuss their thoughts and framework on the topic. Some of the points discussed in detail include elements of a sale letter, how many emails to send, and things to do on launch day.
Items mentioned in this episode:
- Metrics Watch
- FounderCafe
- Product Hunt
- Dan Kennedy’s Ultimate Sales Letter
- Rob’s Book: Start Small Stay Small
Transcript
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about building a killer email launch sequence. This is Startups for the Rest of Us episode 325.
Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
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, sir?
Mike: Well, I’m doing some ongoing work to polish up my Zapier integration, and it turned out to be a lot more troublesome than I had originally expected. There are certain requirements that they have about data that they expect back, so I had to go in and make a bunch more changes on top of the ones I already made to the API, and their documentation isn’t very clear on some of the things that you need to do. It’s technically correct, and I talked to someone about this over there, but not very helpful.
Rob: Yeah, that’s a bummer. I think I mentioned last time- because did you mention last time you were working on it?
Mike: Yeah. Especially getting our V1 Zapier integration. We ran into some struggles with it which is surprising because they have so many people integrating with it I would think it would be more of a well-honed process. I know that when I’ve done the V2, and I think we may even have the V3 out now, it got easier. There are still some tricky areas, but overall, once you have something that works it’s a lot easier to iterate on that.
Yeah, I think the issue is just when you go in you don’t even have a baseline and so you’ve done things your own way so you have your way of interfacing with the world and it doesn’t necessarily match up with what their expectation is of their way of interfacing with the world or with all the different APIs so they essentially set the standard that everybody else has to follow at this point.
Rob: Right. Yep, cool. On my end, we are hiring two more developers at Drip: front end and [?] developer, so that’s always fun ramping up those efforts. As you know, it’s very time-consuming to find good people. I think we’ll be pretty much constantly hiring throughout this year just with the trial and customer growth since [?] acquired us. We just have more and more needs to scale and to build more features and just everything that comes with that. I used to marvel- I don’t understand how these teams get so big. Why do you need fifteen people to run a software product? Why do you need twenty people? But I see it now that you get so many systems and then when you’re growing it at double-digit percentage every month, those systems every 4-6 months, they run out of capacity. Whether it’s a database or whether it’s a queue, whatever it is, that code is not built to basically double in usage every, whatever it is, six months. So you have to circle back and in the early days there’s almost none of it so you’re just doing features. But as you start to circle back to all these systems you’re maintaining, we’re finding we need a full-time developer on just one sub-system now just to keep it going, and that’s not even really improving it that much, it’s just to kind of keep up with the needs of the customer base as it grows.
Mike: Yeah, I was going to point out that there gets to a point where some of the different subsystems must need somebody full-time to work on just that. And those pieces get complicated, and as they get more complicated, it makes it more difficult to move from one subsystem to another because it is so complicated and it takes you so long to get back to a base level of understanding how did we write this and what were the different [etch-cases?] that we ran into so when I’m making changes I don’t break other things? And having that one person responsible for that one piece of it makes things a lot easier because then you don’t have to do that context switching all the time.
Rob: Yeah, totally. Other thing on my radar is Sherry and I are heading to Los Angeles this weekend for a quick getaway. I’m leaving Friday, I think my plane leaves at 5 or something, and we’re back by Sunday afternoon. It’s so cool to be in the city. We live in Minneapolis, and we’re twenty minutes from a major airport, and it’s a nonstop flight, less than four hours to LA from here. It’s crazy to have that flexibility, and I think it was like $210 to do it. I’ve really enjoyed that part about being in a larger city because Fresno was always a hop. Basically you always had a stop somewhere, and that stop just adds complexity. Your luggage gets lost more often, that stop always takes an hour or two hours and there’s just so much that can go wrong and you’re up and down and doing all this stuff, and I find that a nonstop flight now, that’s what I strive for. So the fact I would never do like 6 or 8 hour travel day. To get from Fresno to Minneapolis is like seven hours or something because it’s not nonstop, but I would never do that for a weekend because then you lose Sunday and you lose basically all day Friday, but in this case I can get there, especially with the time change around dinner time or a little later on Friday, and then we head back early afternoon on Sunday. I’m kind of marveling at the time efficiency of that.
Mike: You know, I just looked it up while you were talking, and the temperature difference between Minneapolis and Los Angeles is about twenty degrees, so that’s about $10 per degree.
Rob: I know, I know. We’re going for a friend’s birthday party and we’re hanging out with a bunch of people on Redondo Beach. It’s gonna be a blast. But Minneapolis — the polar vortex is coming through — so we’ve been subzero temperatures or 5 degrees has been the high, and all this time in LA it’s been 60s and 70s and we go to show up and suddenly this week Minneapolis is all in the 30s and 40s which is crazy for this time of year, and LA is in the 50s and 60s. It’s like they are meeting in the middle. It’s not the right week to go, but I guess we’ll take what we can get.
Mike: Yeah, I was just going to say turn the heat up a little bit. Whatever.
Rob: That’s what I should do.
So in today’s episode it’s about building a killer email launch sequence, and it was prompted by an email sent to us by [JP Boley?] at metrics.watch, that’s their website. And he says, “Hey guys, love the show and all the stuff you put out there. I’m about to launch a new product in about 2-3 weeks, and I want to have a great launch. I have some things planned, but I fear I might miss some of the basics and really want to get it as right as possible. Do you have any resources that suggest how to successfully launch and what a launch sequence might look like in 2017? The tool we’re launching is the third product of my business Metrics Watch, which is email reports and real time alerts for Google Analytics, and the next one is a freemium tool that scans Google Analytics accounts and tells people if they have spam or fake traffic in Google Analytics and how to fix it.”
So thanks for the question, JP. We’re going to take the next 20 or 30 minutes to talk through how we would craft a launch sequence and this is based on experience launching- between the two of us- books, software products, SaaS apps, info products, [?] Academy, Founder Cafe, which are online membership models- so really kind of the gamut.
Mike: MicroConf too.
Rob: MicroConf as well, right? We have a launch sequence there, an in-person event as well. So we’ve done this a lot, and there are a lot of way to do it, but I want to put out maybe a concrete framework that shows like step by step if you want to take this and run with it, go do that. And we also want to talk through how we think about it and why we get to the conclusion on which emails we send on which days. I also cover this in my book, Start Small, Stay Small in quite a bit of detail. Little bit different conclusion that I come to here because it was 5-6 years ago that I published that and some things have changed. I think the best way to get a sense of how to do a launch sequence is to basically get on someone else’s launch list and see how it feels to receive the quantity and the tone and the style of their emails.
One example is a friend of mine a couple months ago did a launch for kind of a training product, and I was on his list, and it was like irritating as hell. It was a really overbearing launch, and it was very much not in line with his personality. It was odd. I could tell he didn’t write the copy, it wasn’t in his voice, there were way too many emails. He was just hammering us, and if you’re not on the receiving end of those and you’re just sending them, you don’t know how it feels. I think getting on a couple launch sequences from people and seeing I like the feel of this or I didn’t like the feel of that can help you decide what feels right to you and what feels like it is in your voice and what feels like it is probably the right approach within the guidelines and within the layout today.
So we’re gonna give some ranges here. You can send 2 emails, you can send 10 emails. But which one’s right? A lot of it depends on your own personal taste and your relationship with your audience.
Mike: One thing to mention about places you can find products to get on to the different launch sequences because that might be an initial hangup that you have- how do I find some of those products where they have a launch sequence going?
I would head over to Product Hunt to start out with. And then from there you should be able to find a bunch of different products that people are launching, and then I would sign up for several of them, not just one or two because you are very likely to find somewhere they don’t have a very good launch sequence or they don’t even have one. They just basically put the product out there and get a bunch of sign ups on their page, but they don’t necessarily follow up with them and follow through with a full-blown launch sequence, so you’ll probably have to try out a hand full of them, I would probably say 6-12 of them. And then what you can do is take those and throw them into a folder, use them essentially as a Swipe file, and then look through to see how they go through the process of pitching the product or the offering they have.
Another thing you can do is you can go out to, I’ll say some rather well-known entrepreneurs in the software space, and identify what products they have available and get on to their email lists. Another option is looking specifically for book authors or information or training products of authors. So those tend to be dialed in pretty well. Obviously, they are not perfect, but a lot of different people are doing those types of things. Those are places you can start to find examples of what you can do that are very specific to a particular product as opposed to talking about it generally, which is what we’re going to do.
Rob: And my first exposure to a lot of this talk around launch sequences was Jeff Walker’s product launch formula, and I never actually bought that. It was about $2000 and it was at a time when it wasn’t really worth it to me, but in essence he kind of lays a bunch of stuff out anyways, so I kind of took the model that he laid out in his free content and used it to develop early launch sequences for products I was launching. And then I’ve slowly adapted those over time based on the audience and the product that was launching. In essence, what he talks about is doing something called the sideways sales letter. A lot of folks do this these days, but it’s still really [rarely?] effective. The concept of a sales letter, if you haven’t heard of that, in essence, if you think of a long form home page where it’s really just text, it’s almost a big long essay or blog post- the point of the letter is to essentially show you the value of a product and get someone to hit the buy now button. And there are ways to write really good sales letters. I would say that the old Jerk homepage- you can look at that on archive.org, maybe six months ago, that was a really solid SaaS sales letter. I spent a lot of time crafting it. It got good results, it made a statement, it used a lot of you words, it talked to the reader. Then you can write really crappy cheesy [?], and those I’m sure you can find on clickbank or something like that. But there are really six components of the sales letter. First is the opener, and you want something really good, really engaging because otherwise, someone’s not going to keep reading. You want to identify the problem, and during this time you’re using a lot of “you” language. Talking directly to the reader saying you’re a developer, you feel this. You want to launch a product but… you’re kind of putting words in their mouth, and if they’re not that person, they are going to leave, but if they are, it’s going to captivate, and they’re going to feel like, “Whoa, this person is talking exactly to me.” And then you present the solution. That’s the thing you’re selling. Then you want to add on social proof, a moneyback guarantee — that’s the fourth element. The fifth is essentially the stick, and this is up to you, but the penalty if you don’t do this. If you don’t do this, you’re going to be circling around, you’re never going to launch your product, you’re never going to market, or whatever. And the sixth is, in essence, the close, you ask for the sale. Those are the elements, and they can be in different orders and there are different variations of them but those are the fundamental six areas of a sales letter.
If you want more information on that, I would go read Dan Kennedy’s ultimate sales letter. It’s available in Kindle and Print. It’s probably the first book I read on sales letters, and as much as I don’t like a lot of Dan Kennedy’s teachings — I think he crosses the line in terms of … he’s just really old-school internet marketing in a way that is really irritating to me, but with that said, this book is a really good overview of how to write a sales letter and the components that you should think about and the ways to write them.
Mike: Let’s talk a little bit more about the sales letters. Just keep in mind that the entire intent of the sales letter is to help move somebody from where they are today into a position where they are going to take the next step and become a customer. That’s the whole purpose of the sales letter. You can do that in different ways, as Rob said. You can move things out of order, you can change, for example, your presenting this solution, social proof and guarantee. You can change up the order of some of those thing a little bit or mix and match them a little bit. Say here’s the problem and here’s the solution and throw some social proof in there and provide a little bit of a stick or a penalty and say this is what will happen if you don’t and you alternate back and go back to the solution and say by the way, this other problem over here is also taken care of. So you don’t have to go directly in that order, but again, the purpose of those is really to help somebody move their mindset from one place to another.
Rob: That’s a good point. Circling back to Jeff Walker, again, he has this product launch formula, and it’s about writing a sideways sales letter. So it’s taking a sales letter and instead of having it be this long thing of text, you basically break it up and send it out over time. You might send the first three sections in the first email and the second two in the next one. You don’t do that exactly, but you get the idea that each email has a particular point during the launch, and you’re basically covering these same topics: you need an opener, you identify the problem, you present the solution, you have social proof and a guarantee, perhaps you have a stick, and then you have a close, and then you just do those in a sequence of emails however you break it up. In my experience, the optimal number of emails is between 3 and 7 over the course of sometimes one, sometimes two weeks. That’s how I think about it. I personally tend toward 5-email launches, meaning that the launch has 5 emails in it, but it depends on how much your list loves you, and how much of a pain in the butt you want to be. To be honest, the more emails you send in a launch almost without exception the more sales you will make. But the tradeoff is that the more emails you send, the more unsubscribes and then ultimately complaints you will receive, so you have to find that balance depending on your niche. Like stock-picking sites, they send a ton of email. 9, 10, 11 emails, just crazy volume. Twice a day, all that stuff versus if you’re sending to developers, if you send twice a day, you’re going to get people starting to mark stuff as spam. So you have to figure out the relationship you have with your audience as well as the niche you’re in. That’s why I give out the range of 3 to 7. If you’re not sending 3, you’re probably not sending enough, and when you start creeping up in the 6, 7, 8 range you better have some really good content you’re sending out or else people are going to bail.
Mike: The other thing to keep in mind is the timeline has a lot to do with that, so Rob was just talking there about 3-7 over the course of a week, but if you’re going to start putting yourself in front of people 2-3 weeks out or 5 weeks out, you have a lot more flexibility to start sending more emails because there’s more space in between them. But as you get closer to that launch date, you’re probably going to want to ramp them out so instead of sending 1 a week, for example, for 3-4 weeks, you’d send one every couple of days. And it’s really that last week where you send that 3-7 emails in an effort to get up to the point where you’re building that anticipation, and that’s part of what these emails are about: building anticipation for the product launch. And the people who are interested in it are going to be looking forward to those emails, but as Rob said, there are people who are going to be turned off by it or not ready yet or they’re not in a position where they can take advantage of it. And if you start inundating those people with those email, they will walk away. They will unsubscribe. So it is a balancing act. Sometimes you can balance that out by giving them an option: hey, if you’re not ready right now, just click here, and we’ll follow up with you in 3-4 months, so you can sort of head those things off, but at the same time you don’t want to put too many things on your plate if you don’t have time to start implementing things or trying to think of ways to handle too many [edge?] cases. It really depends on the size of your list and what it is you’re going for.
Rob: In terms of the overall launch, a good launch has some type of reward you’re able to offer that people won’t get at another time. So like some epic course you’ve created, a sequence of interviews, something that is valuable to people that could be a discount on the product itself that you only discount for the first few days, or if it’s a SaaS app maybe you get a lifetime discount for the whole time or you get maybe it’s not even a discount, like with Drip we still charge the $49, but we doubled everyone’s- what they got for that $49 because I didn’t want to be selling things for $24.50 a month. I wanted to hit that price point. So you can get creative with it.
So number 1 it has a reward and number 2: it’s time limited. And without both of those components, you don’t create the impetus for people to do it now and people will procrastinate and not do it. So there’s the two things you’re going to be communicating through this process as you step through those six elements I said above.
Mike: The reward itself I’m not particularly a big fan of offering lifetime discounts or anything like that- I think there’s a lot of ways you can put yourself in a position to be providing more value as opposed to capturing less value from a customer for the entire life of that customer. As Rob said, with Drip what they did is they gave away, the ability to send more emails, but there are other ways you can do similar ways as well. You can do personalized onboarding or coaching sessions for example on how to get the best use of the product or help them integrate it into their systems, and that actually serves two different purposes. One: it helps get them into your software and it also allows you to have those direct one-to-one conversations with them to help you learn more information about how they’re going to use the product, when they’re going to use it, how often, and help you to better craft your future marketing messages. So yes, it’s time out of your day you’re going to be spending with them, and it will probably chew through at least a month if not several months worth of the “profit margin” for that, but it does give you the additional benefit of learning from that experience to be able to apply it to the future for the product.
Rob: So let’s talk through this five email sequence, and again, you can adapt this to be three emails, you can adapt to be seven emails, but we’ll just talk through these five and kind of when they’re sent. And I should say the first time I used this kind of structure I was kind of flying blind and I didn’t know what would come of it. It was 2007 or 2008, and then over the years it wasn’t exactly the structure. I’ve honed it based on feedback and results. A lot of people use this formula these days, but there’s kind of been a lot of us for 10 years now trying to hone this thing and get it better. So I will say that this type of sequence tends to convert better than it did in the old days just because we’ve been able to improve it so much over the years. It depends a lot on your copywriting as well.
Let me get into the first one. Typically about a week before the launch day- so the launch window starts on the launch day, I’m going to use that term. And then I like to think of the launch window being 48-72 hours. With MicroConf we do a full week because people- it’s a big ticket item, they’re thinking about making travel plans, they have to check schedules, there’s all types of stuff, but somewhere in between that- I don’t like to go longer than a week. So about a week before the launch day, you’re going to send a teaser email. This is information, a screenshot, maybe a short screencast. You’re kind of being vague about the release date but you say next week we’re going to be launching this thing and here’s what it is and here’s the problem it solves. And you really get into starting to build anticipation. At this point you want to let them know since they’re on the list, they’re going to receive a special price available only to people who are there but that it is going to be time-limited. And this can really dig into the problem the person reading the email has, and kind of show that your product is the answer or at least start doing that.
Mike: One thing to keep in mind before you start going down this process of laying out these different emails is make sure you have an outline of all the different emails so you know exactly what needs to be written and write it as far in advance as possible. The last thing you want to do is be crafting these emails through your launch sequence. If you decide you’re going to launch on the 7th, and you start them on the 1st, don’t wait until the day before to start writing some of those emails because it will either not get done or you’ll not be happy with it that you won’t have the time to go through them. So it’s kind of a preface to all these emails that we’re going to talk about. make sure you do those things well in advance so you’re not waiting to the last minute so that if something goes wrong you have time to tweak it.
