Show Notes
In this episode of Startsup For The Rest Of Us, Rob and Mike take a number of listener questions. They give their insight on a some topics including when to spend money on helpdesk software, what to do when you’ve plateaued MRR at $1k, and how to promote a blog post.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about plateauing at 1k MRR, when to spend on SaaS apps and more listener questions. I also asked Mike a question right at the start that I haven’t prepped him for.
Mike: Damn you.
Rob: Mike, what is the most interesting book you’ve read lately?
Mike: The one that I read recently was one that you talked about on the podcast, it was Masters of Doom.
Rob: What do you think?
Mike: I thought it was really interesting. The story and the dynamics between the two Johns was very personal between them, obviously. The implosion of the John Romero’s company afterwards, after they blew all that money that had come in and basically bankrupted the company. That was interesting but not necessarily unsurprising.
Rob: They were kids, essentially, starting a company and making millions of dollars. They bought Lamborghinis and Ferraris, just the total stereotypical, 20 something with too much money.
Mike: But that was with their money that they got from Doom. John Romero had spent ungodly amounts of money on building the company and an office space in downtown, I think Dallas or Austin, or something like that.
Rob: Where he raised $10 or $20 million to start the new gaming company after they split.
Mike: What was it? $20 or $30, $40 million or something like that and then $100 million of guaranteed money coming if they actually just published the games. That’s my most interesting book recently.
Rob: 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: I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we made. What’s the word this week, sir?
Mike: I decided to let you back on the podcast after the date fiasco. Did you hear that?
Rob: No, I haven’t heard it yet. The MicroConf saved the date that I sent three weeks ago was wrong but did you tell anyone what I was reading? I was reading stuff you typed in the doc.
Mike: I didn’t.
Rob: You typed it.
Mike: I know. I absolutely did not say that to anybody.
Rob: That’s where it comes out now, I said the wrong date. I did hear you say that at the beginning of the next episode. I was like, “That sucks, how do we do that?”
Mike: It was totally my calendar but you’re the one who said it, not me.
Rob: I know, it will forever go down. I wonder if I can get Josh to go back and edit that episode.
Mike: He probably could but people have already listened to it.
Rob: I know. The correct date for MicroConf in Vegas next year, Growth will be April 29th through May 1st, Starter Edition will be at May 1st through 3rd. Mark your calendars, tickets will be coming out in the next couple weeks.
Mike: I corrected my calendar already.
Rob: What else is going on?
Mike: My wife, Ali, who I’ve talked about a little bit before, she took over another fitness studio here in town. It’s been about six months or so. There is an article that literally came out today where she was voted the best athletic club in the annual reader’s choice survey that went out maybe last month but it came in and she was selected. I just wanna say congratulations to her.
Rob: That’s super cool. You have a little article, you’re gonna link it up in the show notes?
Mike: Sure.
Rob: Awesome. For me, two random things. One is have you heard of the eero routers?
Mike: I think I’ve seen something about them but I haven’t really looked at them at all.
Rob: If you have the first world problem of having a house so big that you can’t get Wifi in your kitchen, then these eero can get it at any part of your house. These eero routers are ridiculous. You buy them in a three pack, they’re not cheap, I think it was $300 to $400 on Amazon. They basically mesh network with one another. They don’t use Wifi to go through the walls, they use mesh network at a different frequency that can go through walls a lot easier and you put them around your house.
This house at Minneapolis has a basement and then two stories and the house is wide, it’s longer than a lot of houses. When we first setup just the NETGEAR router, you couldn’t get Wifi, you can get in that one room and then it was blocked everywhere else. With these three eero routers, it is ridiculously fast even way, way down on the basement which is three layers and layers of concrete and all the stuff. It’s crazy how good these things works.
Again, not cheap. NETGEAR router that I was using was $80 and this was, like I said, $300 or $400 but it permanently solved this problem. I used to have extenders, they underscore EXT network, it’s just junk. They’ve had these for years, obviously, for commercial use like in office spaces and such, college campuses. The first consumer ones came out within the last one to two years.
Eero, they keep updating their operating system and I have nothing but good things to say about these guys, they’re not sponsoring the podcast although they probably should. That’s the deal. Do you have any dead spots in your house or does your NETGEAR capture everything?
Mike: No. I cheated and I have a power drill. I drill holes through walls and run Cat 6 cable.
Rob: It seems like something you would do, Mike. I think you would build your own servers and run Cat6 cable through things. We’re on a rental. Who knows how long we’ll be here.
Mike: That’s what the security deposit is for.
Rob: I’m gonna run cable. Even at our house in Fresno, it was a super single story but super long and I could never get Wifi in the living room because the router was over in the office. They would’ve fixed it there as well. I guess that’s it.
Mike: I do have Wifi here. I think I have three different Wifi routers in my house in each general area, there is either wired or wireless depending on where you’re at. Of course, to screw my neighbors who ask if they could borrow my Wifi, create one called FBI van 42 or something like that.
Rob: If they could borrow your Wifi, wow.
Mike: I know, I was like, “No.”
Rob: There’s no chance that’s happening. My other tidbit is I wanna run through a couple of books that I’ve listened to recently and really enjoyed. I still think I keep coming back to my top three, these are not ones I’ve listened recently but I think my top two or three audiobooks of all time are Masters of Doom, like I said and you listened to that, and then Hatching Twitter is another one and then The Snowball with Warren Buffett. Those are all good.
Some other ones I’ve listened to recently that I hold in high regard, one called American Kingpin by Nick Bilton who’s the same guy who did Hatching Twitter. It’s about Silk Road, the bitcoin marketplace that sold drugs. It’s about the guy who started it and it’s very, very well-written, very compelling just like Hatching Twitter. I didn’t really have much interest in the story, to be honest, I really didn’t care about Silk Road, I didn’t think I was going to care but he makes you care by the time you read two chapters, very interesting.
I listened to Angel by Jason Calacanis. Whether you’re an angel investor or not, it’s pretty fascinating to hear inside his world. It’s a good balance of boots on the ground stories, advice for angels, advice for founders who may someday raise money, how to run a good company. Calacanis is such a smart dude and has so much experience with the stuff that he almost can’t help but learn something from this even if you’re not gonna be an angel investor or seek angel investment.
Another one is Tom Petty, The Biography. Oddly enough I was listening to this couple months ago and then Tom Petty just passed away within the last month, that was coincidental. I have always been a fan of Tom Petty, I didn’t know his story. To be honest, the first at least third of the book is really boring and I almost skipped out of it but I started skipping chapters and I got to the point where they did start taking off and it was fascinating from there, the actual rise of them instead of all the years of him growing and stuff. That part didn’t resonate.
Lastly, there’s a new book called From a Certain Point of View, that’s new on audible. It is basically Star Wars episode four, it’s the story of all the surrounding characters. They got 40 different writers and then 40 different voice actors to do these little short stories about. It might be about a stormtrooper who is off camera or it’s about a jawa who sabotaged something. It’s about when R2 tries to sabotage the red droid. It’s noncanon but it’s cool if you’re a geeky Star Wars fan and I enjoyed listening to it.
My 11-year old listens to and I’m listening to it and then we compare notes. It’s like, “Did you understand that one?” We talk about it. That’s been fun. Have you listened to any of those or read them?
Mike: I saw the From a Certain Point of View had come out and I keep seeing it in different places but I hadn’t read it or really looked into it, I didn’t know the story behind it.
Rob: It’s interesting if you’re a Star Wars geek because they make references to things. Unless you’ve seen Star Wars several times, you’re not gonna get it, it’s not gonna be interesting.
Mike: Cool.
Rob: Today we’re answering listener questions, we still have good a number coming in. I wanna keep up with that. The first question is about plateauing at 1k MRR. It’s a follow up to a question that Matt [00:09:05] had asked a few months ago. It was regarding portfoliolounge.com. He said, “Thanks for your reply in an earlier episode. I’ve since listened to most of your past podcasts and realized that funding is not necessarily what I should be looking for. I wanted to clarify and say that portfoliolounge.com has had about 30,000 free members and upgraded subscription options average about $10 per month, sadly the site has plateaued at around 1k MRR. I’d love to get your advice, see what you think about the site and potentially how to grow it.”
What I wanted to talk about today, I wanna bat a few ideas around. A lot of sites, a lot of people find themselves in this situation. You launch an app, it grows to 1k MRR and then it plateaus. It’s like what do you do at that point? How do you attack the plateau? We could also separately maybe talk about the free plan. Whether we think you should do that moving forward, whether we think perhaps it was a mistake or that kind of stuff. You have initial thoughts to kick this off?
Mike: Average of $10 per month, it sounds to me like that’s really targeted at the consumer side of the market. I would love to see if maybe there’s a possibility of going after businesses who needs some sort of an online portfolio, like a photographer. There’s a photographer that we use every year here in Lister who takes pictures with Santa Clause, for example. He has this whole website where you can go out and you can pick the photos and things like that.
I wonder if targeting photographers like that or running a small business would be a better proposition than targeting end users or the consumer market because obviously those people are not gonna be willing to pay very much money on a monthly basis for very long.
Rob: I think this does target more photographers, to be honest. If you think of photographers, they’re really prosumers, if you wanna know the truth, they’re not even SMBs like Beta SMBs. A lot of them do it as a hobby and a lot of them do it on weekends and they make a few hundred bucks a weekend or something. I think they’re that in between.
There are so many portfolio sites, that’s what this site does, pretty basic. The headline is create a portfolio website quickly and beautifully. You think of it as a core space for just portfolio sites and it’s highly focused on that but a lot of other sites do exactly this functionality.
Mike: It’s really more a matter of overcoming the competition especially if those other sites are offering it for free.
Rob: Yeah. I don’t know if they offer the exact same thing for free. Certainly he has a free plan and then has the $10 month upsell which probably gets you to something else. I think the questions to think about is, is your offering pretty much exactly what a bunch of other places have like SmugMug or whatever. If it is, you either need to be differentiated as a product in a way that people care about or you need to have, essentially, a traffic or a lead source that no one else really has access to or that you are at the top of like Google Search Result or you’re way better at paid ads and you’re really getting a better traffic for that, this won’t work for the paid ads with the free plan and the $10 a month.
If you don’t have one of those two in this type of business, you’re done, you’re never gonna get above a grand plateau or two grand. There’s gonna be some very small number of people who just picked you because they found you first but other than that, you either have to be differentiated or have to really own that traffic source like that number one Google Search Result.
Mike: I wonder if there’s another option here which would be to use this as your traffic source and then have something else that you’re upselling. If hosting the portfolio is very much a commodity and there are other sites out there that are doing it for free and you’re trying to charge for it, that’s gonna be a tough road obviously with $1000 MRR, that’s the position that he’s in.
If you have something else that is something that you could sell whether it’s an ebook or some upsell on top of what you have now, I’m not saying go back and retract the pricing and everything but if there are other products that you’re upselling people to, you build your portfolio and then we can educate you on how to grow the traffic or advertising or things like that.