Rob: One other thing I forgot to mention about a good launch when I was talking about it above is if it makes sense, scarcity is the third thing that’s really cool. So you have that reward, you have that timeline, but if you add scarcity as well- don’t do fake scarcity. If you’re selling ebooks there’s no scarcity, but if you’re selling tickets to a conference, there is scarcity because there’s only so many tickets that you can sell. So that is what you’re building towards with these emails, so the second email goes out typically 1 day before the launch, and this is where you provide social proof, you’ve mentioned the money back guarantee- you’re trying to remove all objections so that someone’s already thought through the whole purchase and by the time they get that email on launch day, all they are doing is basically clicking the buy button. So you build anticipation and excitement and you try to remove all the roadblocks. So you may need to touch base again on the problem your product solves, but you’re going tell them, especially if there’s scarcity, you’re going to tell them the exact day and exact time they’re going to receive that email and let them know that you imagine you will sell out, assuming you do. You want to say stuff that’s true. You’re going to sell out and if they want to get in, they need to get in early. Again, do true scarcity. If you don’t have real scarcity, then don’t do it. But I like to send this email out 1 day before because it’s long enough that most people will open it before the launch, but it’s close enough that most people will remember. If you send it out two days, it can get a little tricky with people 48 hours later forgetting that this launch is going on. Also, I like to start my launches on Tuesday and so if you go two days before they’re getting it on a Sunday, and I prefer to be in their inbox on Monday morning.
So the third email is your actual launch email, and like I said, I like to do Tuesdays. I’ve also done some launches on Wednesdays. And when we do the full week long launches with MicroConf we have done a few of them on Thursdays. I don’t like to do launches over weekends because people just aren’t on their computers as much. On launch day you’re going to email the list, you’re going to see sales rolling in, and you’re probably going to have your best sales day at least for a while. That’s the whole goal of this is to kind of make your first several months of revenue on that first day to really kickstart your motivation. I’ve seen conversion rates on this launch sequence well about 20% of the list buying. And I’ve seen as low as 5% and I’ve seen even 30% which is just insane. It depends on the relationship you have with your audience, it depends on how big and warm the list is, openers play a big part in that and your price point. But it’s pretty interesting. If you can sell a few hundred customers on $20-$30 a month, not a bad way to kickstart a little bootstrap startup project that you’ve been working on for a few months.
Mike: One thing that Rob just mentioned about having that launch day on Tuesday or Wednesday and then not sending out an email two days before because then it would come out on a Sunday- the other thing to keep in mind is when your launch sequence is going to end and when you’re going to stop making that special offer. So the reason Tuesday works so well is because you can send an email the day before and then you can have that launch sequence last for two days so that people have that opportunity to get in until Thursday. One of the issues you can run into is if you extend that by another day what ends up happening is that now your deals are going to end on Friday afternoon or evening, and by the time 4 or 5 o’clock rolls around on a Friday people have lost interest, their minds are elsewhere, and if you have a launch ending at midnight on a Friday night it is not going to work out so well. I have seen that happen where something goes out for a launch and it ends on a Friday or Saturday night at midnight, and those don’t go very well. So you have to be careful not only to avoid starting it over a weekend but also ending it over a weekend, you don’t want to do that either.
Rob: So the fourth email is the 24-48 hours after the initial launch email. And it depends obviously if your launch is only 48 hours then this kind of has to be at 24. But if you’re doing a 3-day launch, maybe it’s 24-36-48. Basically, this is another excuse to communicate with them, and so you want to provide some value. Probably a good model for this is send out an FAQ email like hey, we’ve gotten some questions and these are the questions and these are the answers. Because you’re almost certainly going to get questions via email and so you can compile those up and just be like, I wanted everyone to have those, and it’s really just an excuse to get in touch again. Remember, email open rates are not 100%, so maybe if you’re getting a 40% open rate on your sequence, emailing multiple times will hit different segments of that, and you can make sure that everyone at least gets some of your emails into their inbox.
Another thing you can do with this one is to add some social proof again, add quotes from people who got in and are really excited, and if you’re selling any quantity you are going to get feedback pretty quick of like, “man, this is a really cool product.” You can include more screenshots. Again, it’s just another touch point, but you also don’t want it to be cheesy and feel like another touchpoint. You want to be genuine with it and have folks feel like your emails are providing value because at this point if they haven’t bought and you keep emailing them, you’re going to start getting complaints and unsubscribes if you’re not providing value with the emails you’re sending.
Mike: That’s why it’s kind of important to make sure that you have an idea of what should go into that FAQ and if you don’t then have the email itself written and then kind of stump that piece of it out and then fill in the details of the FAQ with what people are actually asking. One thing to be careful of especially when a product is very early on, a lot of times — and I’ve done this myself — is you don’t necessarily know the questions people are going to ask so you kind of make some of those questions up, and depending on what it is, it can be obvious from the other side that that those questions were probably not real questions that people were asking and you were using it as an excuse to put something in the FAQ, so do be careful to make sure you’re paying attention to what it is that people are actually asking about, and some of those questions can even come from demos you’ve done previously before the launch to offer beta customers. You can reuse those, but if you’re just making things up completely it can be a little bit forced, I’ll say.
Rob: Yeah, that’s one thing. Like if you’re faking it, people can tell that the days of these kind of cheesy internet marketer stuff working- they’ are rapidly coming to a close if they’re not already gone. There are certain subsections of people who are not as web savvy or not as technical or whatever and you can say things and they’ll believe it, but the folks you’ll likely going to be dealing with are going to be savvier than that. The bar is just raised in terms of transparency and in terms of people recognizing who you are and being able to recognize what’s legitimate and what’s not. So the fifth email in this sequence is the 24 hours before the time limited deal ends. You could do one 12 hours before as well. Not in addition. That would be starting to get quite a few, but either 24 or 12 hours before saying there’s only a few hours left. Sometimes this day has almost as many as the initial launch in terms of sales. Other times it’s just a trickle. The thing to keep in mind is like I said, there are more complex variations than just this whole 5 email sequence, but this is definitely a pretty simple way to do it. It ‘s a proven approach, and if you don’t do this you either don’t send emails or you just send one email- it’s a 5 or a 10 x difference. It’s a huge, huge variation. So I would recommend if you feel like 5 is too many, it’s pretty easy to cut the FAQ email and you’re at four or you can the week before email altogether or the day before. There’s different ways you can vary it to what your comfort level is and the relationship you feel like you have with your audience.
Mike: And you can also go in the other direction where you send more emails so instead of just sending one 24 hours before the deal ends, I’ve also seen a lot of people who send something 4 hours before something ends and then 2 hours before it ends and then 1 hour before it ends. Again, you do have to be careful with how many times you’re hitting that list and whether that list is considered burned after that. There are lists out there where people will build the list and do a launch of some kind to it, and after that there’s not even a point in having the list anymore. Maybe it’s because it’s an in-person event or something like that but again, you will increase sales at the expense of the signups you have.
Rob: Last thing to keep in mind is email open rates, are not 100%. No list is that good. So a solid list should be between 20-60% open rate. So think about that when you’re calculating conversion rates. Let’s say you have 1,000 people on your list. You think my goal is to convert 20% of those. That’s good. That’s a really hard thing to do if your open rates are only 20%. But if you’re at 60% then converting 1/3 of the people who receive the email is actually much more in line with reality. So think about that and check out your list. Maybe even prune your list before doing this. If this is an ongoing list, try to get a more realistic view and higher open rates and making a more realistic concept of how many people you might convert during the launch.
Mike: One thing that can be a little difficult to figure out is when you’re looking at the open rate whether or not you’re looking at a single email or whether you’re looking at aggregate across them. You’re going to have people who open up every single email and then you’re going to have other people who open up one. That’s something else to factor into what your calculations are as well. I don’t think it’s worth getting too worked up over whether or not you reached a particular milestone or conversion rate in your head, but I do think it is worth paying attention to what your expectations were. And how you can improve what that process looks like in the future- what things worked, what things didn’t. And then being able to analyze those so that you can use them in the future for other either mini launches or other marketing copy you can look at some of the different emails you sent right after the launch when it’s done, and find out whether or not certain things probably resonated with people more than others.
Well, JP, I hope that answers your question. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt for ‘We’re Outta Control’ by MoOt used under creative comments. Subscribe to us in iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening. We’ll see you next time.
Episode 324 | Idea Validation & Risk Avoidance
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about idea validation and risk avoidance. They list 10 fundamental questions that need to be answered when starting a new product.
Items in this mentioned in this episode:
Transcript
Mike [00:00]: In this episode of ‘Startups for the Rest of Us’ Rob and I are going to be talking about idea validation and risk avoidance. This is ‘Startups for the Rest of Us,’ episode 324.
Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [00:25]: And I’m Rob.
Mike [00:26]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week Rob?
Rob [00:30]: Just nailing down the last few speakers for MicroConf Las Vegas coming up here in April. So rounding out that lineup. It’s shaping up to be a really interesting lineup this year. I mean, every year is good in its own way but this year you and I were really deliberate about almost setting up – especially with starter – setting up a curriculum where we want each talk to be all the way from idea validation to launch and everything in between. We’ve chosen speakers that are either experts or they are founders who have done it, each of these stages, and have done it successfully and have a framework. It’s pretty exciting.
Mike [01:01]: It’s also nice to be able to kind of niche down the audience a little bit so that we can target those speakers so that you don’t have people sitting next to each other that are just in vastly different worlds. We’ve got the people who are just starting out versus people who are making several million dollars a year. And they’re at different places in their business so it’s hard for the speakers to talk to both of them at the same time. It really helps to have that separation between them so that those talks are more targeted directly to where their business is at.
Rob [01:28]: Yeah. Just as an example with Starter Edition, Jordan Gal is talking about going from zero to 15K MRR and they’re definitely past that now. But I think his talk goes through there. And Ryan Battle is talking about how to gain traction in a crowded market. Justin Jackson. You’re speaking about idea validation. Sherry Walling is talking about staying sane. And on the growth side, in addition to me speaking about the Drip acquisition, Lars Lofgren, Joanna Wiebe, Russ from Digital Market. We’ve really got a nice lineup shaping up here.
So, if you’re interested, we do still have a few tickets left. I think we have maybe 10 or 15 to each conference. It’s like the perfect amount to have right now. So head over to MicroConf.com if you are interested in hanging out with a couple hundred of your closest bootstrapped founder friends.
Mike [02:14]: Talking about bootstrapped, let’s go in the opposite direction. Did you see that Trello was acquired for $425 million by Atlassian?
Rob [02:21]: Isn’t that insane? I read somewhere – and it was debatable because they didn’t release revenue numbers, but it was kind of numbers have been implied and it was May of 2016. So it was about seven months ago that they were doing around $10 million in revenue.
Mike [02:35]: Yeah.
Rob [02:37]: That’s a hell of a multiple. Forty-two times revenue. Assuming that’s correct. Let’s say they were at 20 or 30 million. It’s still a 10 to 15 times revenue multiple. That’s not net profit like if you were to go to a broker and sell for financial. This is tremendously expensive.
Mike [02:53]: Yeah. I think the interesting thing is that they said that they had 19 million users. I also read that they had over 100 people working on it at this point. So, I think that those things factor in as well. Didn’t they get funding for Trello?
Rob [03:07]: I think they did. They spun it out and raised money. It must have been bleeding cash if they had that many people working on it with that little revenue. It’s a good exit for them. I’ve always liked Joel Spolsky and Mike Pryor. They built something pretty amazing with FogBugz and Stack Overflow and Trello. They got in early and they made a good product. I use it every day and I think they really captured a market. I totally don’t begrudge them any type of success. I feel happy for them to have had a big exit. As far as I know this is their first exit, right? Because FogBugz wasn’t an exit. It’s still running and turning – I mean Fog Creek. I’m sorry – still turning out FogBugz. And then Stack Overflow is just churning along at this point.
Mike [03:47]: Yeah. Spolsky is the CEO of Stack Overflow so it’s its own separate entity. All three of them are separate entities. It’s interesting to watch definitely.
Rob [03:55]: Yeah. They’ve done a lot to impact our community both of software entrepreneurs and then now with Trello and Stack Overflow kind of the rest of the world. They just really done a lot. It’s pretty impressive. Anything else for you before we dive in?
Mike [04:10]: I’m experimenting with going to a three and possibly a four monitor set up. I’ve got my main desktop. It’s a 30-inch monitor. And then I’ve had a 20-inch monitor next to it for a while. And I’ve always been thinking to myself it would be really nice to have a third monitor up above that so that I can have something else up there and use it for reference if I’m working on stuff that I need a lot of screen space. And I’ll say it’s a little dicey. It’s a little rough at the moment trying to get used to having that third monitor. I have the ability to have a fourth monitor. I just haven’t done it yet. I’ve seen people on Twitter recommend that I go to a 55-inch 4K TV setup instead. I think Andrew Culver had showed a screenshot of what his looked like and he was able to put the equivalent of nine screens on the TV all at once. My TV in my living room is 55 inches so I think that I’d have a hard time with that.
Rob [04:59]: And you’d need it to be 4K because the resolution of TV’s is so different. Because HD, or 1080P I should say, is not actually that great a resolution these days now that we’re looking at retina screens. So you’d have to do the 4K in order not to see the pixels and be really irritated by it. You’d also need really good window management because I don’t want to be manually resizing windows. I want to snap it into a grid. You’d have to some app that manages that where you’d say I want basically a 2×2 grid because I only want four and I just want to be able to snap it there and have it expand.
Mike [05:32]: Yeah. There’s a few different options for that because I have it hooked to my desktop on Windows and there’s a few different options which I’m still running Windows 7 but I think that Windows 10 they do a little bit better job with that. I’m not real sure how that would shake out. I don’t know, we’ll see. I might consider doing a single larger screen at some point but I’m just kind of experimenting with it to see how the third screen works out for now.
Rob [05:53]: So I think you’re first problem started with the sentence, “I’m still running Windows.”
Mike [06:01]: One of many problems I’m sure.
Rob [06:03]: Anyways, let’s dive in. What are we talking about today?
Mike [06:05]: Well, today we have a listener question from Simon over at Small Farm Central. He called it into our voicemail number and here is the message. “Hi, Mike and Rob. It’s Simon from Small Farm Central. I came to your conference last year and I just had one question that I thought you might be able to answer. I’m considering doing something new. A big new project and I’ve been talking to customers over the last couple of months and I’ve got them actually to prepay and sort of buy it ahead of time and do things the right way there. I think I really have something that could work. My question is: you do all this validation ahead of time and at a certain point you still need to make a leap and say, yes, I’m going to do this and I’m going to commit the next three to five years of my time to making this work. What do you look at as you make that final leap and make that final decision to really go for something new? Thanks.”
Rob [07:03]: Cool. So that’s a good question. Let’s dive into this.
Mike [07:06]: I think one of the things that I pulled out of this was: how do you evaluate something where you’re trying to make that leap from the validation stage where you’ve put in the time and effort; you’ve talked to customers; you’ve got some prepaying customers and you’re looking at spending the next three to five years working on it? What sorts of factors do you take into account and what are some of the questions that you ask yourself in order to help avoid the risks of taking that leap and spending whether it’s six months or two years working on something only to have it either not work out or just not be something that you want to work on?
I think there’s a number of fundamental questions that you have to ask yourself when you’re going through this. Some of them relate directly to that validation process, but some of those questions also pertain to down the road once you’re past the three month, six month, nine month window of getting started working on that product because you have to look at this a little bit long term.
Rob [07:55]: There’s a bunch of questions that you need to think through in order to be able to “A”: reduce risk, but also, I think convince yourself that it’s a good idea to move forward. The thing is you’re never going to be sure and that’s the unfortunate part. I feel like trying to get 100% confirmation where you totally know everything is going to work, I just don’t think that exists. I think the best you could get is – I don’t even know – 50%, 60% sure. I’ve never felt 100% sure about anything. I think even after I had 11 people committed to paying $99 a month for the original idea behind Drip, I was maybe two-thirds sure that it was going to work. I knew that we would figure it out eventually and, in fact, what we wound up building originally was not the end product. We just kept kind of moving around and adding features and doing stuff until we became a marketing automation platform. But I think that’s a thing you have to think about is entering a space a being willing to pivot or to adjust or to add stuff that makes it not equivalent to your original vision. If you’re not willing to do that then you have a much lower chance of success. No matter if you say yes to all of these questions that we’re going to run through. But if you are willing to be flexible and potentially do stuff that’s outside of your initial product vision, I think you have a good chance of finding a slot that you’re able to fit into in the market and that can lead to success.
Mike [09:11]: So what we’re going to do is we’re going to run down some of the fundamental questions that we’ve probably discussed quite a few times on this show. The first one is: are you going to be solving a problem that people actually have? And, if you’re not, then obviously you’re not going to get to that point where people are paying you money for it. If you’ve got prospects who have already prepaid you money, then you’re sort of past this point.
The second one is: who is it solving a problem for and who would pay for it? These are actually two different questions because not it’s not always the same person. You might be selling to the business owner, for example. But they might have a marketing person who is actually going to be using the software. So you have to just be at least aware of who it is that’s actually paying for it versus who’s problem it is that you are solving.
And then the third one is: are they willing to pay for it? And, again, this is something that Simon seems to have gotten past. He’s figured out, yes, they’re willing to pay for it; how much it is that they are willing to pay for it. Whether you charge somebodies credit card or not, I think, is a question to be asked of yourself depending on how long you think it’s actually going to take, what your comfortability is and whether or not these people are known to you or unknown to you. And whether or not you’re going to be able to deliver what the terms are for that. Are you going to refund their money if you don’t do it, etcetera? There’s a lot of things that kind of factor into that. Those are the three questions you ask up front before you get to the point of having those paying customers.
Rob [10:25]: And it sounds like Simon has this part dialed in. He’s talked to folks, got them to prepay. There are a bunch of different ways to validate this. It depends on the market and who the customers are and stuff. Sometimes it’s face-to-face conversations, getting them to write you a check that you won’t cash until it’s up and running. Sometimes it’s SKYPE conversations, email conversations and getting them to give you their credit card number or even charging it and keeping the money for now. And other times it’s having a landing page and getting a bunch of emails and seeing that you have 2,000 people on an email list who are clamoring for this solution. It depends on what lengths you want to go to but I think that these are fundamental and I think that a lot of folks listening to this show will have heard these before. But that’s where you want to start certainly before diving into a market.
Mike [11:07]: Once you’re at that point where you’ve got at least the basics carved out, I think the next question you have to ask is: are these people searching for a solution to the problem? And if they are, who is doing the searching? How are they solving this problem today? I think that those questions are not necessarily things that people always ask themselves because it seems to me like when you’ve got those people who you’re talking to and you say, “Hey, I’ve got this solution for your problem over here.” It’s very easy to talk yourself into the idea that, “Oh, these people have each given me $50 and I know that I’m going to be able to solve this problem for them.” You can certainly sell somebody on the idea or the vision of a solution to a problem. But does that mean that they were searching for it already? Sometimes the answer to that is no and you may not find that out unless you ask yourself or ask that question of the situation until you’re much further down the road. And at that point you end up with this issue or this situation where you’ve got a solution to a problem but nobody’s searching for it. Then you have to figure out how it is that you’re going to get in front of those people and educate them about a solution you have to problem that they’re not, quite frankly, all that interested in solving because they haven’t gone out and looked for solutions for it.
Rob [12:18]: Right. And if you don’t have in mind how you are going to reach your prospects, you’d better have a lot of money or a lot of experience because this is not for the faint of heart and this is why some companies raise buckets of funding is purely to go into a market where people are not searching. So there’s market education and the outreach is super expensive. Especially if you’re early, if you’re more of a beginner entrepreneur this is a real danger sign to watch out for. If you can find five or 10 people who are willing to pay for it, that is one step. Then the next one is, “How am I going to find hundred’s more in a scalable fashion?”
Mike [12:52]: Something else that kind of comes into that is how quickly and easily you were able to find that initial group of people to begin with. If you’ve done idea validation on a bunch of different ideas, then you can see dramatic shifts between one idea and the next in terms of how interested people were; how quickly they were willing to say, “Yeah, I’d absolutely pay for that” or “I’m using this other thing and it doesn’t work” and they have questions that will help lead you in the right direction for the design of the product and how it’s going to be implemented and how it factors into their business and how it’s used. But if you have a hard time finding those things, then it’s going to be much more challenging to be able to market and sell that product just because it’s harder to get in front of those people. Then your cost of acquisition goes up as a result of that. And cost of acquisition can be your advertising dollars but it also could just be a factor of how much resources you have to put into it in order to acquire those customers. It’s not always a direct correlation between advertising dollars and cost of acquisition. There’s lots of other things that go into it.
Rob [13:51]: The fifth question you’ll want to think about is: what roadblocks are there to customers implementing your solution once it’s built? Because prepayments can be a mixed bag. Buying into an idea and me writing you a check for $100 to get access to the product isn’t the same thing as being willing to follow through and implement it even if you do build the software. If it adds a bunch of items to my to do list as the potential customer or it takes me 20 hours of development time to implement and integrate with you in order for me to get value out of it, then the check I wrote you for $100 really isn’t my commitment. The commitment is I have to carve out all that time to be able to integrate with you. So give some thought to how hard is it to basically get to that point where you’re getting value from your product.
Mike [14:37]: I think this is a really important one especially if somebody is actively ripping out an existing solution that they have in place and they need to put yours in. There’s definitely ways around that piece of the problem. You could go in and let’s say that in the case of Drip, for example, you offered to go in and move people’s data and information over for them from one account to another and you handled that for free in the early days. But, at the same time, your customers were probably not willing to do that themselves because it was just such a colossal headache for them to have to do that. And that’s how you overcame that. But there’s other situations where that might not be as easy to do. Maybe there’s other integrations that they have or there’s other pieces that their existing software integrates into and you have to be able to support those things and if you don’t they literally can’t move over. Even if they’ve bought into the idea and they like it and they want to, if it doesn’t do those certain things, they can’t move and there’s almost nothing that you can do to change that unless you’re able to implement those pieces. And knowing what those roadblocks are in advance is going to be a huge factor in whether or not you’re going to be able to avoid some of this risk of building something, putting it out there and giving it to these prepaid customers and then having them not be able to use it or implement it because those roadblocks are in the way. So asking what those roadblocks are up front is another step you should probably go through before you get to the point of trying to roll it out to a larger audience or pursue it.
Rob [15:58]: The sixth question you’ll want to think about is: how will you acquire customers and do you have the ability and the resources to do so? It helps to think about this maybe in terms of three phases. The first one is your initial alpha/beta/early access customers who are early adopters and they’re going to give you a lot of feedback and making a lot of money from them is not as important as the input you’re going to get. So you have to choose them carefully because certain people want to give you a lot of feedback and expect you to do everything and their feedback may not necessarily be helpful.
The second phase is launch customers. This is the tried and true page out of “How to Start Small, Stay Small” which is build the landing page, build up that big list and get as many people on it – whether it’s paid acquisition, whether it’s writing blog posts. Whatever it takes – all the marketing approaches – to build up that list so that launch day is your big revenue day. It should be the biggest revenue day of your first six to 12 months if you’re doing things really well.
The third phase is long term customer acquisition. And this is the stuff that’s long term sustainable. It’s getting the fly wheels going whether it’s paid acquisition, a webinar funnel, just getting your SCO going, content marketing, all that stuff that we talk about is that third phase. And that’s how you’re really going to scale something up once you have product market fed. Keep in mind that after launch you’re probably not totally not going to have product market fed and you’re going to still be fumbling around a little bit to find it.
Mike [17:14]: The next thing to think about is the feasibility of the product itself. And there’s, I think, three different aspects of this. The first one is the technical side of it which, for developers, the answer is almost always yes, it is going to be technically possible. The real question at that point is: how long is it going to take you to get something that is minimally usable and solves the core problem that you’re trying to address in a way that people are willing to pay for it. That’s kind of the MVP philosophy.
Moving on from that, the second one is the dependencies. Are there any dependencies or things that are outside of your control that you need to execute on? Those might include things like having delivery partners or if you’re running a productized service of any kind of and you have to plug people into different phases of a workflow, are you going to be able to plug people in at a price point that you’re going to be able to support and customers are going to be able to pay for to deliver on whatever it is that the final product is. So there’s things that are outside of your immediate control. What are the risks associated with those things?
The third one is: what does the road to profitability look like? Are you going to be able to make the product profitable in a short enough timeframe that you have the runway to get through that? Because if you don’t, you’re going to stall out somewhere along the way and you’re not going to be able to finish it and whether that constitutes non-delivery to the initial people or getting to the point where you’ve got three months left of runway but you know that you’re going to need at least nine in order to make it profitable. That’s a bad situation to be in but there’s plenty of people who end up in that situation and some of it’s just being able to evaluate what that is going to look like in terms of your launch process getting the product itself built and then having that marketing engine that is built up at approximately the same level as the product is moving forward.
Rob [18:54]: The eighth question you’ll want to ask yourself is: do you have the capability to execute on both the marketing and on development? This depends a lot on the market you’re entering into. If it’s really crowded or not. It depends on your experience level with marketing. And then on the development side, it depends on how complex the product is. How much experience you have either writing code or managing people who do it.
It’s something to think through because let’s say you wanted to build a competitor to Kissmetrics or Mixpanel. That’s an insane development and scaling effort. If you’ve never built something that’s big and complicated and you don’t have a technical cofounder who can handle that for you, this is not something that I would recommend trying. It’s also really expensive. You’d need to raise buckets of money just for the server costs alone. But that’s something to think about. Do you have the capability to execute on both marketing and development?
Mike [19:41]: That also plays into does it fit within the runway that you have available because some of the marketing activities can’t really be done until after the development is finished. You don’t want to be in a situation where you’re just barely finishing up the code and, oh by the way, you’ve got all these marketing things that you need to do almost in parallel. And if you could clone yourself easily with a 3D printer it would be great, but that’s really hard to do. So being able to bookend those things together so that you know that you have the time available to do both of them or to alternate back and forth between them in a way that is conducive to getting the product out the door and doing those marketing efforts. Sometimes that’s not just about ability it’s just able how many hours you have available in a day to be able to get things done.
Rob [20:24]: You said that cloning yourself with a 3D printer is hard to do?
Mike [20:28]: That wasn’t quite what I meant.
Rob [20:30]: You didn’t say it’s impossible.
Mike [20:30]: I didn’t say it’s –
Rob [20:31]: I thought you were going to say that’s impossible but you’re like, “That’s really hard to do.”
Mike [20:34]: That’s really hard to do. I’ve done it before. It’s just that that little model sits there and does nothing. He’s totally worthless. Haven’t you done this?
Rob [20:42]: Kind of like the human he’s based on?
Mike [20:44]: Yes.
Rob [20:44]: Oh, boom!
Mike [20:47]: Should we just end the episode right there?
Rob [20:49]: You [?] for that one, dude, I’m sorry. Alright. What’s our ninth question?
Mike [20:54]: So our ninth one is: can you find examples of similar offerings or products that have succeeded and failed? What this will do is this will give you a general sense of how those other products are doing? How they’re acquiring customers? Especially for the successful ones. And if you find examples of failed ones, you can see what sorts of things they did and try to reverse engineer why it didn’t work for them and whether or not there’s tweaks to their process or to their launches that you can do that are going to make it beneficial for you.
The other thing that it does is it gives you an idea of the competitive landscape and whether or not you’re going to have to take customers from them. Because when you’re launching a new product there’s two types of people that you’re going to end up with. One is people who don’t have an existing solution in place and they’re signing up for your product. And then there’s another group of people that you’re going to try to pull away from other products that are in the space. If you can analyze those existing products that are being successful, see what they’re doing and try to replicate it to some extent but, obviously, put your own spin on it. Then look at the ones that failed and try to avoid the mistakes that they made. It puts you in a much better position as opposed to having this greenfield opportunity that nobody’s ever done or tried before. And, I think, we both know that when you’re trying to do something like that and it’s a brand new thing, it’s really difficult to explain it to people and make them understand what the value is that it provides.
Rob [22:12]: Yep. It’s easier to enter a market and find a position than it is to invent a whole new market.
Our tenth and final question that we think you should consider when you’re validating an idea and trying to avoid risk is: do you want to work with this customer base for the next three, five or more years? This is a questions that Ruben Gomez actually asked me several years ago. It was pre-Drip and I had a bunch of different product ideas and I was going to acquire one in a particular space where my customers would be very particular occupation and type of person. He said, “Are you interested in really getting to know that group and going to their conferences and that being your focus for the next several years?” And in the long term my answer was like, “You know, it really isn’t.” It was something that I hadn’t thought about before in that way. But you really are committing to an industry and you’d better like both talking to folks in that industry because they’re going to be your customers whom you’re supporting. And you should like hanging around and being around that industry. I think if it’s something that’s not exciting to you I think it could get really boring over the course of years of going to these trade shows and interacting with folks that you don’t have interest in being around.
Mike [23:17]: So beyond the questions that we’ve already asked, we came up with some other questions or thoughts that you might want to consider when you’re going through that validation process and you’re trying to figure out whether or not it’s worth it to make the leap or whether you should make that leap. The first one is: has the validation that you’ve done thus far uncovered any new and meaningful information or was it simply confirming what you already knew? If you’re looking at that and thinking to yourself, “I didn’t really actually confirm anything. All it did was told me stuff that I already thought to be true.” I think when you find out that that’s the case from your validation efforts, you’ve got to try and prove the opposite. That’s really difficult to do because you’re suffering from what’s essentially a confirmation bias. You want it to be true and what you’re really trying to do is prove the opposite. And that’s not an easy thing to do. It’s more of a mental challenge than anything else but try and find ways to disprove your idea. What can you do to prove that it’s going to be false or that things are not going to work? If you still can’t do it from when you’re taking a look at it from that perspective, then you’re probably on the right track.
Rob [24:20]: Another thing to think about is: are there assumptions you’re making that are potentially invalid? Do they need to be tested? If so, how would you test those? I think it’s really easy to make assumptions and not even realize it. Whether you can get an external sanity check or whether you can go and take an entire day and really get your mind thinking about what assumptions you could potentially be making and where you might have a blind side. I think there’s value in that.
Mike [24:46]: A lot of those you could probably pull out from a marketing plan that you put together in advance and almost everything in that marketing plan is going to be either a fact that you believe to be true or an action that you need to take. If it’s a place where there’s a fact of any kind – let’s say, for example, your ideal customer is a dental assistant. How do you know that those are the right people to be talking to? Is it them that’s going to be paying for it or is it going to be their boss? Those are the types of assumptions that you need to make sure that you’re validating because if they’re not true, then you could run into problems down the road.
The last thing that I think you need to ask yourself is: how far can you get before actually building something that requires a meaningful commitment of time and resources? And that goes to the idea of building mockups; having those customer discussions; getting prepayments from people; doing prototypes. You could go so far as to build a prototype with Balsamiq Mockups or with Power Point, for example, and show people what it’s going to look like without actually building it. It is a fairly hefty amount of time to put effort into building something like that so that when you click on a button it actually goes to a different screen or shows different information. But at the same time, if you put that in front of somebody and they look at it and they say, “Yeah, this actually won’t work for me because I need to do this, this or this.” Or, “How would I do X, Y or Z?” If those things aren’t in there then it means you haven’t designed for them and what will happen is you build it, you show it to them and then down the road they’re going to say, “Well, this doesn’t actually do what I need.” If you can design that up front, then it eliminates that risk downstream that you’re going to run into anyway.
Rob [26:19]: Thanks, again, for the question, Simon. I hope that was helpful. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from ‘We’re Outta Control’ by MoOt used under creative comments. Subscribe to us in iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 323 | Funding, Acquisitions, Firing and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about getting funding or acquisition offers, when to fire someone, and more listener questions.
Items mentioned in this episode:
Transcript
Rob [00:00]: In this episode of ‘Startups for the Rest of Us,’ Mike and I talk about options for finding funding or an acquisition offer, setting up a U.S. company as a non-U.S. citizen, and when to think about letting someone go. This is ‘Startups for the Rest of Us’ episode 323.
Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:31]: And I’m Mike.
Rob [00:32]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike [00:36]: Well, I wanted to say congratulations to Sherry Walling for ZenFounder being selected for Entrepreneur.com’s list of 24 Exceptional Women-hosted Podcasts for Entrepreneurs in 2017. Obviously, you are the co-host of that show but definitely wanted to send congratulations to her for being mentioned on that list. I think that’s quite an accomplishment.
Rob [00:54]: Yeah. It was a big deal. It seemed to get a bit of notice. People were taking notice and I know we got a big bump in ZenFounder email subscribers as well as some more podcast downloads. It’s always fun to be recognized for something like that.
Mike [01:09]: Yeah and after a short period too. The podcast hasn’t been around for very long so it’s nice to see that kind of attraction.
Rob [01:15]: I’m kind of mellow this morning. I’m still getting back onto time zone because I was in California for eight or nine days. In Santa Cruz hanging out with family, friends, reconnecting with people. It was a really nice time. It’s a lot warmer there so I still was wearing sweatshirts and stuff but a 50 or 60-degree difference depending on the day. I’m still, like I said, an hour or two off time zones so I’m getting going this morning.
It was good and it just reminded me how important it is to take some time off and recharge now and again. And depending on your level of exhaustion or burn-out, maybe you need to take a little time off every month. At other times you can take a little time off every quarter or every six months. It’s really important to come back, and I just feel a lot more motivated and like I have clarity of thought because I had this time to step away from work and stop thinking about it.
Mike [02:07]: Cool. On my end, I added another paying customer for Bluetick in advance of my public launch. I also integrated Zapier into the equation so –
Rob [02:17]: You got Zapier done, huh? That’s cool.
Mike [02:18]: Yeah. There’s a couple of things left with triggers to be able to send data outside of it and allow Zapier to kind of natively subscribe to different events that happen inside of Bluetick. I would say all but one piece of being able to trigger different things inside of Bluetick is done in Zapier. Then there’s this last piece of being able to allow them to subscribe to events. Once those are done I should be able to start rolling that out a little bit more.
I’ve got a couple of people using those Zaps right now. Most of them are actually going into my Zapier account, and I’m just piping them through Zapier back into Bluetick because when you create that Zapier integration obviously it’s create a personal, private one first and then you can share it. So I’m slowly going in that direction just because I don’t fully understand all of the implications of the decisions I’m making in Zapier. So I’m trying to be a little cautious about putting that out there in a way that makes it difficult for me to modify it later.