There are other things, I think, that you can do here other than charging directly for posting the portfolio especially if that’s the commodity. Is there some other product that you can have that you can put in there?
Rob: I think that’s a totally reasonable idea. I think another thing to think about is 30,000 free people have checked it out, I’m sure they’re not active, I’m sure it’s a small percentage. You have, essentially, 100 paying customers at $10 a month to your thousand, that’s a third of a percent of all of your free users have ever paid you any money or at least your current customers, I guess I should say.
That’s a problem because that number is too low, the number should be between 1% and 3%. I would look at that and think, “Is there a way that I can get more free users to upgrade or is the free plan just a mistake or a failed experiment.” I would consider if you’re not already sending emails to get people to upgrade, if you’re not already helping them get whatever it is to get them to the paid tier or convince them that it’s worth their value, then obviously that would be where I would start because that number is too low.
It either means that you’re not taking the right steps to get them to upgrade or they’re just never gonna upgrade and the free plan is a waste of time. You need to figure that out. If the free plan is a waste of time, then I would shut it down immediately and I would grandfather people for now and then I would start a free trial instead and do it basically the same way where you have maybe 14 days or 7 days or whatever.
You have time pressure for people to get in and get setup. That helps them actually get value for the product. I think you’ll convert potentially more people in the short term. When I acquired HitTail, there was a free plan and there were some users using a lot of resources that were on this free plan. I did wind up shooting that down. It was a hard decision but the site was bleeding money because of that.
I did get some people to convert from the free plan, it was not a huge number but it did really have a lot of resources from the app and it allowed me to get some revenue, it was 500 or 1000 of MRR in the early days of that, actually maybe a little more than 1000 which sounds like chump change at this point but it was actually a move that I think was worth that I got some pushback. I did grandfather some people in who had been fans of the site and really good JV partners or that one guy who had taught an SEO class in Italy and he’d always mentioned HitTail in the class.
If someone complains and they’re not disrespectful and they have a good reason, yes, you can keep them in but to have 30,000 open free accounts on your platform, if you are gonna shut that thing down long term, it just doesn’t make a ton of sense.
Mike: To add onto that a little bit, go back to the point that you said, what does it take to upgrade people. You can look at the number of images that people are uploading and the pieces of content and try and see how many people are above that threshold and what the average number of images that people upload is. I look at the subscription options and says upload as many as a thousand items, how many do people upload on average? Is it 50, 100, 500, could you tweak that number and drop it down?
As Rob said, are there trigger points that you can use to say, “You’re getting close to this, would you like to upgrade?” Look at those and see if you can play with those numbers a little bit to try and get people more towards that edge where they have to make a decision one way or the other.
Rob: I think that’s a good point. Lastly, I’ll reiterate, if you don’t have some type of feature or positioning differentiation from other platforms on the market, or you don’t have some marketing advantage where you’re getting leads that aren’t comparing you to other people, example, you are the number one search result in Google for some nice term, then long term, this business is not gonna grow, it’s gonna plateau somewhere, it’s probably gonna plateau very low. That’s something that I would keep in mind.
Our next question is about when to spend money on helpdesk softwares specifically. Actually, I think it opens up almost a thought of when do you start spending money on external SaaS apps when you’re starting your own business. This is from Saphia, she says, “I discovered the show a few weeks ago and I cannot stop binging. It’s such a good resource for first time founder like me. What is your take on helpdesk software cost and how early we should put them in place? We’ve launched our SaaS MVP a few weeks ago as a free trial and our prospects are rightly providing feedback and feature request by email which makes me crazy as the only developer in our company. I wanna subscribe to Intercom or Zendesk or Groove but my co-founder disagrees because of the cost and things, we should just do with email for now. What is the right way to do with feature request at an early stage?”
I will throw one other support software in there and that’s Help Scout. We use them at Drip. They work really well for us and they’re quite cheap. I think all these things are $10 or $15 a seat. With that couched Mike, it sounds like he has a couple questions. One is been on helpdesk and then there’s how do you handle feature requests at an early stage.
Mike: These are three different things that you can dive into. In terms of looking specifically at a helpdesk, one other thing that I’d throw out there is an option is Teamwork Desk. If you go over to teamwork.com/startups, they have a startup program where you can get everything that they have for free for an entire year. It’s not that their product is all that expensive anyway, you can get on the ground floor at $5 a month but you can get it for free if you’re just getting off the ground. That’s an option as well.
In terms of when you should start putting things in place, I think that’s more of a general question. I would say that when it becomes painful, if you get to a point where whatever problem you’re trying to solve is taking too much of your time and effort and it’s cutting into your time and resources to do other things, then you really need to bite the bullet and start paying for it.
Rob: I think handling support in the early, early days via a single shared Gmail account is not out of the question, it’s not terrible. I think you’re gonna wanna get out of it quickly but I think it’s feasible if you’re super cash strapped. However, look at a product like FogBugz that is $20 a month for I think four or five seats. In my opinion, it’s not the caliber of Help Scout or of Groove. Zendesk, to be honest, I’m not a huge fan of but it’s just the conversion tool. Those are about $15 a seat so they are a little more expensive.
It depends on how big your team is. If there are five of you and it’s $75 a month, and you really are cash strapped, there’s a point where that money could be used for something else. I think that handling feature requests specifically, handling them via email but then you need an issue tracker. Even if you are handling it in a Gmail thing, you should still be using GitHub issues or you should be using Jira, just anything like that. You can move stuff from email into those trackers as you move them around. You don’t have to manage them in email, that’s crazy.
Mike: I definitely wouldn’t manage them. I use Teamwork Desk for my frontend support. Whenever something comes in where I’m gonna essentially decide to promote it to something on the road map or if it’s a bug, I tend to close them out and them move them over into FogBugz which is what I use for bug tracking for Bluetick because you don’t wanna leave those tickets open for an extended period of time because it’s not helpful to them and it’s not helpful to you.
They’re basically sitting there and it’s not about the cost of the space, it’s about the fact that they are sitting there as another line item that later on you’re gonna have to go in and close out. Just tell them, “We’ve logged this, it’s in our bug tracker. We’ll get it fixed.” Then close it out and move on because you don’t wanna have to track in two places really what the issue is.
Rob: To give everyone context, DotNetInvoice, I did all support straight out at Gmail. When I get a business partner with that, we shared the Gmail account for a few months and then it became a pain in the butt so we moved to FogBugz. I was in FogBugz for years and then when we launched Drip, I believe, we moved everything into Help Scout which I liked a lot. When we got acquired, Leadpages was already using Zendesk and eventually we consolidated in Zendesk.
Like I said, I’m not a big fan of Zendesk, it’s pretty clunky and hard to use but that’s the progression I’ve made. Again, some of those are less expensive than others. I do think that if it’s working and you can manage and you guys are super cash strapped, then you can make things work but that would be an early bootstrap situation that I would look to get out of as quickly as possible. Thanks for your question, Saphia. I hope that was helpful.
The next question is about EU legislation insanity is the subject line of the email, it’s from Juka from close2design.com. He says, “Hi guys, are you aware of this?” It’s a link to a Business Insider article, the title is 75% of Cloud Apps Are Not Ready For New EU Data Protection Rules. Juka continues, he says, “It seems they’re threatening businesses with Megacorp level fines for some vague “noncompliance” but they’re imposing their rules on small companies too, of course. Does that seem like they’re trying to kill small businesses? That seems like potentially an anti-business move. What is your take?”
Mike: This is interesting because Juka sent over a link to the Business Insider story that was talking about this. I looked into it a little bit, you can make all arguments or judgments you want about politicians and their ability to interpret how things are going to impact small businesses especially when it comes to anything that’s technology related.
The bottomline on this particular article is that if you look at the study that came out for this, it’s by a company called Netscope. If you go over to Netscope’s website, they are trying to sell people on a solution to this particular problem. It’s almost like they self-commissioned this study so that when a CEO of a company, they’re having a discussion with this person and saying, “You need to pay attention to this law.” He’s like, “Why do I need to pay attention to this?” “Here’s the study that you can look at as a reference and here are all the problems that you could possibly run into.”
It’s basically this giant marketing collateral piece that they put together solely to scare those CEOs and executives into purchasing their products and services. I don’t see this much different than some of the security vendors, they’re really trying to sell based on this position of making people fear what is going on or what can potentially happen and saying, “We have a solution to this particular problem.”
I don’t know is it something that most small businesses are probably going to need to pay too much attention to and the whole thing is trying to consolidate different laws from all of different member states of the EU and they’re trying to consolidate it. Instead of having to follow 28 different sets of rules, you only follow one. I do understand that there’s the contention about the level of the fines but you have to go back to them and see how serious are they about enforcing those things and what is their stance and why is it?
Sometimes, government entities will really look the other way when you show that you’re trying to do the right thing and you just screw it up. There are times where they’ll nail you to the wall and you have to interpret, is this the type of entity that will nail you to the wall or they’re just gonna let things go because you’re a certain size and you just didn’t know any better.
Rob: I wonder if the category that it’s in Business Insider called BI Intelligence, all of them are these reports from companies. I can’t find any evidence that they’re sponsored, they’re sponsoring the BI articles themselves, the Business Insider articles but I would not be surprised if that were the case. As we talked about a few episodes ago, there used to be safe harbor and then you changed it years ago, two and a half years ago, and then they’re now changing it again. This thing is such a fiasco and very hard to keep up with for someone that’s not just mired in it.
Having spent myself several thousand dollars on legal fees just to have contracts drawn up, I think it’s just a big pain in the butt. It’s not something that I have personally, beyond just having just that contract written up spent a ton of time dealing with or investigating.
Our next question is about how to promote a blog post. She says, “Dear Rob and Mike, how did you promote your blog post in the early days of your SaaS? I’m interested in channels and methods.”
I think I would almost caution something. There is value in having a blog for SaaS app but these days, given how noisy so many spaces are, unless you’re speaking out from the blog in a way that is unique or that you’re saying something different. It’s probably not the first marketing approach you have to do these days because so many people have followed the content marketing playbook, the playbooks of Kissmetrics or Bidsketch or Groove. There’s been people who’ve executed it really well and to great effect. Because of that, it just gotten harder and harder.
If you’re just cranking out thousand word blog post on some topics, it’s really probably wasted effort. I think you could get more customers elsewhere. With that said, if you have really unique content and you understand the game as it stands today and if you notice now what Kissmetrics is doing or if you notice now what Groove or Intercom, there are several that do content marketing really well. It’s these very, very long authority posts.
Instead of doing a post everyday or three posts a week, it’s one every week, one every two weeks but they’re really long and in depth and they’re trying to be an authoritative or definitive view. Sometimes they’re broken up into multiple pages, sometimes it’s all in one page. It’s almost like an ebook that’s published as a blog post. Google has the tides of turn and Google seems to like this thing more. As you build up equity more overtime, that’s how you’re gonna do it.
With that in mind, it’s a lower volume but higher quality play. There are number of channels to try to get traction, it’s depending on your topic. You look at something like you get on Hacker News, if you write something really interesting that everybody is gonna be interested there, then of course you can promote it. Product Hunt, there’s a section for this kind of stuff. Medium is still a decent source.
We experimented on Drip with going Medium first or Medium was the source and then we republished on our blog post and then we did the other way, we tried a bunch of different stuff. That works also, we never got enough of a following on Medium to justify it. I really wanted the SEOJuice over on our blog but Medium and Twitter, obviously places where people are talking about things and those are ways that you can get some eyeballs to come.
Facebook, unfortunately, as I roll my eyes, Facebook and LinkedIn, both of those have obviously ways to get stories out and then you can promote them for a small amount of money. This is stuff you have to experiment with, you’re gonna know your niche. If you’re at least a little bit B2C or B to prosumer. I’ve seen people use this to great effect on Facebook, seen people use it to great effect on LinkedIn when they’re more of the B to enterprise or B to midmarket.
There’s a couple things, it’s not about just having this cookie cutter thing where every time you publish, you’re gonna submit to 26 different things and hope one of them catches. That’s not gonna work very well because you’re either gonna get banned, you’re just not gonna get tractions, it’s gonna be a waste of time. You really have to sit down and think about a unique piece of content and think about it as a one off project.
Think about what are the best things of all the potential promotional areas I just mentioned as well as there are certainly more, I bet, if you search Google for how to promote a blog post in 2017, there are gonna be more ideas that I did not just throw out. It’s applying the few that you think are really gonna work but really digging into them. If you think it’s gonna be Product Hunt, for example, then I would spend two or three hours figuring out how do you do this on Product Hunt.
I wouldn’t just submit it and hope for the best. There are ways to improve your chances of that being successful and I don’t know them off the top of my head. We had some success with Product Hunt when I was still running marketing for Drip but I’m not an expert but someone out there is. That’s, I think, how you have to think about it these days, really being more focused, just spending more time than you would like probably.
I’m not so sure that blogging is necessarily the way I would go if I had a SaaS app these days and I was just getting started but it does certainly depend on your niche and where you’re going.
Mike: I think I would ask why you’re trying to use blogging because you talked about this a lot, Rob. What’s the purpose of that? Are you actually going to be getting customers from that? Are you going to be heard over the noise? Are you gonna be able to sustain the effort that it takes to continue publishing that new content? I get that there’s this weird relationship between the number of web pages that you have and your search engine rankings and your ability to draw traffic to your site but is that going to be what’s going to do it for your business? Is that the channel that you need or are there other ways to get people to your website, whether it’s speaking towards and getting backlinks from those or publishing on other people’s blogs, for example. That’s a great one.
If you can get published on somebody else’s blog and they’ve already got a built in audience, then you don’t have to build your audience and you can get the back links from them. It’s more sporadic but at the same time you don’t have to do all that upfront work to build your own audience immediately.
Rob: I think that’s a really good point. I think guest posting, JV partnerships, podcast tours, I think these are all things that will likely have more of an impact than just starting your own blog.
Mike: I think that wraps us up for today. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 363 | Building Outbound Sales Processes
Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Justin Gilchrist, co-founder of Optimum Feedback, about building outbound sales processes. He gives some tactics, talks about how to get started and challenges you’ll face with outbound sales.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups For The Rest Of Us, I’m going to be talking to Justin Gilchrist about building outbound sales processes. This is Startups For The Rest Of Us episode 363.
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 of it. I’m Mike.
Justin: And I’m Justin.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Justin?
Justin: I am pretty good, apart from a minor injury in the middle of the night last night. But, yeah, I’m good other ways. Thanks, Mike. Thanks for having me on.
Mike: Ah, I’m glad you can make it. Part of the reason I’m having you here is because a couple of weeks ago, Rob made this announcement for MicroConf’s Save The Date. Unfortunately it was wrong so I kicked him off for the week. That’s his punishment. He’s actually at Convert this week so he couldn’t make it. But the Save The Date correction is that MicroConf is actually April 29th to May 1st and then May 1st to 3rd for the Growth Addition and then Startups For The Rest Of Us. It’s not April 23rd to 26th. Scratch that from a couple of weeks ago.
We’re back to you, Justin. If you’re not familiar with Justin, Justin’s a UK based co-founder of Optimum Feedback, it’s a platform designed to help us increase the number of customers that they have and increase customer loyalty. He was also a former co-founder of a company called Centurica. It was acquired in 2015 and he’s also the author of Digitally Wed, which is a handbook to help you come to terms with buying online businesses and what to look for, what to avoid. He also invests in some companies, and one of the reasons that I’m having Justin on today is because one of the companies that he had invested in previously had a sales process problem. That’s really the focus of today’s episode. I wanted to walk through that process that you came up with and talk to the listeners through what you did to solve those problems and how you came to that. That sounds like an accurate assessment of what we’re doing today and any details that I left out?
Justin: Yeah, that was pretty accurate, Mike. That’s pretty bang on.
Mike: Okay. I guess lay out the scenario for us. What problem were you trying to solve in this business? Obviously it was a sales related problem but why was it important and what was the goal of the processes that you were trying to implement?
Justin: Sure. To give you some background first on why we’re trying to do that, this is a company which I bought 12 years ago now. It started out as a relatively small company and grew quite organically with no external funding over the years. It’s a company, I don’t know if any of the guys listening out there have read the book Small Giants, but one of the companies I really like to think of as a Small Giant is a really good culture here. The people who work here love working here and it’s a great team and we really put out a market beating, market leading service. This is a company that’s now at around 30 employees, it’s a company involved in B2B services around food and the logistics of food. Helping mostly blue chip companies organize how their people get fit, we’re providing a lot of the back end services for that.
In this industry, it’s a very mature industry, and in this industry things have always been done a very traditional way, including sales. The typical way you’re selling B2B is you hire a bunch of tele canvassers or telemarketing people, which now everyone’s calling them SDRs, which sounds a hell of a lot sexier. It’s telemarketing when we started. You got them basically just to dial a cold list until someone said, “Yes, I’ll be interested.” They would then book an appointment for sales rep, the sales rep would go and close or maybe not close and that would affect you to be as sophisticated as your sales cycle would get.
The problem was that we started with that as a strategy, as we started to grow and add more outbound telemarketing reps. This strategy started to mean that we were churning through leads really quickly because they weren’t getting multiple touches, it also didn’t work well with where technology has gone now, where everything is multi channel, where you’ll have a lead that you’ll maybe initially speak to via the phone, you’ll send them an email, they will go into your website, a retargeting cue will be set, they’ll visit you again, they’ll get remarketed in social media or in Facebook for example, they may get an SMS, and the old way of doing things, it doesn’t bring all of these things into holistic strategy for converting that lead into clients. Those were the problems that we’re really trying to solve.
Mike: To frame that for the listeners a little bit, the initial problem that you had was trying to reach out to these people and really establish a repeatable sales channel for the business, but the problem that you are running into was that overtime the way of getting people through your sales funnel was really changing and you had to modify your sales process to meet those changes in the way that people had modified their business and the way that they expected to be treated and marketed to, I guess. Is that an accurate way of rephrasing that?
Justin: Yes, pretty accurate. As I’ve said, things have changed. Over the last 10 years, things have changed drastically in the amount ways to market to a person in B2B. Social was around 10 years ago, but it wasn’t great for doing B2B, now what Facebook is doing makes it almost as essential as Google PPC was 5 or 10 years ago if you want to do B2B. Really the problem we had is we had these independent silos marketing to people but no real cohesion between them, and part of the problem with that is we were not converting at the rates we should have been converting, we were often losing leads in that process who would maybe be called once and never called again. We just needed a way to really bring that all together, but ultimately just get a better ROI on outbound.
Mike: Got it. Really, things had worked for a while and then, obviously, the world changed around you and then the existing process that you had in place was no longer working and it needed to be tweaked or improved and given this overhaul. I guess to dig into that piece, what was the process that you ultimately came up with? You initially talked about how you were really just going through these leads that you had and phone numbers people call and then if they were interested, great, schedule a meeting, take them into the next step, if not, then they got dumped on the floor. How did that change into what you ultimately came up with? How did you come up with that and what sorts of things did you try to reach whatever that conclusion was?
Justin: One thing I have to say is I’m from both sides of the track in my passion and what I work on day in day out is SaaS, but I also understand sort of dodgy, all the old school offline businesses as well. It sounds ridiculous saying that this is the way things were done. But still, to this day, in the majority of more mature conventional business, the sales process really is telemarketers working in their own silo. If you’re from the world of SaaS, if you’re familiar with things like predictable revenue and how outbound SaaS efforts are usually set up, then it seems like it’s a really obvious thing, but it wasn’t that obvious to us because we’ve been doing things for so long the same way of doing them.
The process that we ultimately came out with really was solving the problem that we’d have leads that we would either purchase or cold leads that would come in. These leads would get contacted or they would get targeted one way or the other, but if that wasn’t a yes straight away, a lot of these leads would be lost in the system and I’m sure most people know that you need to have multiple touches with people over time in order for them to convert. By our estimation, we were converting probably 25% to 30% of all the people we could have possibly converted but a lot of these leads were being forgotten about because there wasn’t a scalable or repeatable system for maintaining contact with these leads and grading them over time. The process that we ultimately came up with was more of a campaign approach. It was a campaign that included multiple phone calls, multiple emails, but also other things like direct mail or retargeting through Facebook, or in some cases, SMS.
Mike: What was it that ultimately led you to incorporating all of these different things? I think if you’re running your business in a certain way for a long time, you get out of touch with a lot of these other marketing channels happen to be and in this particular case, you’re really combining a bunch of different channels together. You talked a little bit about the cold calling aspects, the direct mail outreach, SMS messages, what was it that lead you to believe that this particular combination of things was going to make a difference for you or was it just you did a couple of tests or were you talking to other people about some of the different sales processes for related businesses. What lead you to this approach?
Justin: It was SaaS. We don’t realize how fortunate we are working in an industry that is always trying out and testing things this whole idea of the lean or the agile way of doing things is not necessarily the standard way of doing things in other companies. We get used to or almost desensitized from the fact that we are often bleeding edge with marketing practices and with the technology that we use. When you take those same marketing practices and those same technologies and apply them to companies and industries where it’s not so common, it really does give you an edge.
Mike: I know a SaaS company that does exactly this. They have physical books that they send out, and they also have postcards that they will send to people as physical mailers and it’s a SaaS application but, because their audience likes things offline, they’re kind of older, more engrained in their ways and not likely to change how they typically do business, by using those techniques and getting in front of them, I mean, that’s really all you’re doing with email marketing, or Facebook ads or anything like that, you’re just trying to get in front of people, using those physical mailers is another way to get in front people. It’s really not any different except for the fact that it costs more money to send a postcard or giant envelope in the mail and your iteration cycle is a lot lower, it’s harder to do that, you can’t run those tests in a week. You have to take a couple of months in order to do it. How did you go about dealing with some of those challenges?