Rob [03:09]: Right. Yeah, for sure. That’s the nice part when you have that private Zap then you can, like you said, share it with other people. I think they want you to have like ten active users before they will move it to production. That’s kind of their rule of thumb. They want to make sure that it’s tested because once it’s out there it’s really kind of a pain. You have to version if you want to fix bugs.
Mike [03:30]: Yeah, and that’s the issue. The whole versioning thing is like, “Okay, well how do we do this and not screw things up?” I actually started going down the road of building a custom API end point specifically for Zapier so that if we need to make changes to our API for things that happen inside of our interface, we can do that and it won’t affect the things that are going on through Zapier. That’s kind of a work-around that is pretty helpful just because our API is still in flux and there’s lots of other stuff going on.
And in terms of the public launch that I’m working towards, one thing – I’ll get your feedback on this – but I’m considering going more down the route of having multiple small launches as opposed to one large one. The idea would be that I’ll gear up more towards a launch where I have a set number of people that I want to put into the system and I’m thinking in my head about twenty right now. Then go for the launch and basically tell people up front, “Hey, I’m only letting twenty people in the door at the moment.” And I could lay out my reasons why. Some of them are just to make sure that everybody’s getting the attention they need but also to make sure that if anything happens or if any bugs come up or if anyone has any specific needs as they come into it, then we have the time available to be able to address those. Whereas if I let in 100 or however many additional people, it would be difficult to do that. It’s hard to give everybody the attention that they need.
What are your thoughts on that?
Rob [04:51]: I think that’s a good idea. That’s why I did the slow launch with Drip was exactly this reason. We just didn’t have the staff to let hundreds of people in and I knew that we would bleed out trials that we couldn’t respond to quickly enough in terms of developing features or even fixing bugs. It can get really complicated and be a big rush of people. I think that’s a good way to go.
I don’t know if they need to be monthly. I think they could be every two weeks or three weeks depending on how long your trial is. Do you know how long your trial should be yet? Or do you still have to figure that out? Are you going to take a guess and then see how it goes?
Mike [05:22]: I’m not actually at the point where I’m at the point where I’m even considering offering a trial. What I’m doing now – and this is kind of hybrid pricing model where instead of offering an annual plan and a monthly plan, what I’m doing is I’m offering a quarterly plan. Because the value from the product does not surface itself for at least a couple of months. It could be several weeks or a month or even two or three months before you start to see the value just because of the pipeline of emails that you are sending through it and how long it can take people to respond. You might get responses immediately, but you might not get them for several weeks after a couple of emails.
I have a hard time believing that people would get value on day one or day five or something like that.
Rob [06:01]: No trial? Do they pay upfront for a quarter?
Mike [06:03]: Yes.
Rob [06:04]: They pay upfront for a quarter at a time? Got it. And you haven’t had any issues so far. I don’t think charging upfront is a bad way to go at all. If you realize that you get a bunch of pushback on that then maybe it’s something, you’ll want to change. It’s a judgement call at this point because you just don’t have any data so you have to make a call one way or another.
Mike [06:20]: I haven’t gotten any pushback so far. The people I’ve been putting on this past month or so where I’ve just said, “It’s charged quarterly and we charge upfront.” Not one person has said, “Are you sure? Or can we do this or that?” Nobody’s had any questions or pushback on it.
Rob [06:34]: You’ll have to see if you’re able to sell it enough upfront for someone to enter their card without talking to you. Because these people have all talked to you. And that’ll just be an experiment. You’ll have to do that first round and figure out what you think you’re going to get from it. And then since you are charging upfront, you need to prove that there’s going to be a lot of value to someone upfront so your marketing has to be really on point. And your pitch of what the product does and how it’s going to do it for them needs to be on point because if you fumble that at all there’s friction. There’s friction of that quarterly payment that you’re going to have to overcome. And that’s not impossible to overcome. I don’t think it’s a bad call. You just don’t have enough data at this point to know if it’s going to work.
The only thing I’ve heard people do quarterly with is membership sites. I’ve never heard a SaaS app do it. I think it was Andrew Culver who was saying that quarterly is the worst of both worlds in terms of accidental credit card churn. I forget what it is. If it’s that not monthly so that banks are suspicious of it so it will get blocked more often or something like that. There’s something about quarterly and how it’s not a great way to bill in terms of involuntary churn. I think you’ll want to keep your eye on that and if you switch to monthly later – you could always make it a quarterly payment and then let people switch to monthly down the line.
Mike [07:45]: That was probably what I was going to do longer term. The idea with the quarterly is one: it puts people in a position where they don’t get to the end of the first 30-days and they say, “I haven’t used this yet.” And they just want to cancel because they’re not using it. And it gives me an opportunity to reach out to them. I can see their usage and say, “You’re not using this. Let me help you get started with it. Or let me help do things because I am so early.”
The other thing that it does is that it gives me the revenue for that upfront. So if I do a monthly launch then I need a third of the number of people signing up to get the same amount of revenue that I would get three months down the road.
It helps from a cash flow perspective and it also helps from the perspective of being able to put people on it and be confident that the system is not going to fall apart. And then also making sure that they’re getting the value. I don’t anticipate doing quarterly long term. Maybe the data will prove me wrong, but as a starting point I think that it has a lot of benefits.
Rob [08:39]: I think if you do it and it works, I would not stop doing it. The cash flow is just too good. If you can pull this off without a trial, get the money upfront, obviously, offer a 30-day money back guarantee or whatever you want to offer because that’s going to be a sticking point for people as well. The question is, “What if I get it and I don’t like it?” And you want to be able to answer that. I think if you can make this work and the numbers work, it’s not a bad way to go.
Mike [09:04]: I definitely hear what Andrew Culver was saying about it’s the worst of both worlds. I hadn’t thought about it in those terms but I think that right now the benefits of it outweigh the negatives especially since it’s so early on. I just don’t have any data to work with and I may as well just try something.
Rob [09:19]: That’s right. The other thing I like about doing smaller launches and having “X” spots is you can justify it. You can say, “Look, I just can’t onboard more than twenty people. I don’t think we can support more than twenty people in terms of answering all of your questions.” It’s easy enough to justify because you are a small shop. But it also adds a little bit of that scarcity so that if you email the list, then you can build that up and say, “Look, there’s only twenty spots and if you really want to get in then you have to do it now” type thing. I think there’s a benefit on both sides in terms of making it more manageable for you and also being a nice little bit of marketing help.
Mike [09:55]: I’ll keep you guys posted on how that goes and we’ll see how it shakes out.
Rob [09:59]: Do you have a date for the initial launch?
Mike [10:01]: Right now I’m targeting January 31st. I’ve got some emails that I plan on sending out tomorrow and I’ll prime the launch queue so to speak. We’ll see how that goes.
So what are we talking about today?
Rob [10:11]: We have a few listener questions I wanted to run through. The first is from Matt Visk and he says, “Hey guys. Love the show. I’ve created a SaaS company myself and would love your input on it. It’s called PortfolioLounge.com. It helps people create their online portfolio. It has quite a few members with a handful of paid subscribers. I was wondering if you had any advice as to finding funding or interesting acquisition offers. I’m a developer at a large company but I’d love to go fulltime on Portfolio Lounge if I could.” Do you have thoughts on this?
Mike [10:39]: Not really. I’m not really in a position to figure out what an acquisition offer would look like for something like that. And I’m not real familiar with portfolio websites to be honest. You’d have more insight on this one.
Rob [10:51]: Matt, acquisition offers at this point, if you have a handful of paid subscribers, they’re going to be nonexistent. There’s just no – unless you have some unique technology patent that somebody wants or you have some Google algorithm or something like that. Just having a handful of paid subscribers, even if you’ve spent years working on the code launching and everything, it’s all about revenue. It’s actually all about net profit or it’s about strategic value. Net profit would be used in acquisitions that FEInternational would handle. If you were doing 20K or 30K a year, which is not a tremendous amount, but if you’re in that range then you can approach someone like FEInternational or Quiet Light, Latonas – there’s several brokers out there and they can get you acquisition offers. But if you want the maximum purchase price where it’s not three and a half or four times net profit but you might get five times annual revenue typically between three to seven “X” annual revenue – then that’s where you’re getting a strategic acquisition. That’s the kind of thing where you would really need to have a place in the market where a big strategic would want to acquire you. It doesn’t sound like you have that so I don’t think an acquisition offer is something you want to entertain. I just don’t think you’re going to find any.
In terms of finding funding, that’s the kind of thing where you’re going to go on AngelList. You may want to consider talking to someone like Bryce over at Indie.vc – he was on the show eight episodes ago – he funds smaller apps like this. Or if you live in the Bay area – my guess is you don’t – but if you lived in the Bay area there’s going to be a bunch of options for you. There are accelerators, there’s a lot of options. If you go to Google and talk about how to find startup funding, there’s going to be options. The question is: do you want to do that? Funding is not necessarily going to be the answer to what you’re looking for. I think it’s figuring out what your goals are and then finding the right options to line up with that.
Thanks for the question, Matt. I hope that’s helpful. Our next question is about setting up a U.S. company as a non-U.S. citizen. It’s from Justin and he says, “Long time listener from Taiwan. We’re experiencing some tremendous growth on Amazon and we’ll be building some ecommerce-related SaaS apps in the near future. Our team members are scattered around the world but our main market is in the U.S. We’d like to hear your opinion of where to set up a company in the U.S. as a noncitizen and a nonresident.” What do you think, Mike?
Mike [13:06]: I think that there’s kind of an underlying assumption here that you have to set up a company in the U.S. The situation is he’s a noncitizen and nonresident, and I would question whether or not he has to set up a company inside the U.S. in order to do business. My thought here is that if your growth is coming from Amazon, then maybe that’s a requirement, but I don’t know for sure if it is. And if it’s not, there’s obviously a lot of different options for you to create a company whether it’s in Taiwan or it is based in some other country. I was listening to The Tropical MBA podcast a couple of days ago and one of the episodes they had on was about an e-residency program in Estonia which I think was $100 to get into, and then you could base your company out of Estonia. That gives you essentially a European address that allows you to use a lot of your SaaS services. I’m not positive of this. I think that Stripe would also be an option there as well. But you have to figure out where you’re going to be able to get your services from, where your bank accounts are going to be, what the different tax implications are based on where your company is. Some of that comes back to how your taxed in your home country versus how your business would be taxed in a foreign country.
Something else you need to consider is that once you start crossing international borders, it can get much more complicated. If you’re a U.S. citizen, you’re going to get taxed no matter where you are and no matter where you’re making your money because the United States government wants their money. There’s a – I forget how much it is – but there’s a cut off number where above that amount I think that they do not charge you taxes on anything below that certain amount.
Rob [14:37]: That’s right: 90K.
Mike [14:37]: Yeah.
Rob [14:38]: I’m pretty sure it’s 90K or 180K for a couple.
Mike [14:40]: Right. But that only applies if you’re paying tax to a foreign government. They’ll basically give you credit for it. But anything above that they say, “You owe us taxes.”
Rob [14:49]: It’s pretty crazy. It’s the only country in the world that does that. Where if you live outside their borders they still collect tax which is – there have been people who basically get residency somewhere else and then they give up their U.S. passport purely because of that.
Mike [15:01]: Yeah. I guess I would just question the underlying assumption that you absolutely have to set up your business in the United States but because it’s Amazon, you may need to. But I would look into that. I think you have a lot of other options if you don’t have to do that.
Rob, I know that we talked offline a little bit about other options. You had some thoughts as well.
Rob [15:19]: Yeah. And this is purely from hanging out with folks in the D.C. and they are digital nomads and they have the option of setting up anywhere in the world. Most of them are U.S. citizens and none of them have their companies in the U.S. Almost none of them. They tend to go to New Zealand and Hong Kong. There’s a bunch of reasons for that. If you want, I’m sure The Tropical MBA or the D.C. would be a better place to go find out why.
You can even Google the Five Flags theory and I think it’s Simon Black from Sovereign Man. He talks a lot about this stuff. He talks specifically about which countries are set up to be which flag and such. All that to say, unless you need to have a U.S. company, I wouldn’t do it. If you do, it’s typical to do it in Delaware. A Delaware corp is one of the most common setups here in the states. Even companies that aren’t located in Delaware tend to do that, and it’s because they have very favorable business laws and a bunch of other stuff. That would be the most common. You’ll want to either talk to LegalZoom or talk to a lawyer and have then set that up for you.
Mike [16:14]: The other option for setting it up in the United States would be using Stripe’s Atlas program where it’s $500 to get set up and they will create a business account for you, you’ll get incorporated, you can start accepting payments through Stripe. There’s also options for getting tax and legal advice. I don’t know the details of that. Patrick McKenzie would probably be a good person to reach out to about that because he does work for Stripe now under their Atlas program. That’s another option if you had to do it in the United States.
Rob [16:43]: I’m glad you brought that up. I would probably do that over the recommendation I just said of LegalZoom or finding a lawyer because I bet Stripe has this dialed in and you’re going to probably want a Stripe account anyways, I would guess. And if it sets up a bank account and all that stuff, that’s a big win and for $500 kind of a no-brainer.
Mike [16:58]: Yeah. I think that they also have this set up when you do that they have this partnership with Amazon to get you $15,000 in AWS credits. If you need a hosted infrastructure of any kind they can certainly help out there as well.
Rob [17:11]: Awesome. Thanks for the question. I hope that’s helpful. Our next question is from Steven Lieberman at SkillsDBPro.com. He says, “Love the podcast. I have a fast growing business. I’ve made about 1,000 mistakes so far. But without your podcast and one or two others, I’m pretty sure that number would be 3,000. I’m a developer and I just had to fire a developer. He’s a contractor who knows his stuff, started out great. His first piece of work with me was outstanding. Though as the assignments progressed he got slower and was billing more time for less work. I’m working on similar items and getting them done in half the time. There may have been a combination of issues. One big thing is that he started working in two-hour spurts which, obviously, makes it hard to really get up to speed. I tried to address this with him and he kept ignoring those parts of the text. After he finished his last assignment I let him go. Letting someone go is hard to do because on-boarding someone else is a lot of work and a lot of my time, as you know. So here’s my question: what are the breaking points when you choose to let someone go? I really struggle on how much time I should spend to fix the situation or just cut my losses and move on. So, other than the obvious (i.e. they’re stealing from you) what are your thoughts? Not only for developers but for all positions.”
Mike [18:18]: I think for this it comes down to your personal feelings on what the future looks like. If you are feeling like whenever they do work you have to go in and double check it to make sure that it’s right or the directions and stuff, the course corrections that you try to put in place and you tell them, for example in this case, you sent them texts and said, “This is what I need to happen,” and those pieces of the texts where ignored, the next step may be to send them a single standalone message that says, “This is incorrect or this is a problem and we need to resolve it.” And if as a standalone message, it’s still ignored or not corrected then, at that point, you need to pull the plug.
For me, it’s more of a personal feeling that I get to a certain point and there’s this nagging sense in the back of my mind that says, “You have to go double check this. Or you have to keep following up.” And it’s almost like there’s this weight hanging over you that you have to stay on top of whoever that person is and make sure that they’re doing their job right. And essentially you’re becoming a micromanager. As soon as that happens, they’re no longer helping you in the business. It’s actually hurting you because then it’s distracting you. It’s taking time away from doing other things. It’s taking your mental energy away from other things. And it’s just a nightmare to deal with at that point. It’s more hassle than it’s worth. And that’s really the breaking point.
But there’s not, I wouldn’t say, a set thing that if “X” happens or “X” or “Y” happens. Obviously, if they’re stealing from you – those obvious things, sure, pull the plug immediately. I feel like it’s more of a general sense of being aware of how you feel about moving forward with a person. If it’s not something that is able to be corrected, then you have to pull the plug.
Rob [19:53]: Yeah. I feel like Steve handled this pretty well. If he was trying to address it and was bringing it up and the guy was ignoring it, that’s a big red flag. I think the question is different if they’re a contractor or W-2 employee. I would definitely spend more time if someone were W-2. I’d also do a lot more vetting upfront. But if their performance went down – let’s say you hired someone who was good, easy to work with and then their performance is going down over time – I would definitely bring it up and try to help them and find out what’s going on and how you can turn it around. Do they need to take some time off? Are they burned out? Are they trying to do another job? You’ve got to try to figure out are they screwing your and overbilling you and not actually working the hours? Or are they running into personal issues or something?
That’s for an employee. With a contractor, I would tend to – I’ll say give them warnings – but it wouldn’t be things like, “I’m going to fire you if you don’t do this.” It would be more like Steve did where you reach out and be like, “Look, your performance at this point – you’re not delivering nearly what you used to and we really need to talk about this. It’s an issue.” If I brought that up a couple times and they ignored me, then they’d be done because there’s no excuse for that. If you can’t communicate with me then there is no relationship that’s going to come out of that. It’s just too hard to try to manage someone who’s going to not be able to communicate or have a conversation with you.
All of that to say, I think I have a little bit less tolerance for contractors because you don’t have as much of a relationship with them. You’re not as invested in them. They’re never as invested in you or your company, so if it’s not working out it is a bummer to have to onboard someone new but it sounds to me like you made the right choice. Thanks for the question, Steve. I hope that was helpful.