Justin: A lot of this was prompted by the fact that we needed to grow, we needed to scale, so we’re going from 6 outbound reps to 15, but that’s where we want to be. The first decision was in that we have to find the way of making the process a lot more stable and a lot more sustainable in order to grow. I think you ultimately have two decisions when you have an existing process, you can either make the existing process a lot more efficient, so we could have looked at how much are we losing from initial confirmation call to meeting from people, maybe sling or rearranging the meetings, how much we’re losing in the meeting stage, what things could we do there to tighten up those numbers in that funnel, or we could just look at adding more volume. If we throw more volume in, then we’re going to get more out at the end even if the efficiency stays the same or the conversion rate stays the same.
To this day, I can’t say I know what the right answer was, but for us, we had a lot of leads and a lot of leads that were becoming old that we needed to get through. The priority first really was increasing that volume of leads going through. That meant hiring more outbound SDRs, but it also meant having a better process which I can get into the nuts and bolts about what the actual process is but it meant having a better process for each leads that we call and having a clear strategy and knowing what the outcome for that lead in particular was.
Mike: I think what I find really interesting is kind of a side step here to talking to how it is that you’ve mapped that out, because I’ve looked at a bunch of different tools mapping these things out and what you tend to find is that there are different parts of that process that tend to run in parallel to some extent. For example, if you send out postcards or something to mail, that may take a couple of weeks to get there and you don’t know whether or not it got though. At least with email marketing, a lot of times you can see whether or not somebody opened it or there’s a campaign and there is multiple touch points along that entire way. But when there’s hand off, like somebody get something in the mail, and they are expected to call you, for example, or just because there’s a phone number on it. How do you tie those different pieces together and that’s more of a technical challenge, but the other side of it is how do you map these out? Do you get a giant sheet of graph paper and draw things out or do it with a bunch of notecards, or is there a software tool that you can use? Because I think this is where people start to get confused about how do I put this stuff together and how do I create this, for lack of a better way to put it, like a workflow that I can translate into having software that fulfils all these different needs.
Justin: It’s pretty cool that you mentioned mapping out because the mapping out part really was the part that was the most important for us because it’s wider than just mapping things out for an operational side but it actually goes back to recruiting and cost saving. To give you an example, we have different campaigns, and one campaign might be a lapse lead campaign, for leads that have been in the database for six months, we previously got somewhere with them but not all the way that technically then allows leads. We may have a lapse client campaign, we may have a cold lead campaign, we map put every one of these campaigns up front and by mapping out, I mean we look at what actions do we want to take first of all.
To give you an example with the lapse leads, we’ll schedule a call for days era, so the minute one of our prospectors goes in, sees this, decides this is going to be good fit for that campaign, they will manually hit the button to our campaign software. The first thing we do is we schedule a call, two days after that call we’ll have an email, and that email will go out from a different person, it’s our system but it obviously comes out as person and that generally tries to achieve the same objective of the call, which is touching base, finding out if their details are correct and if they’re still in the market for whatever the services that we’re offering are.
We’ll then have another email pre scheduled for three or four days after that, but bear in mind these emails get cancelled if the call gets completed first, but this whole idea of mapping things out is not just mapping out what goes out, it’s mapping out every outcome from a call. Whenever our SDRs get on the phone and they make a call, our system will show them a list of options when they come off that call based on what happened.
It can be as simple as, “Did you speak to the contact?” Yes or no. If they didn’t speak to the contact, they’ll ask them if they left a voicemail, if they didn’t leave a voicemail, it’ll schedule that call to come back for 30 minutes later. If they did leave a voicemail, it’ll schedule it to come back for the next day. If they did speak to a person, and the person is maybe not ready yet, or there’s another decision maker that wasn’t there, it will make different decisions based on that too. The idea is that we’re trying to cut down the amount of thinking reps have to do, one to reduce human error but two, and most importantly, to make the job a lot more systematized so we can get the same results or the same good results from every rep we hire without having to hire specific kinds of people who just know how to do that. That has the ripple effect of making our recruitment a lot easier because we don’t have to necessarily recruit people who are superstar SDRs in their own rights, but it makes trainees easier because we’ve got less situations or circumstances that we have to role play with people and indicate people about that long term it means we’re saving money because we’re hiring less, we’ve got less churn and these guys are going out and they’re doing a better job from day one.
Mike: The way you phrase it is it makes it sound like it’s somebody coming from the world of technology or developer background would have an advantage in putting this together because really, it’s just a series of if else statements where you’re checking for certain conditions and if the SDR actually talks to somebody, then do this, and if they didn’t, talk to them, or if they left a message, do these other things. That seems the way that it plays out, but how do you go about mapping these things out so you know what to do, because there’s a difference between planning and designing it versus implementing it because the implementation, I feel like that’s once you know what needs to be done, implementing is, I’ll say, much more trivial because then you can just go out and find the tools or plug things into it, but figuring out what needs to be done and where and what the decision points, to me, seems like the hard part.
Again, it goes back to how did you do that piece. I would default to graph paper, but I don’t have graph paper that’s large enough for stuff like that. It just seems like then you’re almost going to like tools, like Lucidchart is one that I’ve come across that allows you to put things on a screen and lay out like a decision tree. I think Gliffy does it as well. Did you look at any things like that? Or was it just you working on this, did you have a team working on it? I have like a billion questions here.
Justin: No. I’m laughing because we started out using Balsamiq, which is like a markup tool we use for wireframing. There was three of us working on it. The reason we were using Balsamiq is it’s easier to collaborate. Balsamiq is a brilliant product but what worked better for us in the end is we bought three white boards and set them up in each of our offices and literally just spent time mapping out one process at a time, mapping out on this giant white board. I think the white board is about 4 meters wide and so we could get everything on there. Once we had it on the whiteboard, we then probably add post it notes for things that needed to be done at the various stages. For example, if we had day one call scheduled, email scheduled, we’ll have a post it note on the call and email and then someone would then write the script for the call and the script or the email. Within all of those, we then take the post it notes off when those items were done.
I’m giving you the most low tech solution to this as possible. But there’s something about pen and paper when I’m planning out. If I don’t know the answers, I always prefer to do things on pen and paper. When I do know the answers, that’s when I like to use software because it’s easier for me to put it in and share it with the world. But I think sometimes, just having a whiteboard or pen and paper because you’re going to cross out a lot of things or you’re going to look at a lot of things and think, actually this doesn’t makes sense or we can tighten this process up. I think I’m pretty tool agnostic and I don’t think the tool is the most important part, I think getting it documented and getting it down is the most important thing. That advice goes for any kind of marketing automation. If you’re about to use InfusionSoft or Ontraport, before you’ve even considered buying the software, you really should have your marketing process mapped out at least on paper to begin with. We started using a combination of different tools like those on the call side, we used Woodpecker for emails and SalesLoft for the calls. They’re both great tools for getting a call cadence going in there. But in the end, we ended up building our own solution in house because it was just easier to bring everything on the one roof and have all the information in one system.
Mike: The reason I dived into that piece of it, how you mapped it out and how you designed it and what things to try, you said initially Balsamiq and then you switched over and just used these massive white boards. That scenario where I’ve run into challenges in the past and talking to other people, and that tends to be a big hang up. I’ve tried using Balsamiq before as well. I love Balsamiq but for that particular thing, it doesn’t work well and I haven’t really found a good tool that does work well for that. Really, you change things so often that most of the time, when you’re using those tools to lay out a workflow, it’s more challenging to make the changes than it would be if you just had some graph paper or whiteboard and just erase things, move things around. That’s the part that is a challenge to deal with, but I think once you get past the point where you’ve got everything, then it makes sense to take that and implement it in something like Lucidchart or Balsamiq where you can lay it out and then print it and say this what our process looks like because this is more a finalized version of it. When you’re just prototyping, I’ll say, the software actually tends to get in the way, I think.
Justin: Sure. I think the most important thing is getting started. The problem with softwares is – I always get this wrong when I say it – analysis paralysis or paralysis analysis. It creates this fear because people trying to get to the optimum solution, they’re trying to have everything in place before they take on this big overwhelming task. But actually we found that the day we started mapping things out is the day we are able to consistently get people to do the right actions rather than leaving it up to their discretion. Because when you leave things up to people’s discretion, it doesn’t always go the way that you want it to go.
Mike: I couldn’t agree more. That’s a fantastic point. The software just getting in the way and then try to make sure that people are all on the same page. Something else that jumped out at me was try a couple of different tools and ultimately, you would’ve ended up building your own. What was it that made you make that decision because building software, especially since this is not really a tech company, that’s not your core function is to write software for a company that serves lunches and dinners to other companies, that’s not what you do. But what made you make that decision because that is a big leap from, okay, we’re doing our services business over here and that’s how we’re making money to, okay, let’s build this piece of software as an in house tool to help us reach more customers and sell more into our channel. To me, that seems like a huge leap. What went into that decision making process?
Justin: Yeah, it is. In hindsight, if you ask me would I have done it again, I would have but only just. It was marginal whether it was wise to build this out ourselves. Now I’m a fan of using everything off the shelf but I’m also a fan of using technology. As a company, we won Online Business of the Year last year, which is ironic because no one here sees this company as an online business. But from day one, partly because of my influence and my background, we’ve always invested heavily in technology and that has been one of our USBs, that has been one of our main advantages. We’re probably one of the only smallest services company doing what we do that use things like Slack and GitHub for non-coding things and intercom on a regular basis because that’s just what we’re used to using these in SaaS or technology startups.
I think sometimes being a developer is a bit of a gift and a curse because you tend to build things when you shouldn’t because you can. I think knowing when not to build and when just to get something off the shelf is equally as important as building the perfect piece of software, but in this case because we’ve started from day one with our own custom management system, we almost have everything under one roof with the exception of maybe the accounting package, everything that we have is in this system. There’s actually a huge advantage for us in being able to have everything new in terms of campaigns and marketing and all the information on these leads in one place rather than having to use APIs to cobble something together and then have to have a dashboard to see what’s going on.
Mike: All that you just said makes a lot of sense. It’s sometimes cobbling tools together is actually harder than having just one tool that does everything. Even if it’s not a best of breed technology where it does everything at the top level. Sometimes, just having one thing that does everything that you need adequately is more than enough and it’s actually more helpful than trying to deal with data being passed between one tool and another or hey, why didn’t this get there or was this delayed or is there an error of some kind. Sometimes those web hooks just don’t work.