Our next one is from Michael. He says, “I love your podcast. It’s my favorite by far so please keep up the good work. I’m what you might call a “wantapreneur.” I dream about getting out of the rat race, being my own boss, etcetera. I have a few average ideas but don’t think any of them are worth pursuing. My desired entrepreneurial destination is a B2B biz with $10,000 a month in revenue. I have the will to work hard but I already make decent money at my job, which I think is part of what’s keeping me from ideating more. I also have a wife and kid so my time is not limitless, but I make time when I really want to. I get up a couple of hours early most mornings to read and study. Perhaps I’m too much of a learner and analyzer and not enough of a doer. Recently, I’ve split my time tracking into three parts. Part one is family and fun, part two is the day job, and part three is the side business which is currently only imaginary plus learning. I’ve been consistently filling up one and two but I feel hopeless with number three except for learning. I beat myself up constantly for not making more progress there and that affects my mood which in turn hurts my family’s wellbeing too. What would advise as I continue to strive towards entrepreneurship?”
I think the first question you want to ask yourself is: do you really want this? Do you really, really want it? Because if you haven’t pushed forward on it yet and you have a comfy job, it’s not for everybody and, in fact, it’s a long road where you’re going to be making a lot less than your current job for years. I remember Harry Hollander’s talk – or maybe it was Ted Pitts from Moraware Software – at MicroConf a couple of years ago and they looked back at what they would have been making at their jobs had they stayed. And they were like seven or eight years into their business and it was doing multiple seven figures, and they had just broken even at that point in terms of what they would have made. If it’s purely a monetary decision, then stick with the job. It’s an easier path, it’s less distracting, and it’s more straight-forward.
But if you really do want to get out of it, then you have to take some strides towards doing and really cut out the learning at this point. I would guess that you know enough that you need to take the plunge and actually start putting code to paper, as they say, and really get something out there. Just launching something at this point and whether you give yourself a challenge of launching something small every month for six months – not a bad way to go. Force yourself to do it. Or whether you want to launch a blog or launch a little WordPress plugin – pick something small and get it out into the wild. Because without experience, you have no idea how to put the learnings into action.
I would pick a small project that is not a SaaS app. Like I’ve often said with the stair step approach here, pick an ebook or a video course or a WP plugin or an add-on to Photoshop or an add-on to Shopify. Something small that you can charge a bit of money for and see what that feels like to do it and ship something. It’s probably a lot harder than you think, and it’s also probably going to give you more experience in that one month of doing it than you can learn in two years of listening to podcasts and reading blogs.
Mike [24:27]: I think Rob’s on the right track with asking if it’s something that you really want to do. I’d had a conversation – it was either last year or the year before – with somebody. We were actually discussing my sleep habits, to be honest, which is kind of slight tangent. The question that we were trying to discuss was: why can’t I get up earlier? I’ll be honest, I’ve always had a hard time getting up early. It’s never been something that is wired in my DNA. I do not like mornings. If I were president of the United States, I would abolish mornings and there would be nothing before noon. That said, the question that was posed to me was: what are the punitive damages of you not getting up early? What are the downsides of you not getting up early? I’m like, “I own my own business so I can get up at any time I want.” And he’s like, “Exactly. That’s the problem. Your issue is that there’s no downside, there’s no negative consequences to not getting up early so you just don’t have to.” You really have to have this external force of some kind in certain situations to push you in that direction. It sounds to me like there’s no external force that’s really pushing you to the point that says, “Hey, you have to build this business.” And it doesn’t sound to me like it’s something that you want hard enough. There’s no driving passion for it. You’ve got a job, you don’t find it exciting, but it’s not like you’re going to get fired or let go in three months and you know that that’s coming. So there’s no drive behind that to say you have to buckle down, you have to put this time aside.
You see that with various studies about people in college, for example, where they are given six weeks to do a project and then there’s another group of people that are given one week to do the project. The people who are given one week, they get it done. The people who are given six weeks, they wait until week four or five and then start it. It goes back to Parkinson’s law which basically says that work expands so as to fill the time available for its completion. This is a prime example of that where you’ve got this side business that you want to work long term but there’s nothing really forcing your hand to make it work. If it’s fun to you and it’s interesting and you enjoy doing it then it’s much easier to spend the time on it. But if you like doing it and you have this longer term vision where you want to do it at some point in the future but there’s nothing really pushing you hard towards it, then you’re probably just not going to. I think that that’s probably the fundamental problem here. It’s not so much that you can’t do it, it’s that you don’t need to. You have to ask yourself, is that something that you really want or is it just something that you would like to have at some point but isn’t really a passion of yours.
Rob [26:54]: And our last question for the day is from Adam Kelso. He says, “Hey guys. Thanks so much for the tons of great advice and experience you give in each episode. I know you target the show ‘Startup Founders’ but I was wondering if you had any thoughts on evaluating startups as an employee? I live in Austin which has a huge tech community and there are a lot of startups to choose from. Some have good reputations; most are too new for anyone to know much about. If you were considering working at a startup as an employee knowing what you know now, what would you look for and what would you avoid?” Interesting question.
Mike [27:23]: Yeah, I think that’s an interesting question. I think that I’d probably look for an environment where you could be very collaborative with people. If it’s a small company, if it’s a startup then your expectation is probably going to be that you’re going to be working closely with the founder or founders of the company so you want to make sure that you’re able to work well with them, and rather than jumping in and trying to provide value and skip from one job to another, I might offer them, for example, the opportunity to do some contractor consulting work for them. That does a couple of different things. One is it makes sure that they have money available. You’ll kind of get the inside scoop on how things are really going. Because the last thing that the last thing you want to do is quit your job to go work for one of these companies and then find out that they don’t have revenue to support you and they have to let you go in a month or three months or something like that. I think that that’s one side of it.
Being able to offer that is going to be attractive to them as well because you are going to be able to show your value and your worth to the company. If you are able to put in the time outside of your current working hours, then it gives them an opportunity to understand who you are and how your work. If you decide at the end of a couple of weeks or a month or two of working for them part time that you don’t like what they’re working on or you don’t see a future in it or you just don’t like the people that you’re working with then you can move on and go to something else. That’s really just hedging your bets more than anything else.
In terms of specific things to watch out for or red flags, I’m not sure because most of these companies, as you said, they’re going to be too new and you’re not going to really have anything to go on. There’s not going to be a whole lot of public information about them. You could ask people who you know about them but chances are good that, unless those people have been active in the community, you’re not going to get any information out of it and you’re not going to know people who know them. That would just be a difficult situation to be in.
Rob [29:12]: I think I would step back and ask yourself the question: why do you want to work for a startup? Because working for startups, you’re going to do it for, most likely, less pay than you would if you went to work at a larger company. And you’re going to get this promise of some eventual payout in the form of stock options. That’s the traditional way it’s done.
You’re putting a lot of risk there. You’re basically not making as much money as you otherwise could in order to perhaps have a more exciting job. Maybe that’s what you’re looking for. Could be less boring. Or maybe you are looking for the payout. I probably wouldn’t do it for that unless you’re joining as employee number one, two, or three. If you’re joining later it’s probably going to be trivial amounts of options.
I think with that stuff in mind, something I would look out for or really vet is “A”: how much funding have they raised? When did they raise it? How viable are they financially? Do I believe in the business idea? Do I think it’s kind of a dumb idea? Because there’s a lot of ideas that I think are stupid. I would not enjoy working on them. I would sit down, and if you have this list of startups and there’s some that sound really interesting, see what you can find out about their financial situation in terms of burn rate, in terms of getting their next round of funding. Because stuff can go sideways really quickly, and if a company has only raised an angel round or whatever, if you have no problem finding a job then maybe you do take a fly around one of these. But if you’re concerned about them going under and you being unemployed for a few months or something if there is an economic downturn, then you’ll just want to be more mindful of that.
I think that’s the thought process I would go through. I know that working at a startup – I worked for a credit card startup, and I think I was developer number three or four that was hired there. When I left we were at twenty-five or thirty developers. It was a lot of fun in the early days. Then, as we got bigger, it became less fun as companies do. One reason that I went to work for them is they did have buckets of funding and I needed stability at the time. This is ten, twelve years ago so I had the mortgage, was married and that kind of stuff. I was much more risk adverse than I am today in terms of being willing to risk employment and all that. It turned out to be a good decision. I did make a little bit of money off the options and things can work out. But the vast majority of time, it doesn’t. The vast majority of time they do go under. The vast majority of startups fail. Keep that in mind. Think to yourself, “If I come to work for these guys for six months, my options are worth nothing at the end of that and I don’t have a job, am I still okay with it?” If you are then cool do it because it will probably be a fun ride.
I’ve also heard of folks who go and work and they grind out these seventy-hour weeks for two years then everything goes south and then they really regret it because they’re now burned out and they have no job, their options aren’t worth anything and the opportunity costs of all the money that they could have made doing another job is a bummer. I guess that’s the last factor I would think of is: how many hours are these folks going to expect you to work? Because some startups really are a forty-hour week startups. That’s how we were at Drip. We didn’t expect everybody to work fifty, sixty hours. I think that’s definitely a more sustainable way to do it. Some are sixty, seventy-hour startups. That’s probably something to think about asking about upfront.
Mike [32:20]: I didn’t even think to mention it but my question was geared more towards working for a self-funded startup, not necessarily –
Rob [32:26]: Oh, got it.
Mike [32:27]: I don’t think that that strategy would work at all for a funded startup because they’re probably hiring because they need somebody and they need a body, to be honest. I’ve seen a lot of companies where they’re a startup company and they’ve got funding and they’re just like, “We need somebody to handle this.” They will take whoever they can get. And they’re not willing to wait six months to find the right person. They need somebody in the next three to four weeks. I don’t think that working for a company like that part-time is even going to be an option. It depends on who you’re talking to but – I had it more in mind of doing that for a self-funded startup as opposed to a funded startup.
Rob [33:04]: Cool. So there’s two perspectives. Hope that was helpful.
Mike [33:07]: I think that about wraps us up for the day. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt for ‘We’re Outta Control’ by MoOt used under creative comments. Subscribe to us in iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening. We’ll see you next time.
Episode 322 | Sex & Software (An Interview with Brianna Wu)
Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Brianna Wu, founder of Giant Spacekat, about sex and software. They discuss many racial and gender issues that face the software community.
Items mentioned in this episode:
Transcript
Mike [00:00]: In this episode of ‘Startups for the Rest of Us,’ we’re going to be talking about sex and software. This is ‘Startups for the Rest of Us’, episode 322. Welcome to ‘Startups for the Rest of Us’ the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products, whether you’ve built your first project or you’re just thinking about it. I’m Mike, and today we’re going to be sharing our experiences to help you avoid the same mistakes we’ve made. Today’s episode is going to be a little bit different. Today we’re going to be talking about sex and software, and today’s episode starts with a listener question. This listener question comes from [Simmore?], and he says, “Hi. I was wondering if you could do a show on what we can all do to reduce the amount of straight-up misogyny female coders and founders face. Last week I followed a tweet from Justin Jackson – and we’ll link that tweet up in the show notes. He says, “That led me to a presentation by Jenn Shiffer at the XOXO Festival. I also watched the Talia Jane presentation at the same festival. The amount of vitriol these women suffer is incredible, and I just don’t understand why it has to be that way. Where does all this anger from men in tech come from? What have you guys seen in your experience? My experience is as a consultant, and there’s an incredible amount of sexism in IT consulting, but I don’t think I’ve seen all this anger – or at least this level of anger – played out in front of me as a past manager. I love the show, of course, and it would be nice to hear what your own goals are in terms of women and female coders in the new year. Also, since I am black, what has been your personal experience in goal-making around diversity in general? Thanks, and I’ll see you at MicroConf.” I think that there’s two different pieces to Simmore’s email. The first one is that there’s two different questions in there. The first one was: “Where does all the anger from men in tech come from?” And the second one is: “What are your goals in terms of female coders and founders in the new year? Also, since I am black, what has been your personal experience in goal making around diversity in general?” I do want to touch on that just a little bit from the perspective of running MicroConf. For a little bit of perspective, we don’t ask this question outright to our attendees. We don’t ask them, “What’s your racial makeup? What is your gender?” It’s just not something that one, we feel comfortable asking. And two, it’s really just not relevant to people coming to the conference. I talked to Zander a little bit about what we kind of believe that the makeup of female to male attendees is. It seems to be that it’s about 15%, but obviously that is based off of names, so it’s a little bit difficult to get exact numbers. In terms of what we do at MicroConf, one of the things we do is we do some active outreach to female entrepreneurs to make sure that they’re able to attend if they want to. I’ll say that we do take some liberties with the waiting list to make sure that people are able to get tickets if they need them, or if they want them, to help with that diversity, to make sure that females have a chance to get to MicroConf. In the past, MicroConf has traditionally sold out extremely quickly. To help out with that just – because if you’re not sitting there at the button it can be difficult to get a ticket. That’s one of the things that we do. Another thing that we’ve done is we implemented a code of conduct at the request of an attendee a few years ago. If you go out to the MicroConf website there is a code of conduct. It’s based on a publicly available standard for codes of conduct that are out there. Another thing that we do is we actively recruit female speakers. What we’ve found is that there is a tendency for female founders to not apply to speak at MicroConf. We do have an application process, but it seems like we do not get as many who come forward and say, “Hey, I would like to speak.”, so we actually go out and actively approach them and ask them. Another thing we’ve done is we have actively set aside pools of tickets for female entrepreneurial groups. So we’ve gone out, we’re approached those groups and said, “Hey, here’s a pool of tickets that is kind of separate.” It helps to bypass, I’ll say, the tickets going off the shelves very quickly, so that there are opportunities for female founders in those groups to purchase MicroConf tickets if they would like to attend. The last thing is we also have MicroConf scholarships. The past two years we had a couple of scholarships that have been given out. One went to Francesca, and another one went to Shannon. Both of those scholarships were actually given by MicroConf attendees. The MicroConf attendees said, “Hey, I’d like to do a scholarship.” It’s not something that we made a big deal about, and it’s not something that we talked heavily about, but those are the types of things that we have done at MicroConf. In terms of the question itself about where this anger comes from, my best guess is probably that it’s rooted in history. Humanity has thousands of years of history illustrating that people in positions of power are going to do whatever it takes to maintain that power. And, quite frankly, if you look at the balance of power over the past few thousand years white men have largely been at the top of that power structure. And, by extension, other white men have benefited from that arrangement. If you look at that historically, those people tend to be afraid of change. They’re genuinely afraid of women, or anyone who’s different than they are, from having those types of power, or perceived power, over them. I don’t think it’s just a gender issue, but it is also, to some extent, a racial issue. The bottom line of this is that Rob and I don’t necessarily feel qualified to answer the first question which Simmore posted, which was, “Where does all this anger come from?” Because, one, it’s not something that we really feel, but it’s also not directed at us. So, what I did was I went out and I decided to find somebody who I would see as an expert in this particular space, and I want to introduce you to Brianna Wu who is the founder of Spacekat games. Brianna, how are you doing today?
Brianna [05:00]: I’m doing excellent. I’m doing fine. It’s a pleasure to be on.
Mike [05:03]: Excellent.
Brianna [05:04]: I do want to say my company’s name is Giant Spacekat.
Mike [05:08]: Oh, I’m sorry.
Brianna [05:08]: Not Spacekat games. No worries about that.
Mike [05:10]: I apologize.
Brianna [05:12]: Can we go back to some of your answers to that previous question a little bit?
Mike [05:15]: Sure.
Brianna [05:16]: I am a software engineer, so something I think about a lot when I’m trying to solve problems is I ask myself if my underlying assumptions are correct. I assume you kind of do the same thing, right? I want to go back to what you were saying at the very beginning of this, where you said you didn’t feel comfortable asking attendees about their race and gender, because you didn’t feel comfortable with it and you didn’t think that was relevant. Is that an accurate assumption of how you feel?
Mike [05:48]: I’ll be honest, it’s not something that we feel is necessarily important to us asking the question.
Brianna [05:54]: Right. To us.
Mike [05:56]: Let me rephrase that, because I know how maybe that sounds. It’s more of a question of: Do we need this information? I guess, in retrospect, in even asking that question, maybe we do. I’ve never really considered that before, to be honest.
Brianna [06:09]: One of my first jobs was in politics, and I used to use the term “African American” when I was talking of racial issues, until someone that was black came up to me and said, “You know what? Black people, we don’t use that term so much. It’s kind of one that’s more about white comfort in discussing racial issues, and I very much prefer to be called “black”.” That was a real eye-opening moment for me, so I want to give you the other side of what it’s like to attend the conference if you’re a woman. This is a conversation I have several times a week. A friend is thinking about going to X, Y or Z Conf, and women in the tech industry have our own secret spaces to talk to each other. And the first thing we ask is, “Hey, I’ve just been invited to speak at “X” Conf. Is this safe? Does anyone have good experiences with this? How many women are there?” Then we’ve kind of had to form our own groups to give feedback about that, because you’re thinking like, “Oh my gosh! I could be uncomfortable by asking a question for a second.” The woman on the other side of that is asking really difficult questions like, “Am I going to be sexually harassed if I’m at bar with alcohol? Am I going to be treated fairly and equally?” Something I would really encourage, not just you but anyone out there that is in a position of privilege, to push past that and realize it’s not comfortable for me to be on your podcast today talking about this stuff, but it’s absolutely necessary, because women leave the software industry at a rate over three times of what men do. I would also say, you used the term “female coder” repeatedly when you were discussing this. I would just be honest and say most women I know prefer to be called “women”. Female coder signs like [Ferengi?]. It’s kind of demeaning way to talk about women. That would be my feedback about that.
Mike [08:00]: Got it. Okay. A lot of that makes sense. So, I huess, going back to your question of me about why we don’t ask that. In some ways it seems like there’s almost a boundary that I’m stepping over as the host of a conference, where I’m asking somewhat personal information about like, “Okay, are you male or female? What’s your racial makeup?” Stuff like that seems like why would I need to know that? How is that perceived from the other side?