Justin: Sorry to cut in, Mike. Just to add one thing which I think’s pretty important as well is the whole kind of buy and build. I’d say. In hindsight, it always makes sense to build if what you’re doing or what you’re building for is what you’re defining is one of you core expertise or central to your business. That’s why it’s really important to know what business you’re in. We worked out we are in the service business as opposed to product business or specific services that we deliver, and part of that is technology. It’s about facilitating what we do through technology and that is something that’s really central to this particular business. That’s why we’ll invest probably heavier in technology than other businesses of our size. That’s because that’s our business model. I think if you’re a SaaS company and you are all about the product then it doesn’t make sense to build third party tools to help you sell that product and it sounds ridiculous because you’d think every SaaS company’s about the product but they’re not.
Someone like HubSpot. In the early days, I see them more being about the distribution of the product, they were a very, very efficient sales machine. If sales is what you do, or sales is what you want to do and you need things that you can’t easily get off the shelf, then I think it makes sense to build because that’s your core expertise and then you can really develop a specialism in there that allows you to recruit quicker, train quicker and ultimately get the products out to market quicker than you can using off the shelf stuff.
Mike: You touched on this very briefly but do you also have included in the software that you built entire life cycle management for the customers? Do you have order processes and stuff in there? Or is it really just managing your sales process and then at that point it cuts off and then there’s some other system that you built or something off the shelf that you’re using to do the day to day servicing of the customers?
Justin: No. We have everything under one roof. I think that’s been one of our main competitive advantages for a while. Everything is connected into the same system, the system that customers see on the front end of the mobile apps that even dispatch people, drivers use, everything is connected into the same system. That helps massively. It’s a huge investment that you have to make because the time investment and a maintenance investment but it just gives you that little edge over your competition when they’re using off the shelf software and there are things that they can’t do but you can that are really specific to the customers that you serve but make a difference that add to that overall customer experience.
Mike: That makes a lot of sense. I guess for the listener who is thinking about this, what is it that you would recommend to get started, if you’re a solo founder running a business, where would you start looking either for resources or in a way to implement this in your own business to do some sort of an outbound sales process? Because I think that most people running, for example, a SaaS business, when you’re starting out, I’ve done this with Bluetick for example, a lot of it has to do without reaching those very early days because you need to reach out to people because I have no idea who you are, you don’t really have the time for tweaking marketing campaigns and it takes too long to get one, just get them started up, but it also takes a while to optimize them to the point that you can make any sort of return on your investment. In the early days, you’re really just trying to get in front of people who you think are going to be a good fit, so you do a lot of outbound stuff. What is it that you would recommend for people to get started with that?
Justin: Especially if you’re a solo founder, or there’s only one or two of you, in the early days, the outbounds that you do isn’t sales, it’s customer development. The first probably 50 clients that you get on board. If you see it as sales, it’s going to be a wholly inefficient process because your customer acquisition is going to be through the roof because of all the time that you put into getting those clients and then making the little tweaks or changes, or even having meetings to decide whether you should change your product roadmap based on what all these clients are telling you. But I think in the early days, it’s more about customer development because it doesn’t need to be as efficient, it doesn’t need to scale as much because you’re actually getting something from all the people you speak to, whether they sign up or not and it’s crucially what helps you shape the products and make the products a little bit better than your competition. I think when we initially started doing this, we originally outsourced. Those reps we get from telemarketing agencies here in the UK and we generally paid a day rate of around £120 £150 a day which is about $170, and that would get us a full day of calling that gets around 80, 90 dials, 34 connects and then we’d know from that we’d usually get 3 or 4 appointments. That was pretty scalable because we could keep scaling up.
I’d probably recommend that anyone who is thinking of doing this but doesn’t know what their numbers are yet, try that out first of all. Find a small agency that can do this just so you can get up and going, just you can get an idea of what you’re numbers are and should be.
Personally, I agree with the common advice that it should always be the founder that does the first set of calls and you should do in order to get an idea of what your script is and what objections people are coming up with, and where you want to go. But at some point, you have to face the reality that you’re probably not going to have time to do this as much as you should do to get those over next 10 or the next 20 customers on board and that’s the point where it’s probably a good idea to outsource one, just to get data, but two, just to get the ball rolling. I think sometimes, doing something, although it’s not you, and although it’s never going to be done as well as if you were doing it, it’s better than not doing anything at all because you’re busy with the million and one other product related things or customer support related things because there’s just one or there’s just two of you.
Mike: One thing to point out there in what you said is there’s a distinction between customer development and sales. I think in this particular context, I’m using them interchangeably because you’re right, those early days really are about customer development and you’re spending way more time on any given customer than you would otherwise, especially in the future because it’s not worth the time to spend with them. But, at the same time, you need those early people and it’s almost like a lost leader, you have to spend that time in order to learn so it’s not that you are getting a negative ROI on those customers, it’s really you’re spending the time and money to learn what needs to be done in the future, not how do I make this a repeatable process that is going to scale to infinity and optimize it. Your goal is not optimization, your goal is just have those conversations and learn from it, and that’s what you’re paying for. That’s the time and money investment. The money that you get from them is almost meaningless. Obviously, any sort of revenue helps but you need to know the stuff that goes into it in order to be able to do anything with that information. You can’t operate in a black box.
Justin: I think the pretty important thing to realize as well is that the [00:30:44] book comes into play where 80% of your results are going to come from 20% of all of the things that you try. With us in the past, we found that something new comes along, we will give it a try. Sometimes our execution is poor, sometimes our execution is great and I’m sure that affects the end result, but time after time we found that outbound for B2B is what works out. Outbound as in outbound dials, outbound getting sales people out to that person, that’s what works. We’re seeing better results with things like Facebook marketing, we’ve always had results from PPC, but you’ll generally try a lot of things and a few of them will work. I think it’s a case of from the early days, if you’re just getting started, be prepared to try maybe three or four things in the first instance but then instantly double down on the first thing where you get a little glimmer of hope where you see that working, because it’s all too easy to spread your time and your budget and your attention across multiple channels. But the chances are one of those is going to work for you better than the others, and it’s best that when you experiment, you really double down and put the time and attention into that one that does work.
Mike: You’d also mentioned the possibility of outsourcing this. What sorts of things should you avoid or at least be cautious of or mindful of when you are trying to outsource this? I think there’s the two different buckets that you pointed out. Like if you’re very early on, the founder should really be doing this. But at some point, the founder really needs to take a step back because there are other areas of the business that you need to pay attention to, you can’t always be focused on that customer development because there’s engineering or support or various other things that need to happen. But in terms of the sales processes itself or the outbound process and outsourcing it, what sorts of things should people be cognizant of when they’re looking specifically at that?
Justin: I think one of the key things to realize is there’s a difference between knowing that you should be doing something and actually doing it. I’ve fallen into this trap plenty of times where I know I set myself a goal of maybe 20 or 30 calls a day, either for customer development or for sales. But if you’re not getting around to doing that one because you maybe procrastinating because you hate the idea of telemarketing. Telemarketing is for the wrong person, it can be so destroying. You get a lot of rejection, you feel like this is a waste of my time, I should be coding, or I should be designing. If you’re not getting the job done, I think at some point, you have to be realistic and face the fact that this thing is terrifying, it does need to be done by someone. I think in that case, even if it’s not you, it’s better to have someone doing this but you do really need to have a grip on the process from the really, really early days because you need to be able to tweak that script on the fly. You need to know what are the pain points that you are trying to get people or hook people with in order to get a response from them, you need to have an idea of what your script looks like.
Before we start telemarketing, we always send them our self telemarketing guide which is one, it’s kind of our script but more importantly it’s an explanation of each point in that script and why we’ve put that in there and it’s simply for that fact that everybody has their own different style of sales and we don’t want people to read from a sheet of paper, but they do need a script because there are certain pieces of information we need to get from each call. We give people the objective of each call, what we’re trying to do, we tell them, “Look, these are things that is necessary to get from this call in terms of information and these are things that if you have rapport, or if you’re able to get it, get them as a bonus, but don’t worry too much about it because we’ll get these on later contacts with that person. And this is the main objective of the main goal of the call.” I’ve been able to put that together, requires you to hit the ground and work from the front lines for a bit and have enough experience to know what you want from that agency.
Mike: Yeah. I think having goal for each call is an extremely valuable piece of advice just because it’s very easy to get on a call where you’re trying to talk somebody about whatever it is that you’re developing, you’re in that customer development phase and run an idea by somebody or float some mockups in front of them and say, “Hey, what do you think about this?” Having that goal of the call in mind in advance of having the call really helps you dig into it and get to the heart of the matter rather than just having this open ended thing where at the end of the call, you’re lost and you really don’t know what to say because you didn’t have a goal in mind to start with. That’s a huge piece of information.
Justin: I speak to a ton of people who have a SaaS company that just started up and they try outbound so they’ll get a list, a small list of maybe 50 people, and they’ll start calling for that list. Typically what happens is they have their own responsibilities, they have life getting in the way and they have things throughout the day to do. They’ll probably get maybe two, three hours in the day where they start calling but because they hate it or because they’re not used to it… I think if we spoke to 10 founders, I’d say 8 hate the idea of call telemarketing and that’s probably why they’re not doing that as a job or profession, but because you’ve got this anxiety about it, that hour or 2 hours that you spend calling, it feels like a lifetime. What will usually happen with the other distractions that come in, you make 15, 20 calls. You then force yourself to do that again, like a second day and you make 15, 20 calls, you haven’t perfected your script, you’ve just started, you’ve done no kind of tweaking, testing, testing different messages and then as a result, you get no result, and a lot of people get disheartened and give up and they’re like, “You know what, we’ve tried outbound and it doesn’t work for us.” If you got 40 clicks from a PPC ad or a Facebook ad you didn’t convert, you think nothing of it, you just think I need more traffic, obviously.
But it’s exactly the same with calls, you do need to make a significant volume of calls, especially if you’ve not tested your script or your message or your approach out yet and it really is in the early days about churning through in getting data, knowing that you’re probably not going to convert that efficiently but you need to do it in order to work out what your messaging is. I always advise using cold email in the first instance as a way of breaking through that resistance to testing and finding out what the message is. If you’re hesitant about making phone calls, find 1000 people that fit your target criteria and over days, do 100 emails a day, or maybe batch 50 emails a day. See the responses you get and tweak your emails until you start hearing the message that works and then go on to making a few phone calls with that same messaging.
Mike: One recommendation I’d have in that situation is that either during the call itself, or immediately after each call, write down all the notes or stuff associated with that. If you have the flexibility or the leeway or relationship with people to make the notes on the call, that’s great, otherwise, recoding them is a good option as well, because then you can always go back to them, maybe even have those audio calls transcribed so you can go back to them later. I’ve got 75, 100 pages worth of notes just from calls that I did early on with Bluetick and I can always go back to each one of those calls and say what is it that we talked about and where are the important pieces that I took away from that conversation and use that to tweak future conversations, or I can hand that entire file to a copywriter and say, “Hey, these are all my notes on all the different calls and this is what people told me that were important.” It allows you to have that base of information to move forward with because if you don’t capture it at the time, you’re probably going to forget 90% of it. Which is terrible because then you can’t even transmit it to somebody else.