Brianna [08:26]: I would say this, I’m an engineer. I can’t fix a bug in software right if I don’t have error reports, right? So you’ve got to measure data to figure out where you’re going wrong and fix it. I think it’s wholly relevant, if even internally you’re not putting together numbers about your number of women speakers. By the way, when we talk about this stuff, far too often people of color are left off this list. For me, in the things I do, I am very, very aware of how many people of color I hire, how many women I hire. Frankly because we’re such a company that is heavy with women working there, we have to go the other way and make sure we hire men enough. That would just be my feedback about that. You can’t fix something if you don’t measure it, or even understand if you have a problem in the first place.
Mike [09:18]: I think that also goes to how you ask the questions as well. You can’t just drop a question in somebody’s email box and say, “Hey, are you male or female?” I would at least say preface it by some meaningful information, or at least a couple of sentences about why it is that you’re asking that kind of stuff.
Brianna [09:35]: Sure.
Mike [09:36]: Okay. What are your initial thoughts on Simmore’s question itself about where some of the misogyny itself comes from?
Brianna [09:43]: I think it comes from a very predictable place. I was a child in the ‘80’s and the ‘90’s. This was a time where you really were punished for being a nerd. I remember liking Final Fantasy as a child and getting picked on mercilessly about that at school. I think it’s really true that a lot of geeks grew up and they kind of have a little bit of a chip on their shoulder. They feel like the underdog, and I think especially with women there is definitely a culture where a lot of software people maybe are kind of sensitive around women, or sometimes have some animosity against us that maybe they don’t understand. What you’re dealing with, at its core, is a culture filled with men who genuinely believe they are too smart to be sexist, but they have these really aggressive tendencies that they may not understand. It makes them uncomfortable. They’re very, very, very quick to reframe things to protect their privilege. I’ll give you an example. Oculus, which is a company that makes some technology we’re very interested in – virtual reality – they had yet another terrible scandal that broke two days ago, where one of their software people has been alleged of soliciting an underage girl for sex, a very serious crime. If you put this in context of their crisis of leadership of, A, not hiring women, B, having a founder that’s literally spending tens of thousands of dollars funding hate speech, it’s a really troubling pattern. I was discussing this on Twitter and I was instantly besieged by someone that believes he’s an ally to women in tech, but is instantly minimizing it, is excusing it, and is just throwing every argument there to say this isn’t a problem. That man believes that he is an ally, but, on an unconscious level, he is derailing and minimizing the conversation about structural bias, and that is everywhere in our industry. The way you will be able to know if you’re on the wrong track is if you’re looking at this problem of women in tech, or people of color in tech, and you’re say, “I know what the problem is. It’s those other guys.” No. You need to be saying, “I know what the problem is. That’s me.” I’m not just telling people to practice what I preach, yet for, me as a white person, I realize that I have tremendous advantages in our field, even as a woman. So I’m constantly asking myself, “Am I hiring enough people of color? Am I interviewing enough people of color? Am I networking with enough people of color? When journalists call me and say, “I’m looking for references.” Am I passing off enough people of color to them?” It’s that kind of constructive engagement that really makes you part of the solution, instead of pointing fingers.
Mike [12:42]: Going back to one of the things that you had said earlier, which was a lot of people feel like they are too smart to be sexist, for example. I’ve had conversations with people along that lines like, “Oh, I have two daughters. I can’t possibly be sexist.” You can almost find political memes around that too. It’s not hard to look for that type of thing. Are there specific signs that somebody can look for? I think a lot of the listeners to this podcast are more of the truth seeking variety. They’re really looking for validation of their ideas and thoughts and beliefs, and mostly that deals with marketing, but I feel like that applies in this particular situation as well. How is it that you identify the things that would say, “You know what? You aren’t too smart for this?” What are the canaries in the coal mine, so to speak?
Brianna [13:30]: Yeah. One of the things I said is imagine if you had a friend that was going through a divorce, and that friend was talking, and they’re like, “It’s just so hard. I’m not sure if I’m going to be able to see my kids again. I’m really upset about losing my partner. I’m not sure if I’ll ever find love again.” Imagine if, while you were talking to that person, you turn the conversation to yourself, and said, “Well, yeah, but how’s that going to affect me? Are we going to be able to hang out and goes see movies all the same?” It would be really obnoxious, right? In the same way, very, very, very often when women start talking about what our lived experiences are, men are so quick to turn the conversation to themselves, and talk about how this affects them, and I’m trying to think of a constructive way to say this, but I can’t. It’s just obnoxious. A really good hint that you’re on the wrong path is if you’re saying, “Well, you just feel this way because there aren’t enough women applying.” Or, “Well, what if I’m trying to apply to a job and I don’t get a fair shake? What if I don’t get into this conference because they’ve got a quota system?” This is all a good sign that you’re more concerned about your privilege than the problem. We all have work to do. I really want to emphasize this. I think something feminism could do a lot better, and I think “outrage culture” has a lot to contribute to this, but we’ve built this culture where everyone is one mistake away from being a villain for life, and I don’t think it’s a very good way to go forward. I myself, if I’m a half way decent ally to people of color these days, it’s because I’ve made so many mistakes along the way, and I’ve learned from them. We need to have a culture where men can make these kinds of mistakes and we can have an honest dialogue about it, and they’re not branded as villains for life. I think that we’re really missing a more constructive way to move forward on it.
Mike [15:32]: I guess going back a little bit, where you had said that one of those tell-tell signs is saying, “How does this affect me?” or interjecting your own thoughts on it. Previously you had come out with a couple of examples there of what those red flags look like, and I have friends who have said, “I have two daughters. I can’t possibly be like this.” Is that along those lines as well? Is that perceived as sexist? Because, really, I was trying to contribute to the conversation and say, “Look. This has been my experience.” Does that overshadow what we were talking about? Or is that perceived in a good light or a negative light?
Brianna [16:06]: I would take this in two parts. First, I want to check my own privilege and say I’m a non-parent, so I’ve never raised children, but I would say this, when a guy starts talking about how he’s raising daughters, a red flag that goes up for me right away is a lot of men bring sexist attitudes into their role as father. I think we see a lot of controlling things with that. We see a real culture of violence, sometimes, and ownership over their daughters. To me, I don’t read that as good or bad either way. I’ve certainly met a lot of sexist fathers throughout my career. As far as your own fears about that –
Mike [16:49]: What I was referring to is really the fact that I was bringing that up as an addition to the conversation.
Brianna [16:56]: Don’t stress it.
Mike [16:56]: No. Well, I think that it’s important to figure out what are your motivations for bringing up a particular point, because I’ve been in situations – and seen conversations go – where somebody will bring up something, and there is almost a sense of one-upmanship about, “Let me tell you this story.” And I can see that playing into this type of conversation, and how people portray themselves to each other, and how people talk to one another. That’s what I was more getting at.
Brianna [17:22]: No. I think that’s dead on. I want to step out and take a little bit of a meta view for a second. At my studio, Giant Spacekat, for our last game we had all women working on our team. It’s not a format that I’d have going forward, but it was how we shook out. I was really stunned by how different our culture was. It was hyper-collaborative. In other engineering environments, where I’ve worked with a lot of men, there does tend to be that sense of one-upmanship of, “I’m right here.” And, I hope this is okay to say, but it just seems like it’s boys with toys almost. At my studio, where it was all women, it was hyper-collaborative, and it was awesome. It was us validating each other, and trying to get input, and working on things together. It was just an entirely different culture. I do think that a little bit of that culture of one-upmanship, I don’t think it’s a particularly healthy trait of the software industry, and I think one of the reasons that teams with better gender balance tend to be more productive. I do believe when all genders are represented it brings a kind of stability, and a diversity of viewpoints, to the table. I think that’s very valuable.
Mike [18:34]: Yeah. We’ve noticed at MicroConf, when we started out back in 2011, the conference has always been very collaborative. Everyone is really comfortable sharing, for example, revenue numbers, and discussing specifics of how their business is doing. But one of the things that comes to mind is that most of these people come to MicroConf and then they leave and then they’re working in their own world and they may have a team, they may not. They’re usually only one or two people working on a particular product or project, and then they go out, they do their thing, and they come to MicroConf and they collaborate. But when they’re out working on their products, and in their business, they tend to be alone, or they tend to be working with very, very small teams. I wonder how those two things play together, because it seems odd that those types of people would go out and be as aggressive as they need to be to run their business and then come to a place like MicroConf where there is this community – or in the Founder Café – and then they’re very collaborative. It seems like those two things are very much opposed to one another.
Brianna [19:31]: Yeah. That makes a lot of sense. I want to touch on, for a second, that kind of bias that when we start companies we tend to seek out people around us that kind of mirror our values. I think a really big bias of this in the startup world this is this is why such a tiny sliver of startups have women or people of color on the board, because it is a culture that really pushes women and people of color away in ways we’re not willing to think about. I would use my own experience at Giant Spacekat and say I did this the other way, being a woman founder. When I started my company I looked for people, unconsciously, that looked like me. We had way, way, way too many white women on my team, and I realized that that was my own bias. We’ve got to get past this point where our own comfort is our highest priority, because it is right now. It leads to use cases that are just terrible. We’re talking about VR right now. If you look at the VR marketplace right now, for Oculus games or Friv games, most of these are made by teams of two or three people, always men. There are so many sexist assumptions built into these games as you play it that make it really damage VR from being able to pick up the mainstream. A lot of these games assume you’re a certain height. Most of them don’t contain female avatar options. All of them assume that you’re a man as you play it. It’s just really insulting in ways that I think these teams haven’t really thought about.
Mike [21:05]: Is that a function of the fact that it’s only two or three developing it, and so they tend towards doing things that are comfortable for them, and are also easy access to them, and more a lack of resources as well? I mean, if you’re going to create 30, 40, 50 avatars, I would imagine that that’s a lot more work than it is to create one or two. Is it a function of time and resources? Or is it a combination of that and the fact that they just say, “Oh well, I only have time for this, so I’m going to concentrate on getting something out the door.”?
Brianna [21:34]: This is what I would call an excuse. You and I both know the features that get into a product are the ones your team cares about. We all know this. GSX, the way we do it is we list every single feature as a gold, silver or bronze tier. Gold must be done; silver can be done; bronze is nice if we get around to it. The features that are on that top priority list make it into the game. So the answer to this is simple: the men making these products don’t consider it a priority, and by everything you just said, it’s not a priority. A guy can certainly do this well. I’ve seen it done, but it’s just not important to them, and that’s reflected in the software we use.
Mike [22:15]: Right. It’s more of a matter of paying attention to that kind of thing and making it a priority, as opposed to just saying, “This is on the feature list and one or two is good enough.”
Brianna [22:24]: Yeah.
Mike [22:25]: We’ve talked a little bit about some of the subtle things that go on. What are some overt examples? I don’t think that this is something that is front and center for most men in the industry, but what are the more overt things that you’ve seen?
Brianna [22:38]: This is such a good question. We have a real tendency in software development to network in a way that was created by men for men. I could not even count how many times I’ve been at a bar at night alone – been the only woman there – with a bunch of men that are drinking alcohol. This is something I think dudes don’t even think about. I have had so many friends in that situation that have been sexually harassed. In two examples I’ve had friends who have been sexually assaulted. In one example I had a pretty close friend of mine have her boss basically force himself onto her at night while everyone was drinking. There was some really inappropriate contact that was made. This is something that is much more of a problem than men realize. Our setup here is built in a way that networking is very difficult for, say, women over 30 with children. You’re not going to find many moms that are going to be out drinking at 11 o’clock at night at a bar to work on their career. But this is like where 99% of the stuff happens in the game industry. There’s overt things. A lot of men tend to treat women they run into in professional circles as someone to date. I want to take a step back and say I realize that feminism and women are sometimes – I think there’s a little bit of a lack of empathy for what it must be like for a male geek when he’s just lonely and looking for someone to be a partner. He’s looking for romance. And I realize there’s a sense of maybe sometimes it’s a sensitive spot for them. I have empathy for that. But it is so wildly inappropriate at the same time to treat a woman that’s coming in to network with you professionally as a potential partner. It sends every single signal out there that you’re not valued for your skills, or who you are. You’re just a potential date. I think we’ve really got to change the culture where women and people of color are treated as the professionals we are, rather than just women.
Mike [24:48]: I don’t necessarily think that that’s just a software industry thing though. Because there’s –
Brianna [24:51]: No.
Mike [24:52]: – that’s definitely a problem. Obviously, sexual assault is an issue regardless of what industry it is. But I’ve also talked to female founders who have just said, “Yeah. I don’t go to evening events, or after-conference activities, because I don’t want to put myself in a situation where people are drinking and going to get out of control, and I just don’t want to have to deal with that.” I guess it can effectively minimize their opportunities for networking just by virtue of them not being willing to put themselves in situations like that. Whether it happens or not, if they’re uncomfortable attending those networking events then it puts them at a disadvantage outright.
Brianna [25:28]: Yeah. That’s dead on. And I would say look at the outcomes, right? I hear this a lot. It’s not just software. My husband is in biotech, who is head of IP for a company that’s listed on the NASDAQ that just had their IPO. There are plenty of women that work at his company. So why is it so many other industries their rate of women might be lower, but it’s not as embarrassing as software is? Why is this? Well, it’s the culture, stupid. So I think we need to own these problems rather than minimizing them.
Mike [26:00]: What sorts of things can be done to help change the landscape, so to speak? How do we go through and start enacting some changes?
Brianna [26:08]: I would say, for me, I hire a lot of people. Something I make a lot of personal efforts to do in my career is to network with people of color, because I realize without effort on my part I’m going to only be talking to white people, which is unconscious racism. I would say to anyone out there, when you see a woman that seems smart and accomplished on Twitter, follow her so you’re getting that voice in their feed. Make a deliberate effort to go out there and network with people of color, so you’re hearing that perspective and adding it to your own. I never hire for any position without thinking about who my candidates are ,and asking myself if they’re diverse. That’s very much a constructive thing you can do. If you don’t hire, and you’re just on a team, I think you’ve really got to check your own unconscious double standards. What is beyond frustrating to me, as a woman engineer, is it doesn’t matter what I say, or what I do, or what I have a technical opinion on, it gets challenged and bullied and just really hyper-questioned in a way that my male colleagues do not. I was at WWDC a few years ago, and I was talking about Apple’s metal API’s that were announced at a party. I’m sitting there talking to a guy, and he was like, “I was giving opinions on it, I write Unreal for a living and this is literally my field of hyper-expertise.” And this man just starts talking over me, and lecturing me, and “mansplaining” things. I had to take a step back and say, “Hey, you know the article you’re talking about right now? I wrote that.” He just blinked at me twice and kept going. There’s this culture of – it seems like it’s just something in a dude’s mind where if a woman questions a guy on something it gets just doubled-down on, or there’s this defensiveness that comes up. So I would get on my knees and beg anyone out there to really think through those unconscious double standards you might be holding women and people of color in your life to.
Mike [28:16]: Could you talk a little bit more – because it’s the second time you’ve used that phrase “unconscious double standards”. I’d like to know what other ones are there that we might have?
Brianna [28:25]: Sure. I think you can look at the last election and see very clearly there were double standards that Hillary was held to, with her ethical behavior, versus the dudes. This is all the way. It’s with when you’re applying for positions, I think womens’ experience is judged in a different way than a man’s is. I think all too often female communication styles are discounted. A really good one is, I think, that often women’s voices – you know, some women have kind of a vocal fry, or a higher pitched voice, and I’ve seen the way that they’re not taken seriously. There are all these double standards in what women say and do in our careers where we’re really beaten up about it. There is a great cartoon that came out this year where it was talking about women leaders, and the communication style we have to adopt. For a man, he could say, “I need this done by Tuesday.” If a woman says that she’s going to be considered abrasive. We have to adopt communication styles like, “What do you think about having this done by Tuesday?” It’s all these things where we’re constantly dancing around male ego and it’s absolutely exhausting.
Mike [29:37]: Shouldn’t the question in general be, “What do you think about having this done by Tuesday?” I’m not saying that from a female perspective. I’m saying that from a general project management standpoint, because just because you think that it should be done by Tuesday doesn’t mean that the other person – especially if you’re working with a bunch of contractors, or even employees. It almost doesn’t matter, but there are a lot of things that go on that are not necessarily in your vision at the time when you ask that. There’s a difference between, “Hey, this is deadline. We really need to have it done.” There’s ways of phrasing that stuff anyway that are much more collaborative in nature. Because I’ve worked with contractors who you tell them, “Hey, I really need this done by Tuesday.” and they’ve got a holiday coming up and you don’t know it. For example, if you’ve got people who are working overseas, you’re not in that culture so it’s not on your calendar. It is on theirs. You have to be at least aware of what’s going on and, unless you ask the question, it’s very easy to get into a situation where you say something, say, “Hey, this needs to be done by Tuesday,” and you’re completely neglecting all the other things that that person has going on.
Brianna [30:38]: I would say this with all respect, Mike, but I think the exchange we just had here is a really good example of what can make women sometimes a little frustrated in our careers. I completely agree with you. That’s my management style. I work through consensus and collaboration, and I believe that if someone is good enough to be in the door that they’ve earned a little bit of leeway with that. So we do work that way. But I think we’re so quick in our field to minimize any point that a woman is making about this. I’m going to be really direct with you here, women are held to very harsh double standards whenever we show leadership, or try to draw boundaries, and the things that we talk about are negated, or minimized, or put aside. Ask any woman that is in a position of leadership out there if she has to alter her communication style to not threaten men. She will absolutely, 100%, tell you that she does. I just think that’s really important. These are the realities that we face.