Justin: For sure. When we train new reps, we actually tell people not to make notes on the call. Every bit of a darling software now should record. We have our own dialler in the CRM that we built and it just uses Twilio and then grab the recording. But the reason why we tell people not to make notes, because we find that the minute people make notes, unless they’ve got this weird brainman likeability, they can do one thing well. If they’re taking notes at the time, they’re probably thinking about the notes they’re making and they’re not listening to the person on the other end of the phone, and one of the key things if you’re going to get a result is to be able to listen and take the little subtle keys that the points when people maybe switch off when you said a certain thing or the point when people get excited or you’ve got them on a hook when you’ve said something else. It’s really important to listen and to try and find that person’s pain or that person’s problem, and I think being fully present on that call and being able to do that, you tend to see a better result so we get our reps to listen to the recordings and then transcribe the recordings themselves later, to think there’s something important in there, but we generally tell them not to write stuff down while they’re on the call.
Mike: Justin, all of this has been fantastic information, really appreciate you coming on. I think that’s about time to wrap us up. Where can people find you if they want to learn more? On Twitter, email, website, what do you got?
Justin: Sure. You can catch me on Twitter. Twitter.com/flipfilter, which is an old name I’ve had for ages and like many people want to change but it’s been with me for too long, so I can’t. You can also find me at exitplan.co/digitallywed or you can catch me at optimumfeedback.com.
Mike: Again, thanks for coming on. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 362 | Calculating Lifetime Value (Not as Boring as it Sounds)
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about calculating lifetime value. They discuss how its done with one time versus recurring revenue and funded versus bootstrapped payback time.
Items mentioned in this episode:
Transcript
Rob: In this episode of the Startups For The Rest Of Us, Mike and I dive deep into the riveting conversation topic of calculating lifetime value. Seriously, it’s pretty interesting. This is Startups For The Rest Of Us Episode 362.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. I want to kick today’s episode off with a question, Mike. What movie would be greatly improved if it was made into a musical?
Mike: If it was made into a musical. Hmm, that’s a tough one. My guess would be the old, black and white Frankenstein.
Rob: Okay. Yeah, I guess it wasn’t a musical but it was turned into a comedy by, what is his name?
Mike: Mel Brooks.
Rob: Yes! Young Frankenstein, is that what it’s called? But yeah, I could see them doing a musical as well.
Mike: Yep, definitely. Mel Brooks is on a couple of others that I think he turned into musicals as well.
Rob: I agree. There’s a lot of completely random questions that catch you off guard right at the start of the show.
Mike: I know. You come up with these things that are just totally off the wall and you don’t even run by me first.
Rob: It’s your new favorite thing.
Mike: My new favorite thing.
Rob: Other than answering ridiculous questions at the top of the show, what’s going on with you?
Mike: I wanted to give a quick shout out here to Tyler Tringas. We’ll link this up in the show notes, but he has a blog article that he posted talking about how he sold his bootstrap SaaS business from somebody that he met at MicroConf. Just wanted to say great job to Tyler and mention it so that people can go over and read the whole story. It’s a really lengthy article on it and where the product started, it’s called Store Mapper. It allows people to embed a map of their stores on their websites, sound like a pretty straight forward thing but he couldn’t find anything out there that did something for his customers so he built it. Fast forward a couple of years and he was able to sell it. I just want to say congratulations.
Rob: Yeah, congrats, man. I read the post, it was really in depth and really interesting and it’s posted over there on indiehackers.com.
Mike: I also wanted to read a quick listener email to us. This is from Zoren, he says, “Love the show, great tips. We’re busting our ass trying to grow [00:02:28] right now, and your show’s been great insight. Keep up the good work and maybe one day we’ll be on your show to tell everyone our story.” Really appreciate that, Zoren.
Rob: Yeah, thanks. For me this week, we actually launched a pretty big feature that took a while. It actually didn’t take that too long to build, it’s a long time to get approved and it’s an integration with Facebook custom audiences in Drip. It means that you can, in essence, have a native action right there in Drip, so that if someone’s at a certain point in the workflow or you can even just have a global automation rule that says when this happens, when anything happens, if it a tag’s applied to this person or if the lead’s core goes above something or they start checking out and they never complete their purchase, then you can just put them into a Facebook custom audience and you can then assess and retarget them when they’re on Facebook and then if they do buy, then you can pull them out of that audience.
It’s a pretty sophisticated, powerful feature, even though it was not that hard to build, but there’s a lot of possibilities to this and there are some use cases that are going live on drip.com right now. It’s a really impactful feature that took a month from the time we were code complete, about a month in order to actually get approval from Facebook because they want you to really have tested it out and you have to jump through some hoops and everything, which are warranted, I will admit. That’s been the habub this week.
Mike: That’s interesting. I’m on the other side of the spectrum with Google where I talked last week about how I was finishing up the [OWAF 00:03:59] authentication for Google to get mailboxes integrated into Bluetick. Because of the level of access that I’m asking for inside of people’s mailboxes, they have to basically fill out this form and they’re like you have to justify why you want this or why you need this level of access, I’m like, oh great. I went through and they’re like oh, it will take a minimum of three to seven days in order to get it approved, and of course I went through the process and I was like, oh, this is going to suck. Three hours after I submitted it, they said, sure, you’re good to go.
Rob: Oh, that’s cool. Good for them then, for keeping that queue short. You totally understand why they do that, right?
Mike: Oh, totally, definitely. That wasn’t the issue. The issue is I didn’t look to see that that was what I was going to need to do. I don’t know, I think the part of it might have just been the stuff that I was asking for and why and the documentation that I had to send in. I was pretty detailed in what I was requesting and why it needed to be done. Though I suppose it paid off.
Rob: Yeah, that makes sense. The other thing for me is the iTunes reviews, we now have 544 worldwide reviews in iTunes. Our most recent one that comes from Honey Mora from Canada and his subject line is: Ton of practical tips and lessons. He says, “I’ve been a listener for about four years now. I love what Rob and Mike share each week, I’m hooked. I’ve been following Rob’s Stewardship Approach since launching several premium WordPress plugins first and a few months back launching my first SaaS. Thank you for all you guys do.” He’s at repurpose.io.
Thanks for that review, Honey. We would appreciate if you’ve never given us a review, hop into Stitcher, Downcast, Overcast, whatever it is you use, or iTunes and click that five star button. You don’t even need an entire review or shout out or anything like that. Just clicking that five star helps keep us motivated, it helps us rise to the top of the rankings, helps us get more listeners, and the more listeners we have, the more we can do at the show, frankly, and it motivates us to keep putting out episodes.
Mike: The only other thing I have is I am speaking at the Cold Email Success Summit next week. We’ll link that up in the show notes but it’s not really quite an online conference but it’s an online summit where you can go and there are 20 different speakers that they’ve pulled from the world of email marketing to talk about various topics and give their insights and discuss what’s working and what’s not and give you actionable tips and things that you can do to help with your email marketing reference.
Rob: That’s cool. We’ll include a link in the show notes to that.
Mike: Awesome. What are we talking about this week?
Rob: This week, I outlined an entire episode around a single listener question from Andrea [00:06:28]. If you have a question that you think could make an interesting or even just a topic suggestion that you think could make an interesting episode for us, you can email that to us at questions@startupsfortherestofus.com or feel free to call it into our voicemail line at 888-801-9690.
Andrea says, “Hey there, thanks for an amazing podcast. I have a question for you. A few times in the show, you’ve talked about customer lifetime value and how important it is for knowing how much to spend on user acquisition. That makes a lot of sense, but how do you calculate your CLV (Customer Lifetime Value)? I’ve seen some examples on how other people calculate it, it would be interesting to hear your perspective on how to do it for SaaS. Thanks.”
And just one quick note, I am going to use LTV for lifetime value. He calls it CLV, some people call it CLV, some people call it LTV, it doesn’t matter what you call it, it is the total amount of revenue that you are going to get on average from each of your customers. The reason that this is helpful to know is it can dictate the whole slew of things. The higher it gets in general, the healthier your business is, the more you can spend to acquire customers, and even the more you can spend to support them, to create educational material for them, more you can spend on feature development. This value grows and your customer count grows, those are the two things that multiply by each other.
If you make about having 500 customers with a total lifetime value of $100, that’s only $50,000. That’s the lifetime value of all those customers that they’re going to pay you the entire time that they are customers of yours. Now if they are a one time customer, you get that all upfront, meaning one time purchase. If it’s a recurring purchase, you will get that overtime but that’s not a ton of money to hire people, pay for server hosting, pay for whatever other – there are a ton of expenses; pay yourself, run ads, do all the stuff you need to do. Whereas if you take the same $500 customers and you just multiply that by 10, let’s say a reasonable lifetime value of $1,000, now we’re talking about $500,000. It’s a whole different ball game of how you can treat your customers.
We’re going to dive in today, we’re going to talk quickly about how to calculate it, and I have just a very simple and very streamlined way to do it. There are different ways to do it, there is more specific, in detail, and advance ways to do it, but especially for a podcast, we don’t want us just reading off a bunch of equations. We can link out to some more advanced stuff, there are some great stuff from Tom Tungus, there’s someone who dives into this really deep and they have five different formulas and it’s the simple one and then they add another thing and then you have the cost of goods sold and then you add this, and the that. It gets super complicated by the end, but for now, we will just dive at a more of an entry level but then I really want to talk, we are going to get in deep into some rules of thumb that I have for payback time on advertising and then run through a couple of examples that are very close to real world apps just so you can get a better sense of why all this matters.
To kick us off, if you think about having a one time purchase business, like a WordPress plugin, or even DotNetInvoice, which is an old product of mine versus a recurring business, there’s a big difference on how you calculate lifetime value. We aren’t going to spend a ton of time on one time purchases, it’s obvious if you are going to do a really simplified version of calculating it, you’re just going to look at your purchase price. To be honest, if you have multiple purchase prices, let’s say you have a $50, $100, $150, and again, these are one time sales, you should know at this point what you breakdown has been historically. You should be able to go back pretty easily, do an export out of Stripe and just basically, you want the average of all the purchases that people have made and that’s what I would start with.
As you get more advanced, you might have upsells, you might have cross sells, maybe there’s an annual payment that comes once a year, there’s all that stuff that you can add in later but this is a five second estimate of what people will pay you on a one time basis. An example, DotNetInvoice is a one time sale downloadable invoicing software, the purchase price was $329, and then we had a bunch of different add ons and we could do the math, it was 20% of people who bought DotNetInvoice bought one of the add ons and the average price of the add ons was $99, you can do that math and then 20% times the 99 is another $29, so it actually raises the lifetime value up to $349, give or take. What you’ll notice with that example is if I had just said DotNetInvoice is $329, and that’s the number I’m going to go with right off the cuff just so I would have it, it’s actually pretty close to the ultimate value.
That’s something I want you to think about is, ultimately, you’ll want to get down to the dollar because once you’re paying for ads and you’re running big time marketing spend, it does matter. But in the early days, when you’re just trying to get a sanity check on things or just trying to get an idea of how much someone is worth starting with one time sale, starting with the purchase price, that’s a fine way to do it especially if you’re prelaunch because you’re not going to have all the numbers that I just threw out right of who’s going to purchase what of which tier, just make a judgment call. If you’re one purchase price, use that. If you have three tiers, I would take the average of the bottom two. An example of the $50, $100, $150, I would take the average of the $50 and $100 and I would obviously say I have $75. That’s the lifetime value I would have going into a one time purchase business. Next we’ll dive into how to calculate it for recurring.
Mike: I think the analogy I might try to draw between calculating the lifetime value and how it relates to your business is that when you’re looking at this, you would think that calculating lifetime value is really straight forward and easy as okay, how much money you’re going to make per customer, but once you start digging into the details as Rob illustrated, if you get into things like cross sells and upsells, those things start to change what your lifetime value actually looks like. It’s very easy when it’s just a flat number and it’s one time payment but anything else, let’s say that you’re paying affiliates, that eats into whatever that margin is. If you’re doing cross sells, or upsells, maybe it adds 20% to the revenue but only for 50% of the customers, then it starts to get complicated.
It’s almost like the very simplistic analogy is okay, this is how you calculate gravity but depending on how close you are to center of gravity or how far away you are, there’s all these other little things that come into play. Then there’s air friction and lots of other stuff. It starts to get more complicated, and there are other things that you can add in that may make a difference or you may decide to gloss over them just based on what it is that you’re trying to get at and why you’re trying to get at that number. If it’s try to maintain profitability or optimize your profitability, you might dig in and say yes, these things actually matter to the calculation. In other cases you may just say, I don’t care, I just need a back of the envelope number so that I know kind of what I’m shooting for. It really depends on where you are in the process of trying to figure out how much money each customer is making you.
Rob: Let’s flip over to recurring which is what we’ll focus on for the rest of the episode. Obviously this works with SaaS, but also works for membership sites, something where someone pays you on a recurring basis. This can be used for quarterly or annual or whatever. We’re going to look at monthly because it makes the most sense for what we’re talking about.
To calculate lifetime value, the simplest formula is to take your average monthly revenue per user, per customer and you divide it by your churn percentage. If your average revenue per customer per month is $30 and you have a 10% monthly churn rate, then you’d have $30 over 0.1 and that means your lifetime value is $300. It’s not complicated, it’s just hard to explain on a podcast but basically your average customer lifetime, how many months they stick with you is one divided by churn. Again, it would be 1 over 0.1, so that would give you 10, and then your lifetime value is your average monthly revenue per user which is also called ARPU (Average Revenue Per User). ARPU times the amount of moths they stick around times the lifetime. The amount of months they stick around is 10 and the ARPU in this case is 30. 30 times 10 is 300.
Again, the simple way to do it, we don’t really need to derive it here like I’ve just done but it’s basically your average monthly revenue per user divided by your churn percentage. There is a more advanced way to do it, we’ll link over to profit wealth. We want to get down to the penny and how all these things come into it. But what’s interesting is you think about HitTail where an earlier SaaS app I had, had pricing tiers that were 10, 20, 40 and 80 and then it went up from there if you got really big. If I would to look at a SaaS app that had pricing tiers of 10, 20, 40 and 80, this is actually similar to what HitTail had. Those were the pricing tiers for that. You could take a reasonable guess. Typically, when I’m looking at a SaaS app, if I’m going to guess what the average revenue per user is, it tends to be one from the bottom. In this case 10, 20, 40, 80, I would from an outside perspective say it’s probably around $20. Maybe it’s $22, maybe it’s $25, something without expansion revenue specifically.
Expansion revenue is like what Drip or people as the ad subscribers goes up quickly, the costs. But in an app like HitTail or app where people choose a tier and stay on it, it’s going to tend to be somewhere on the lower end. If your average monthly revenue per user is $20, you can see how driving churn down drives this lifetime value up. If your churn is 10%, which is quite high, you only have $200 total from the lifetime. But if you cut that in half down to 5%, then you’re looking at to having $400 that you’re essentially grossing from that customer over their lifetime.
Mike: The thing to keep in mind with that churn rate is that as that churn rate goes up, it dramatically starts to affect the lifetime value. If you think about it strictly from a percentage, I think it was 5% churn is the example that I’ve used in a MicroConf talk in the past where if you have 5% churn, then on a year over year basis, you’re churning over 60% of your customer base and it actually gets a lot worse than that because it is 5% per month, not necessarily the total of the entire time because you have to calculate it at each point where somebody could potentially churn out of the application. That 5%, great number to have but you really want it over 5% over the course of the year, not 5% per month. You can get in trouble if your churn rate starts to climb and you end up churning over most of your customers on a yearly basis. That’s a really bad position to be in.
Rob: And I’ll just throw in this little tid bit here, this isn’t even in the outline but it’s interesting, you can get to the point where you have net negative churn, your churn is actually negative because your existing customers are expanding. It’s called expansion revenue like I just talked about. In a business where it is based on something that is constantly growing, let’s say imagine Amazon EC2, Amazon S3.
Mike: I think Stripe would be a good example.
Rob: Stripe’s a good example. Yup.
Mike: Stripe takes a percentage of the purchase price for their customers but as those customers grow and they sell more, Stripe grows their own revenue because of that.
Rob: Right. If they have a bunch of people signing up and some are churning but the ones who are there are growing 10% per month each, just as an example, you can imagine that their churn is negative and that’s crazy multiplier, crazy multiplier on lifetime value.
Why are we even thinking about lifetime value, why do you care? The big deal is lifetime value gives you an idea of what you can spend to support and to build the product and they acquire, but there’s even more interesting aspect that we can drill into and it’s not directly lifetime value but it’s based around payback time, payback duration.
Let’s say that there’s this common mistake of beginning startup founders, thinking that they can take their entire lifetime value and they can spend that to acquire a customer. If you had $500 LTV, I could go out and spend $500 to acquire that customer. That is far from the truth. There are three major reasons why that is, first one is that you’re going to have expenses, you’re going to be paying employees, you’re going to be paying yourself, you’re going to have hosting, you’re going to have Stripe cost, payment processing, there are a ton of expenses that are out there. When you are small you can get those small, but especially as you get big, your expenses will become a larger and larger percentage of that lifetime value. That’s the first thing to keep in mind. That’s where if you want to do the exhaustive LTV calculation where it’s net LTV, you can start deducting out expenses on a per customer basis, just takes a lot longer. When you’re small, it isn’t such a big factor, I wouldn’t necessarily do that earlier on.
Second thing is you don’t want to spend $500 to acquire a customer who’s going to bring you $500 because you want to make some type of profit, you want to have a business that actually generates some type of money that you put in your pocket. The third one is that you are likely to run out of cash. Imagine if you have a really long customer lifetime, people just stick around forever. Let’s say they stick around for 50 months and you get $10 a month from them. The lifetime value would be $500. But if you spend $500 to acquire them, or even if you spend $300 or $400, you don’t get payback for 30-40 months and unless you have a massive pile of cash, you are going to get killed. Frankly, you’re going to go out of business, it’s what’s going to happen, you’re going to run out of cash.
There is this whole concept of payback duration or payback time that doesn’t go all the way up to the LTV, it only goes for certain number of months to the point where you have enough cash to cover it and basically enough comfort to cover it. So Mike, you want to talk a little bit about these rules of thumb that I’ve used over the years for a funded company’s payback time and bootstrapped company payback time.
Mike: Yeah. The difference between them is striking because with a funded company, they have money to burn because they’ve gotten money from their investors and the whole purpose of that money is to not just find the customer but to also leverage the channels that are going to get them more customers. Not necessarily as concerned about profit. They can burn through the money that they are getting and it doesn’t matter as much to them, they’re really trying to spend that money in order to identify the channel that’s going to get them the most customers as quick as possible and then they’re going to use that to start optimizing what the revenue is. Sometimes they don’t even do that, sometimes they don’t care about revenue at that stage at all, they’re really just looking to get users.
If they are looking for a return on their investment though, they’re typically looking at something less than a year because they have the money to burn and they have the money to invest in those channels and the purpose is to get that money in the door overtime so that when the year comes up, then they have the money back in the bank. As Rob had given the example, $10 a month over the course of 50 months, let’s say that it’s $100 a month over the course of 12 months. They want to get that return within a year.
With a bootstrap company, you really can’t do that. Most people do not have the runway in order to be able to make that happen. This is where people are really looking to get that payback within two, three, four months at the most. If you have more cash in the bank, you can stretch it out to six or seven but if you don’t, you really need that payback very quickly, maybe one or two months at the most. This is an area where if you’re selling annual plans, it can make a huge difference in your ability to leverage channels that are going to cost you a lot of money to acquire those customers because if you can sell an annual plan, you get all the money up front, you don’t have to wait for it to come in. Maybe not everybody signs up for an annual plan but if you can get a certain percentage of them to sign up for an annual plan, then that calculates into what your upfront revenue is and what your payback time is on average. It’s not going to say everybody’s going to pay back within this period of time, whether it’s three months or upfront. But you also want to make sure that you have the money in the bank to be able to reinvest in wherever the channel is that you’re finding that’s working.
Rob: Yup. I remember when I first started running ads with HitTail was Facebook ads and my payback time that I was looking for was I think two months or three months because I didn’t have a lot of cash and then I did some deals. I did an AppSumo deal and I got $11,000 in cash from that and then I upped it to a four-month payback. And then I got even better at it, and I realized I wanted to spend more and grow faster so I went to five months and eventually I was at six months payback because I was comfortable with it and I had enough cash coming in from existing customer to cover that. It’s a really interesting thing to see how comfortable you are and how much cash you have in the bank. I would say as a bootstrapped founder like you said, somewhere between two and four months is where most people typically start.
One other thing I wanted to point out is there is there’s this rule of thumb with lifetime value to CAC ratio. CAC is Cost to Acquire the Customer. LTV to CAC ratio, in general is in funded circles but they say it should be about 3:1. Meaning if your LTV is $1,200 that your cost to acquire them should be right about $400. If you go over $400, let’s say you’re at $800, it means you’re spending too much to acquire customers and actually there are funded companies that do this because they’re trying to go after growth and they’re nowhere near profitable. These are the kinds of the companies that I think that a lot of us roll our eyes at because it’s like yes, you’re growing and yes you’re bragging about how you’re killing it but you’re never going to make money until you prove that you could acquire customers for less.
And then in the funded circles, if they say you’re acquiring customer’s, lifetime value is $400 and you’re only spending $100 or $200, then you’re actually missing out on growth. They’re not saying it should be below 3:1, they’re saying it should be at 3:1 or as close as you can get there. Personally, when I’ve done this, I have often not spent 3:1, I have often done below that like 4:1 or 5:1 because the rest is profit. If you are a bootstrap founder, you have to think about that. The less you spend, the slower you will grow but the more profit you will have. You want to balance that, you want to grow really fast, you can obviously have that ratio be even higher.