Mike [31:43]: Yeah. I totally agree. I definitely think there is that double standard there, depending on how a woman would phrase that. What are the types of things that communities and community leaders can do to help enact some changes here? We’ve talked a little bit about the stuff, I’ll say, on more of an individual level. But what can communities, like MicroConf and Founder Café and Startups for the Rest of Us do to help with these types of situations?
Brianna [32:08]: Well, always make sure you’re having enough women come in the door. Network with women. Organizationally, you need to create a culture where women are not afraid to speak up. By the way, this is a trait for any good leader. In software development it’s just a reality. We have a lot of introvert engineers. I’ve worked with more than a few engineers who are on the autism spectrum. To me, good leadership is creating an environment where everyone gets a say, not just the loudest voices in the room. I think being very active about having a culture where maybe those people that speak a little too much – and I’m in that group – would kind of be checked a little bit, and you ask for consensus from other people. That’s incredibly important. I would also say when issues come up those need to be taken very seriously. Every woman I know is terrified of HR, because HR very generally speaking, exists to protect the company, not protect the woman. In my entire career I only know one or two women that have had sexual harassment incidents that have had a good outcome by HR. There are standards about that out there for that. Make sure you’re holding yourself to that. I would also say really think through your interviewing process. In the game industry I can’t tell you how many times I’ve heard a story about a woman going to interview for a job and it uses male pronouns, it assumes certain things, or she’s interviewed in a room with posters on the wall of half-naked women. You’ve really got to think about your culture and ask yourself what kind of messages you’re sending.
Mike [33:54]: What would be better ways to – for example, you said job listings or job interviews – what would be better ways of referring to that in a job post, for example. Do you say, “He/She?” Would you say, “He or she?”, or would you try and avoid gender in any way, shape or form?
Brianna [34:09]: I personally try to talk around gender issues. I’d be honest and say I – like a lot of other people – am still kind of trying to figure out how to speak in a way that doesn’t exclude non-binary people. It’s kind of something that only first came up two years ago really in the mainstream. I, myself, try to just leave gender out of it whenever I can. That’s a personal style thing, and I fail at it sometimes.
Mike [34:36]: Going back to the communities, do you have any other recommendations or thoughts on networking events that could be a little bit more collaborative in nature? As I said before, one of the issues that I’ve seen is that female founders tend to shy away from going to evening events, especially ones where there’s alcohol involved in any way, shape, or form. I have talked to people who have said, “I have been sexually harassed at such-and-such conferences. Is MicroConf safe for me to come to?”
Brianna [35:03]: I guarantee women are having a conversation back channel a lot more than to your face.
Mike [35:07]: What sorts of things would you recommend, or could we look at?
Brianna [35:12]: I would say this. I really doubt that my company will ever have events with alcohol at it. I realize that there are some people in our field that kind of need alcohol to feel comfortable, but from my perspective I’m always thinking about my safety, first and foremost, and I just can’t allow something that would compromise that. I think, just to really be honest with you here, the threat of sexual assault is something men don’t ever have to think about, and women think about all the time. I personally don’t do that. I’m also increasingly skeptical about the value of face-to-face networking. I think it definitely has its place. I do most of my networking on Twitter, and in private groups on Facebook, so I’m always looking for those kind of personal relationships. I think lunch networking events, and coffee, are hyper-productive, so I’m always looking for those kinds of places that are just a little bit more congenial.
Mike [36:10]: One of the other things I want to touch on was that I recently read that you’re running for Congress. What prompted that?
Brianna [36:16]: Just to be really open. I try to steer away from politics as much as I can in my technical career, but honestly, on election night I was 30-feet from where Hillary Clinton should have accepted the presidency, and she didn’t. And, like a lot of other marginalized people, I’m really scared about my rights under a Trump administration. It’s something I’ve been thinking about for a long time. There’s really this meta-question of: How can we go further than we are right now. I personally believe that we’ve reached a real asymptote with what writing about sexism, and talking about sexism, is going to accomplish in our field. The truth is I could come on a 1,000 podcasts this year, like this one, and talk about the same thing. I’m not sure it’s going to get us much further than where were are right now. I think the next step is to have women involved in the legislature. The guy I’m going to be running against has spent his entire career crusading against women’s rights. He’s pretty terrible on technology issues. Even stepping beyond being a woman in tech, I think there’s a much larger issue here. Our federal tech policy sucks, and it’s dumb.
Mike [37:30]: I think that’s an understatement, by any stretch of the imagination.
Brianna [37:35]: It really is. I have to say this. One of the women I’m hoping to serve on a technology subcommittee in the House when I run, you know when the Mirai Botnet came out a few months ago, and completely took out parts of the internet in the United States, this woman went on CNN and blamed a botnet, which is it happened because we don’t secure Internet of Things devices and allow them to be rewritten in a way that can attack our technology infrastructure, and she blamed it on freaking SOPA like, you know, pirating movies and software. It’s just like it’s a policy position that was literally written by Verizon. I am angry about that, and our poor technology policy. It’s not just stupid, it’s endangering our national security. So a lot of the reason I’m running is I want to be a voice in the Congress on privacy rights, on the EFF, on all of these policy issues where – with all respect to the politicians in the Baby Boomer generation – I absolutely respect your service, but I think as someone that is kind of native to this technology, I simply understand it better than most people do, and we need people in Congress fighting for privacy rights; people holding companies accountable when their data is breached in horrific ways, and endanger all of the people that have had their information stolen. It’s a very wide array of issues, why I’m running. It’s not just gender equality. To be honest, that SOPA thing really made me mad. I think there’s a certain point where every generation needs to step up and commit ourselves to public service. And again, there are a lot more Baby Boomers in the Congress than there are Gen-Xer’s, and I just think it’s time for us to serve.
Mike [39:24]: Well, again, Brianna, thank you very much for your time. I really appreciate you coming on the show. So this is episode 322, and if you have any comments or thoughts on the show, head over to the website startupsfortherestofus.com and you can leave some comments on the website and talk a little bit more about this episode. If you have a question for us, you can call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from ‘We’re Outta Control’ by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for “startups”, and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening and we’ll see you next time.
Episode 321 | How to Take Your SaaS Upmarket
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to take your SaaS upmarket. Some of the steps they discuss include, raising prices, modifying your pricing page, asking for annual contracts, and how to give demos.
Items mentioned in this episode:
- Drip
- BlueTick
- Better Cater
- Close.io
- Product Demos That Sell Book
- Anna Jacobsen attendee talk from MicroConf 2016
Transcript
Rob [00:00]: In this episode of ‘Startups for the Rest of Us,’ Mike and I discuss how to take your SaaS up market. This is ‘Startups for the Rest of Us’ episode 321.
Welcome to ‘Startups for the Rest of Us’ the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:27]: And I’m Mike.
Rob [00:28]: 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?
Mike [00:32]: Well, I added another paying customer to Bluetick this past week. It’s been a little bit of a challenge just because the automation pieces are starting to become much more integral and important to the whole thing. I’ve been looking into Zapier Integration and how we can put that in place, and going through the different documentation and stuff that Zapier has out there you can create a private Zap that you can just share with certain people. But in looking through it it seems like there are probably a bunch of places where we need to make these minor tweaks here and there in order to make it easier to use with Zapier and make our API a little bit better.
We’re looking at those things right now. There’s lots of tiny details to iron out but things are looking well so far.
Rob [01:14]: Yeah, adding a new customer is always good. With the Zapier integration, we have rolled at least two different versions – maybe a third – to ours. We ran into some struggles early on with wrestling with Zapier around. It wasn’t as intuitive as we found some other systems to be. I think they’ve done some good things. I don’t know that they’ve corrected it, but they’ve at least improved that over the past year or two since we integrated. It is more complicated than you want it to be. You have to think about a lot of stuff. It’s not just a typical hidden API endpoint. There’s almost like client-end stuff, and your passing [?] back and forth to power their UI. It makes sense, given the tool they’ve built, but it’s a lot more work than the standard integrations that we have done.
Mike [01:56]: Yeah. The other thing I’ve noticed is that when it comes to objects that have lists of things in them then it – I won’t say it completely falls down – but it definitely makes things a lot more challenging when you have situations like that.
Rob [02:08]: Sure. We received a voicemail from someone who wanted to stay anonymous, so I’m not going to play the voicemail but he works at a health insurance company and he also listens to the podcast. He had a comment about your comment from, I think, a couple of episodes ago where you were mentioning insurance premiums and how it seemed like the insurance companies are price testing and just increasing to test to see how much people will pay. He had a good point as an insider at a company, he sees how these things work. He said that the regulation on them is so tight that they have a really tough time. They’re not supposed to make more than X-dollars. They get penalized if they make more than a certain amount of money. I don’t know how that’s all regulated, but it was really interesting. He said that premiums just are going up. But they have been going up for a long time. It’s funny. I was thinking back to when I first became self-employed – right around, I think, it was around 2001 – when I became a consultant. I went and I got Kaiser, which is a U.S. based HMO. I got coverage for myself and my wife and, if I recall, it was like $130 a month, and it was quite good coverage. If you look for the same coverage now I bet it’s like $1,000 a month. So it’s been going up for 16 years, and some folks will blame it on the Affordable Care Act, but it was a disaster before that. Since the late ‘90’s it’s just been – or maybe it’s like 2000, 2001 – it’s been ratcheting up 10%, 20% every couple of years. All that to say, it was kind of cool to hear his perspective in the sense of the costs are going up. Our healthcare system is kind of jacked up, but that, in his experience, he said his company and the people there they really do care about helping people stay healthy and trying to help them. He said that’s the general inside. It’s not this big conspiracy theory that a lot of us think it is, is what he was saying – at least at his company.
Mike [03:53]: Yeah. I can totally see that. My experience with it was really just looking for health insurance over the course of three or four years, where literally every year it was going up by what seemed like massive amounts. I could go out through an insurance broker and the differences between them would be literally $300 or $400 in the same year for the same type of coverage from a different company. It didn’t really make a lot of sense. And because everything’s so obscure it’s really hard to make apples to apples comparisons between some of those companies. I would trust his judgment over mine just because I was totally speculating about it. It is very frustrating to be a business owner and have to spend your time trying to figure those things out.
Rob [04:31]: I agree. It has always been a headache, and I’d say it’s even more of a headache now and costlier than it has been in the past. So the only other tidbit of news I have is that me and my family are heading to California for the holidays, and it’s just in time. We had a day yesterday here in Minneapolis where the “feels-like” was 30 below, and that was really interesting. What’s interesting is the day before it was probably 15 below, I think, 15 to 17, but the sun was out and we were all outside on and off for an hour or two. We just had to gear up, there wasn’t a ton of wind – it was humidity that caused it to be really that cold – and we were building snow forts and doing all that stuff. But the 30 below, that was different. That air temperature was pretty gnarly, so we were only outdoors as much as me absolutely needed to be. I think we’re going to enjoy our seven-day trip out here to Santa Cruz, California.
Mike [05:24]: I think I did warn you about the temperatures there.
Rob [05:28]: Oh, yeah. The weather almanac warned me about the temperatures there. Alright. So today we’re talking about how to take your SaaS app up market. It is a listener question from Anthony Franco, and he’s from bettercater.com. He says, “Thanks for the podcasts and for MicroConf. Looking forward to attending my second one this year. I have a question about enterprise sales. We’ve launched a SaaS and had a good amount of mom-and-pop small businesses sign up, but now we’re looking to expand into more enterprise level customers. What are your tips and suggestions on how to target larger enterprise level customers compared to small businesses? Specifically, what are some changes you’d recommend on the sales side and the sales process, or maybe even general features enterprise companies expect?”
That’s what we’re going to do here. We’re going to take the next 15, 20 minutes to talk through this. A clarification I want to make is this episode is about taking your SaaS up market in general. It’s not about shifting from $20 a month customers to true enterprise customers. When I think of enterprise, I think of fortune 1,000 or fortune 2,000. You know, $50, $100, $200 million companies. And I don’t think that’s relevant to a lot of us, and I actually don’t think that’s probably what Anthony was thinking. But the idea of going up market – so maybe now your selling $20 or $50 a month plans, but you want to also sell to customers who might pay you $200 or $500 or $1,000 a month, I think it’s a really good thought experiment, and I think there’s a lot of questions we can ask about whether you should make that move, things you should be aware of, and then some steps to take to make that shift. Because going up market, there’s a lot of pros to it in terms of your just going to grow faster. You need a lot fewer customers to grow a lot faster.
Mike [07:01]: I think this is a really interesting question, and very cool topic to dive into. Let’s talk about some of the questions you would have before you would even decide to make this move. What are some of the questions that somebody might ask themselves?
Rob [07:11]: Sure. I have a handful of questions here. The first one to ask yourself is, “Can your technology scale to support larger customers?” In a lot of instances this answer will be “yes”. If you have just kind of basic crud app that’s used to manage finances or something, and doesn’t have a lot of external integrations, doesn’t have a lot of queues, doesn’t have a lot of moving parts, you’re going to be fine. But if you run an email marketing app, or you run something that has to do a lot of data crunching, moving from customers who mostly have 100 or 200 records in your database to customers who have 10,000 or a 100,000, it’s going to be a big shift. We’ve seen this as DRIP has grown that our largest customers are the ones that put, by far, the biggest strain, and it’s exponentially more of a strain on everything; all the infrastructure and the queues. This is the first thing to think about as you’re thinking about bringing on larger customers.
Mike [08:00]: I think going along with that you kind of have to have a basic understanding of where the choke points in your app are right now, and what sorts of thing that an enterprise customer would need – or a larger customer would need – that would essentially stress those areas. Are there customizations that could go in there? Are there other integrations that are going to cause places to start to fall down? There’s a very big difference between when you’re displaying data when your customer only has, let’s say, 50 or 100 contacts in there versus a 1,000 or 10,000. Those are two entirely different mechanisms that you need to account for when you’re displaying information to the customer. It’s not even just, “Can the technology itself scale, and can your backend, but also are you able to continue presenting the data from your app back to the customer in a way that’s easy for them to understand and get around. Because if they can’t find what it is that they’re looking for just because they’ve dumped so much data into it, then it’s going to make it difficult for them to even use your app moving forward.
Rob [08:58]: Right. The answer to this one may be, “Well, we don’t know if we can scale. We think we can, and if we get an enterprise customer then we’re going to throw a bunch of money at new servers, and a bunch of time at making sure stuff works once they’re in.” That’s okay, as long as you don’t have weeks or months of work to do once they get in. I don’t want to tell you to over-engineer or go in and gold plate your entire app at the thought that someday you may have an enterprise customer. It’s more about just thinking through, “Where are the places where this is probably going to break, both from a UX perspective and from a performance and scaling perspective.” The second question you should think about – and this one may be the most important actually – is do you have the staff to handle an enterprise sales process, or a process where you’re selling to larger customers? You’re going to need to be doing lots of demos. You’re going to need to be doing phone calls, video chat, and you’re probably going to have additional support burden from selling to larger customers.
Mike [09:52]: I think this stuff that’s extremely challenging when you’re running it just by yourself, or maybe you’ve got a couple of contractors who are either doing development or support. It’s very difficult to scale up to that point and be able to continue juggling all the different things, especially if you’re early on and you’re really not making a fair amount of money from it, and you’re not fulltime on it. If you’re looking to do this before you even get to the point where you are fulltime on it, it’s probably going to be very difficult, because let’s say that a customer has to have a call in the middle of the day. Unless your schedule can allow for that then it’s going to be difficult for you to get away and start scheduling those. In addition, if you have some strict time schedules, in terms of like when you spend on development or marketing, it’s going to be difficult to be able to have your days divided up by those different sales calls or those different support calls. If those are forcing themselves into your schedule, it makes it difficult to give the appropriate amount of tension to all the different things that you need to as well as grow the business.
Rob [10:51]: The third question you should ask yourself before making the move is: Do you want to deal with the negatives of selling to larger companies? Because, obviously, the higher price point and the ability to grow faster are the positives, and the negatives are things like longer sales cycle, a lot more handholding throughout the whole process. Having to convince multiple people to purchase often. Instead of just having a single point of contact, you’ll have a committee who’s trying to make the decision, or it’s two or three people on a team. It’s just more headache to go through. They’re going to have questions about things like your Terms of Service, legal structure, privacy, security and on and on that you never received from small vendors, or from small customers, I should say. People who, again, are paying you $40 or $50 a month, they don’t tend to ask these kinds of questions, and so you’ll have to spend a lot of time up front figuring out the right answers. Again, they expect a lot more handholding, and more calls and meetings that someone is going to need to handle, because this sales process you kind of have to earn these higher price points. They don’t tend to just come and hit your pricing page and self-onboard like a lot of the lower-end customers are used to. The fourth question you should think about is: Do you have any case studies that you can use during this process? You may not be able to jump up to customers who are paying you $2,000 or $3,000 a month if you don’t have anyone paying you more than $59 a month, as an example. So you may want to ratchet your way up and look for customers in the $100 to $500 range, and get one or two that are in there, and then look up from there at $500 to $1,000, or $500 to $1,500. You can gradually move your way up, because if you’re talking to someone who is in essence going to be your biggest customer and they ask you point blank who is your biggest customer now, it’s really tough to tell them it’s someone that’s 1/50th your size, but it’s not as bad to say, “Someone who’s half your size, or three quarter your size.” It’s a lot easier to do.
Mike [12:38]: Even if they don’t ask directly who your largest customer is, they’ll very often have questions about how have other customers who are our size, or have done X, Y and Z, been able to scale the services inside of your product, or accomplish such and such solution to a problem they may particularly have. If you don’t have examples of those types of things based on a larger customer base – and by larger I mean customers who are larger in size – then it’s difficult to answer those questions in a way that you’re not being deceitful. You really don’t want to start stretching the truth or, obviously, outright lying to customers, because that’s just going to put you in a bad situation later on. For whatever reason, it always seems to come back, and you will have to answer questions later on, or there’s going to be misunderstandings. That’s not a position you want to be in. You’d rather be in a position where you’re collaborating with them and being honest and upfront with them, and letting them know exactly what it is that they can expect, and what sorts of things that you’re not going to be able to do for them. The first steps are being about to, kind of, as Rob said, stair-step your way up with some larger customers to help answer questions down the road of those other larger customers.
Rob [13:46]: The fifth question you should ask yourself is: Do you have the cash runway to make this happen? Going through this enterprise, or this large company, sales cycle, these things can take three months, six months, nine months and from a standing stop it can be a lot of manpower and effort and time, which is money, that you’re basically spending before you get that first check. So think about whether you have the runway to make it work.
Mike [14:11]: I think that goes just back to the point that this isn’t something that you want to try and do on day one. I think this is something you gradually grow into when you’re trying to expand the market for your product or your trying to increase the rate of growth, and increase the revenue that’s coming in, and those types of things. This is not something that you want to really tackle on day one, or even day 30, when you really don’t necessary have the app or the marketing itself straightened out, and you can’t go to those customers and have a legitimate face on the business such that it’s going to be able to solve their problems. If you don’t have the cash runway in order to get out three months, six months, nine months where you’re actually landing those customers on a regular basis, then it’s very difficult to make ends meet in between that time, not just beyond that.
Rob [14:55]: The sixth question is: Will you offer phone support to your larger customers? My take has always been that we don’t offer phone support. Sometimes we have a few priority queues where people can get it via email, but this is a tough decision, and it’s going to be to each business owner to decide this. The hard part is if you go through this whole demo sales process, and then you’re handholding, and you’re getting them in and you’re getting them on boarded, then they have another questions and they Skype you, or they, “Hey, could we just jump on a call so you can explain this?” Then it’s really a support thing. You have to be able to make that transition at that point, and have them not feel like you let them down or misled them. At that point you’re like, “You know what? You got email support at myapp.com and they’re going to help you out.” That’s something you need to think about how to handle up front, because people get an expectation if they’ve talked to you three or four times, you’ve answered all their questions, you’ve helped them get set up, that they’re a liaison, and they want to go to you every time they have any questions about the app.
Mike [15:43]: There’s a few different ways I think you can handle this. When you are giving demos, a lot of times the question of support will come up and you can probably just be blunt with them and say, “Look, we don’t offer phone support. At least not a “call in and you can talk directly to somebody”, but there’s the email line and you can send it in. We answer them pretty readily. If we need to get on a phone call with you because it’s warranted then we will, but at the same time – in order to help reduce the cost that our customers are paying – then we start with email and it can be escalated from there.” I think that that’s a good way to at least address that issue but, again, there’s going to be customers out there who, if you don’t have a phone number that they can call then that’s going to be a deal breaker for them. You have to just understand what your customer base looks like, and whether or not that’s going to be acceptable to them.
Rob [16:29]: And our seventh and final question you should think about before the move – and then we’ll dive into some steps of actually making this move – is how do you repeatedly get in front of larger customers? Do you already have a funnel, or already have channels where larger customers are arriving at your site and they’re asking for phone calls? Then you’re golden. This actually was the situation we were in with Drip when I hired Anna about 18 months ago. She became basically sales and customer success. She also did some marketing at the time. She handled the demo and the sales process, and I knew that we were getting – I don’t remember, maybe one a week, two a week – of people who said, “Hey, I’m interested in using it. Can I jump on the phone with somebody?” But if you’re not in that situation, and you’re not already getting inbound interest, it’s probably good to think about how are you going to get in front of these larger buyers?
Mike [17:15]: That brings up another interesting point. If you’re not able to get in front of those people on a repeated basis, or they’re not already coming to you through whatever inbound marketing efforts that you have, then you have to make a decision. One, are you going to shift your business to do more outbound efforts to reach out and directly contact these larger customers? Because that, in itself, can be a fairly large endeavor. Are you trying to pursue something that your marketing campaigns are simply not set up to handle? And if that’s the case then you’re going to have to change a lot of the things that you’re currently doing. I think it’s a very different story if you’re going and trying to move your product to up-market but you’re not getting any sort of interest, versus you already have that inbound interest and you’re essentially just trying to remarket your SaaS app a little bit and tweak some things in order to be able to serve those and not automatically turn them away based on what your marketing collateral on your website says.
Rob [18:09]: All right. Now that we’ve talked through those, let’s look at seven steps for making this move; for taking your SaaS app up market. The first one is to raise your prices, or, at a minimum, have an expensive tier that these larger customers will kind of automatically fall into. With usage based pricing like let’s say CRM, let’s say Close.io, it’s going to be based on the number of logins; the number of sales people, or people who need access. A larger customer should almost, by definition, have a larger team, and they’re going to have 10, 20, 30 people, so if you just price it based on that you’re going to be golden. Similar with if you run support software, anything where the stuff that your users see is different for each user, then it’s a no-brainer to charge based on the number of logins. If you have something where it’s more usage based – let’s think about email service providers or proposal software, or invoicing or whatever – you’re going to want to find what the metric is. An email service provider will charge based on the number of subscribers, and larger customers tend to have bigger lists, so this makes sense. You have to find that level where you can either have that high end tier that they automatically fall into, or, if you’re going to go after this, you have to raise your prices across the board just to be able to afford everything we’ve said above. You can’t be selling to large customers and charging them $30 or $50 a month. There’s just not ROI in it, because the time it takes to work with them is so substantial.
Mike [19:29]: I think it was at last year’s MicroConf – not the one six months ago, but a year and a half ago – when Lars Lofgren had been talking about different ways that people are selling their software and services and how they’re, essentially, packaging together what the different pricing tiers are, and what the different switches are. I think that this is an interesting area to get into, especially if you don’t have a product where there are going to be a lot of people using it and you don’t have that per user pricing that you can toggle. The one that comes to mind that I distinctly remember was something like WebEx, where a large company that wants to use WebEx for their sales team, they are naturally going to have more people on their sales team, but it’s difficult to justify charging, let’s say $150 per person when you have this per user pricing tier and really the sales reps can actually just share a login and share an account. In those situations, it really doesn’t make sense to do a per user pricing model just because a $50 or a $75 a month plan can support three or four or five different people. It makes it very difficult for you to make more money when you’re trying to charge based on that particular feature.
Rob [20:40]: The second step for moving up-market is to modify your pricing page, and to basically add a tier – typically to the far right, depending on how your page is structured – that is the “Call Us.” The high volume tier, where it says, “Call us for pricing.” You can call this enterprise if you want. We’ve found in our space there are people with really large lists that are not enterprises, which is why I’m differentiating that and just talking about larger customers here. So figure out a good name for it, and get a phone number on there, because if you are going to do this you’re going to need to be able to connect with folks, these larger customers, over calls.
Mike [21:13]: I think the interesting point here is to try and figure out how to best guide people towards that. When you have a pricing page, or even just talking a little bit more broadly in general about your website, you have to be a little bit careful about the types of examples you use even. One thing that had come to mind was that if, for example, your pricing, if you have a $9 a month pricing plan, that can immediately turn people away who are large, because they say, “Oh, well, there’s this $9 pricing plan here, and the highest plan is only $35” for example. Those customers are going to look at that say, “We’re far too big for this company to even be able to handle us, so we’re just not even going to bother.” They won’t even talk to you. They won’t reach out for a sales demo or anything, because they look at the pricing page and they say, “This is just obviously not for us.” The opposite of that can actually be true as well. If you have prices that start at $100 a month, then a lot of your customers right now are only really able to afford $30 a month or $40 a month, they’re going to look at that high price and they’re going to say, “This is too expensive for us.” You really have to be a little bit careful about how you’re positioning the product, and how you’re putting your pricing page together, and the types of examples that you’re using inside the images and examples that you have on the website. Those are a couple of different things to keep in mind. You want to appeal to most of them, but at the same time that can be very difficult based on what it is that you’re selling because you don’t want to exclude anyone either. At least not exclude anyone who would be a good fit for using the software.
Rob [22:42]: The third step is to consider adding your phone number to the top of your website. You may want to say, “For sales questions, call this.” and if someone calls and asks for support, you may need to tell them, “We’re not able to do that. You’re going to have to email support queue.” I’ve heard having your phone number at the top of your page is a good thing.
Mike [22:58]: There’s a bunch of different services you can use for this. Skype has its own “Skype In” number, so that’s one option. There’s also a service called Grasshopper, and you can get virtual phone numbers for that as well. People can call those, and you could either route it to a voicemail, for example, during certain hours of the day, or you can route it to different team members depending on how it is that you have your team set up. So there’s a bunch of different ways that you can accomplish this. Another one that you could also use is Kall8.com. You can just purchase a phone number there, and when people call into that number you can just have it go directly to voicemail, take the number, and then have it sent over to you via email. Then you can call the person back at your own time. I think that in some cases, just having a phone number there, even if nobody calls it, that can help with sales. But there is the opposite of that scenario, as well, where somebody might call that and then be turned off by the fact that nobody ever answers. You do have to be a little bit careful about that but, again, there are options for having a phone number there if you don’t want to use your own cellphone number or your home line or business line or whatever.
Rob [24:03]: Right. The idea here is you’re trying to generate this inbound interest. It’s trying to get people on the phone, because that’s the way that you are going to sell these larger priced plans. The fourth step for going up-market is adding a “requested demo” button all over the place. You’re going to ask for some basic contact information, then you’re going to ask one or two qualifying questions, such as, “How many users do you expect? How many subscribers are in your email list?” Something that can define that they’re in that top tier, because if they request a demo and they’re not in that top tier, it very well is not worth, in essence, the time investment to give a demo to people who are going to pay you $30 or $50 a month. You want to have something in there to qualify them, otherwise you’re not going to know which of these demo requests to respond to. The way that we’ve scaled this at Drip is if people are below a certain number of subscribers then they do see a demo but it’s a prerecorded demo. It walks through the app and then it offers to bring them in for a trial. Of course, if they’re above a certain subscriber rate then they get a call from us, or they get an email with a Calendly link, and it sends them into the demo flow. We have this link on our homepage, we have it in the global top nav and that’s what I’d recommend for you as well if you’re going to go after these types of customers. Our fifth step is to learn how to give demos if you haven’t already. I have two recommendations for this. There’s a lot of good information on this, but I’d recommend you read Steli Efti’s book. He’s the founder of Close.io and he knows a lot about how to give demos. His book is called ‘Product Demos That Sell.’ We will link that up in our show notes. I think the book is very inexpensive. It might even be free; somewhere between zero and $10. It’s a complete no-brainer, and it’s one of the best books I’ve seen on this topic. The other recommendation I would say is to watch Anna’s video. Anna’s on my Drip team. She did an attendee talk just about six, seven months ago here in MicroConf 2016 in Las Vegas. We’re going to link that video link up in the show notes. She basically walked through how we developed the Drip demo process. I think it went through four or five different versions. She talks about why we made certain changes at certain points. It’s a short watch, about 12 minutes. She gave us a lot of thoughts about how we structured things and why.
Mike [26:13]: There’s two different types of demos. Going back the previous step in this which was step four, adding the “Request a Demo” all over the place. There are the demos that you give that are simply prerecorded, and then there’s demos that you give in person. When you’re giving a demo in person a lot of times you will have these questions that come up either at the end of the demo or in the middle of it. Those are the types of things that you probably want to write down, so that when those questions come up you can have a better answer for them. When you’re at the end of the call, if you’ve hopefully recorded it so you can get better at them over time, you write down the questions that were asked of you and then come up with, essentially, standard, boilerplate answers that you will give to those that will improve over time as your offering gets better, and as you give more of the demos. You don’t want to start making up answers to people’s questions on the fly and have them sound like they’re unrehearsed or like you’ve never been asked before. You have to answer every questions and you have to think of answer on the spot then it becomes a little bit less believable and less, obviously like you have answered that question before. If you write them down you can come up with those answers and it sounds like it’s off the cuff, even though it’s not, even though you’ve actually heavily thought about those things before.
Rob [27:27]: And just to clarify, when you said video versus in person, you meant video versus live, right?
Mike [27:32]: Oh, yes.
Rob [27:33]: Yeah.
Mike [27:34]: Yes. That is what I meant. That’s correct.
Rob [27:35]: Both of them are over video, but one is prerecorded, in essence.
Mike [27:39]: Yeah, that’s what I meant. It was prerecorded versus live and not in person but yes.
Rob [27:44]: Cool. So step six is to ask large customers for annual contracts. As you’re doing this sales process it’s pretty standard to get 12 months’ payment up front. This is great for your cash flow. You’re going to get a really big check. Typically, they won’t balk at it. Sometimes they’ll say, “Let’s do six months, or let’s do a quarter.” You can work with them on that. But since it is something that’s somewhat standard with these guys it’s kind of a no-brainer to do this, because the worst thing you can do is go through this whole process, you invest a lot of time, you get them signed up, and then they cancel a month or two later. That’s unlikely to happen, but it’s a real bummer to do that. If you can get that whole year of cash up front, it’s really something to consider with your larger customers. Our seventh and final step for moving your SaaS up market is not a hard and fast rule, but it’s something that I would recommend, because it’s going to be super tempting to do, and it’s: don’t do custom work, because pretty much every call you get on is going to be a company asking for something custom for them. They’re going to say, “This looks great, and we would just use it if you could wire up some code to hit our API and put it into our custom CRM system.” You know that that’s like eight hours of work, and you know that you could pull it off but it really, really is a danger zone to do this, because then you’re on the hook for a lot of stuff. You’re on someone else’s timeline, and you need a consulting contract, so you’re going to have to go spend time to do that. Then you’re going to find out their API is really buggy, and they’re going to blame you, and you’re going to blame their developers. Everything goes wrong and it’s a huge waste of time. I’ll just say that. So don’t do custom one off work that is really more like consulting stuff. Again, not a totally hard and fast rule, but I think probably more than half the calls you get on someone’s going to ask you for something like this. If you’re building a product company, you want to stay away from this. The other thing that is kind of on the fence we hear a lot is, “Yeah, if you’d just build this one feature, and all your customers could use it, then we would become customers.” For the most part, we don’t do this. We sometimes, if they actually are requesting something that is already on our roadmap, we will tell them that. We will say, “We could bump it up a little bit for you. If you’re willing to, in essence, sign a contract and not send us the check yet, but that you’ve agreed to do it we will,” move up the priority. Move it sooner in the roadmap. Again, if we were going to build it already. But if it’s something that someone suggests that really no other customer is going to use, you’re a product company now. It’s just not something that I would recommend, unless – and here are the exceptions, right, and this is where it depends – unless you’re in very early stage and you’re trying to get a big name customer on who you think can do a lot for your brand and they’re going to pay you buckets of money, then I would consider building a one-off feature and probably “feature gating” it, so that you have a checkbox in an admin console somewhere where only that customer sees it, because you don’t want to support that for everybody. You have to make a call at a certain point. Is it worth this however many hours of work to get this customer on board based on the amount of money they’re going to pay you and perhaps the amount of prestige they can lend to your brand. You have other thoughts on doing custom work?
Mike [30:45]: I think I agree with you in general. You really want to avoid the custom work if at all possible, and I think that it’s probably a good realization to have that even if somebody says that they will sign up for something, if you build that one feature and it sounds like something that a lot of your customers could use, then you have to heavily weight that on whether or not you do it. It’s up to you as to which way you go on that. One thing I would say to keep in mind about all of this though is that there are some questions that companies will ask solely because they want to hear an answer, and not because they actually care about what the answer is, or whether you do that. For example, they might ask, “Can you implement feature X, Y, Z?” And they don’t actually care if you can implement that but it’s hard to tell just from the conversation without directly asking them is that something they really need or is that a deal breaker. You can turn that back around and the question you can ask is, “Is that important to you?” From there that’s where you take the conversation. Sometimes it’s just curiosity. They just want to know, “Hey, can you do this?” And it doesn’t matter what the answer. They just wanted to know. I’ve had this conversation with people before, and I’ve had them ask me stuff like that and I’ve asked, “Is that important to you?” “No. I was just curious if you could do that.” In your mind, it’s very easy to go down the path of, “Okay, well they asked me this question. How would I go about doing this? How would I implement this?” Then you start talking, essentially, you’re talking yourself into implementing it for them, and they didn’t even care. That’s a very fine line that you have to ride and just keep in mind that sometimes the customers actually don’t care. They’re just asking because they want to ask, or because it was something that came up in some other meeting.
Rob [32:21]: Thanks for the question, Anthony. I hope that helps give you some ideas on how you can go after larger customers.
Mike [32:27]: I think that about wraps us up for the day. If you have a question for us you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from ‘We’re Outta Control’ by MoOt used under creative commons. Subscribe to us in iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
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