For the last few minutes of today’s podcast, I wanted to run through a couple examples of some real numbers to wrap your head around what it actually looks like to run ads and to think about payback time. What I’m saying is, as reasonable clickthrough rates and reasonable ads cost at different times, you have to find the right ad network to be able to justify some of these but let’s go back to lower price SaaS, which is $10, $20, $40 and $80 a month with average earn per user at $20 point, churn is 10% a month just to make it simple. Obviously you’d want to get lower than that but it’s easy math, that makes your lifetime value of $200.
Interesting thing, we’re just going to look at two scenarios, back in the day, when I was running Facebook ads, this is 2012, I was getting clicks for $0.30, that is not impossible to do at this point but there are ad networks still today where you could find those. At the time, Facebook was a [00:24:50] ad network and when Google AdWords was [00:24:53], it was cheap clicks that Jason Cohen and talked about getting $0.05 clicks when he first started the SmartBear. You have to go outside these mainstream areas because they are overcrowded with highly funded. It’s where everyone’s playing and so the clicks are more expensive, but if you can find networks or other opportunities for getting inexpensive clicks, be creative with it, that’s where you can get these $0.30, $0.40, $0.50 clicks.
Let’s say we were getting ad clicks at $0.30 piece, let’s say 2% of the people who came to our website converted the trial, that number is high but for a lower priced SaaS app, that’s really curiosity based, it’s possible although we’ll look at the next example as I think is probably a little more realistic these days. 2% conversion to trial and then half of your folks, this is credit card upfront, 50% convert from trial to paid. With that, if you do the math, $0.30, 2%, 50%, it takes you out to $30 to acquire each customer and you would get a payback in 1 1/2 months. You would want to run that all day and all night and you would actually want to pay more per click to drive more traffic faster. I would consider doubling one of those numbers, if you literally were getting 2% conversion rate to trial, that is a pretty hefty rate.
The second example is pretty much the same example, but I doubled the cost from $0.30 to $0.60 and then I cut the conversion to trial in half from 2% to 1%, which I’ll admit is a bit realistic. It’s $0.60 per click and 1% converting to trial and half converting to paid, that gives us a cost to acquire of $120 and that’s a 6 month payback. Realize that if you’re driving 100 customers new customers a month from this ad approach, that’s going to be $12,000 in cash that you’re going to need to do it. It puts into perspective, those are just loose numbers, if you add a higher average revenue per user, not uncommon to have $80 or $100 average revenue per user, then these numbers become very different. You can pay a lot more per click. If you pay a lot more per click, your conversion trial’s probably also going to be lower with a higher price point thing. These things will have to shake out.
But this is the analysis that I have done many times when I’m thinking about are we ready to start running ads and is there a scenario under which this is feasible and then we can reasonably grow a business using ads because every business is not cut out to do pay acquisition.
Mike: I think the most important piece to keep in mind when you’re looking at the numbers and try to figure out whether or not it makes sense to go after a particular advertising network is how quickly you’re going to get that return on your investment back. Because if it is six months, and if it’s costing you $10,000 to pump into that, you’re not going to see that $10,000 that you paid this month until six months out. In order to get yourself to that six month period or get yourself through it, it’s going to cost you $50,000, $60,000 and yes it decreases as you go on because you’re getting more money from the customers in the third month than you were in the first month, but the reality is you need a lot of money to make something like that work. That’s why funded companies can do it and bootstrapped companies really don’t have the ability to. Again, that’s also why the annual plans and getting the money upfront helps so much with being able to grow the business in an advertising space because you get that money and you can spend it, and in fact, almost gives you negative churn as a result of that.
Jason Cohen has talked about that at MicroConf. I think there’s a talk that you can find on the MicroConf website under the videos section from 2013 or so where he talks about exactly that.
Rob: Yeah. To be honest, even though we’ve been talking for more than half an hour, this really is high level introductory. I say introductory and I hope it was easy to understand but I will say that the kind of rules of thumb that I’ve thrown out here are from years and years of experience running this across multiple SaaS apps, many, many small businesses and this is the way that I think about paid acquisition as I’m diving into it. I was trying to think of any networks these days, like ad networks in particular, that would probably have tripleclicks, I think Twitter is one, and I think Instagram is another. I don’t know if Instagram’s up to Facebook cost yet, I know Instagram’s a pain, it’s not necessarily B2B, it’s got to be visual and all that stuff. Those are the two networks I think have a decent reach that could potentially have cheap clicks. I don’t think Facebook does it these days anymore, last time I ran ads, the cheapest I was getting was the $0.60 clicks but a lot of them were mostly between $0.60 and $1, I think it’s even higher than that now.
That is why these businesses like Facebook and Google mint money and why they’re worth so much, why the stock market values them so high because they know that overtime, if they’re successful and if they figure out their ad tech, which is pretty hard to build, if they figure that out, it’s just going to grow overtime and that’s good for them. It’s not necessarily good for the advertisers in the sense of it becomes more and more expensive to run ads.
Mike: I think the one wrench to throw in this entire thing is that even if you’re paying money to get those people to your site, there is the chance that they may not convert right away and they may just end up on your email list and you may need to figure out, okay, it cost me this much to get somebody onto my email list, but later on did they convert into a customer and that’s where you start getting into a really advanced analysis of what your sales funnel looks like. Maybe some people convert, maybe some people never convert or just unsubscribe and they will never become a customer but those are the places where it becomes very difficult to start making some of these calculations because then it’s not as straightforward as I paid $1 for this ad and 1% of the people converted. It’s probably a little bit more than 1% but it’s hard to know overtime, then you end up with problems trying to figure out what your attribution looks like. Attribution is an entirely different world, we could probably spend an entire episode on trying to figure out attribution but it’s complicated to say the least. I’ve talked to a lot of people who said trying to figure out what your attribution looks like is very, very difficult.
Rob: Yup. This is all good points. It’s not necessarily a purchase right off the bat from an ad, especially not from Facebook. They’ve tweaked their algorithms so actually they made that harder. If you look at someone like Brennan Dunn with Double Your Freelancing, he talks about every email subscriber he gets is worth x dollars and I forget what the number is. I imagine he’s been public with it, but it’s something like $10 or $11. He knows that if he runs Facebook ads and can just get someone to opt in, that down the line, if he does all the math, on average, it’s about $10 or $11 based on how much a bunch of people don’t buy and the ones that do buy these many things from him.
It’s interesting, if you can run ads and getting someone on the email list is not that hard, depends on the list, depends on the time and clicks and all the stuff but I’ve done it pretty consistently for between around $1 at the low end up to maybe $5, $6 on the high end. What I was just talking about, it’d be pretty interesting, you could see how you could mint money with the business model that makes money based on people being on an email list.
Mike: I think that sounds like a good place to wrap it up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you could email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 361 | Planning for Better Productivity
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to plan for better productivity. Based on a blog post by Noah Kagan, they discuss some different tactics including organizing time by energy level and value.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about planning for better productivity. This is Startups For The Rest Of Us Episode 361. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Rob, I’m back, your coup failed.
Rob: Aw man, I was going to ask if you listened to the episode last week. That’s funny. Did you listen to it or did someone…
Mike: No…
Rob: You made it back. I figured I’d exiled you and this is my show now.
Mike: No, you know what, it’s funny because for whatever reason, it reminded me of the very first Micro Conf that we ran and the survey that I sent out afterwards. I don’t know if you remember this but the last question on the survey was who’d win in an arm wrestling match, Mike or Rob?
Rob: I don’t remember that.
Mike: You don’t remember that? 75% said that you would go down.
Rob: I would go down, yeah, well that makes sense. What do you think of the episode?
Mike: It was good. It’s probably always awkward to record something completely by yourself. I’ve listened to podcasts before where it’s just one person talking but I think there’s a lot to do with delivering content. Sometimes, it works out really well, sometimes it doesn’t. I think it depends a lot on whether or not the topic or the content resonates with you, and then there’s also the appeal of listening to the person who’s speaking.
Rob: Right. I did realize that I talk fast normally, but for some reason when there’s no one else on the podcast, I talk even faster. I just string the sentences together. I was listening to it at 1.5 speed and I was like whoa, you need to pause, dude, you need to have some space between the sentences.
Mike: Well, that actually also plays into when people are doing public speaking, they get excited and nervous. People tend to talk fast when that’s the case. But people, I’ve noticed, also talk fast when they are extremely knowledgeable about a particular topic because they want to get everything out as much as they possibly can.
Rob: Yeah, it’s like excitement and passion for this stuff.
Mike: Yeah.
Rob: That’s cool. Good, I’m glad you enjoyed it. What else is going on this week?
Mike: I’m in the middle of finishing up implementing [OWAF 00:02:20] inside of Bluetick in an effort to basically streamline the onboarding process because right now when somebody signs up, the first thing you have to do before anything else is set up a mailbox. If you’re using Gmail, it can be problematic at best. I’ve been getting on a call and essentially walking people through manually. It sucks. It’s not just that it sucks because I have to talk to them, the problem is that sometimes it doesn’t always work or you have to go into admin settings or each situation can be different based on how your G-suite account is set up or what admin settings are and which ones aren’t set.
It can be very difficult to figure out, and users will probably never be able to figure it out on their own. I’ve had a few go through and have no problems, but then there’s ones where settings were all over the place or they’re not an admin and the [OWAF] should just completely get rid of all of those things and just take care of it.
Rob: That would be really nice. That sounds like a nightmare when you talk on the phone like that, you can’t just have a single KB article or some type of walk through and you got to almost trouble shoot it, custom consulting just to get on boarded is pretty rough.
Mike: I do have a KB article for it. If I were to print it out, it’s probably five or six pages, which sucks. You can go through it, but I’d rather the person not have to. If that’s their first experience with it, it’s not a great experience. I really try to avoid that. Plus, I’ve had people who even I couldn’t get them on boarded because it just did not work. We couldn’t figure out what the settings was. Things worked for a little bit, and then Google has this algorithm in the background that if they think that it is hacks, it will just block access. You got to be kidding me, but [OWAFs 00:03:55] gets around that kind of stuff.
I’ve got it mostly working right now, mostly just going through some testing and making it so people can convert their existing mailbox over to using [OWAFs 00:04:05] instead of the app passwords that they have to use right now. But yeah, open to employ that out in the next couple of days and move on because that’s just been a nightmare.
Rob: It’s one of the few cases where you may actually have a silver bullet. Most of the time, it’s like oh, this is still not going to solve it. But if it actually does, that’s a big deal.
Cool, well I want to talk about MicroConf. We have save the dates for MicroConf Started Edition and Growth Edition next April in Las Vegas. Tickets are going to be available in the next few weeks. Mark your calendars now for Growth Edition is April 23rd and 24th, it’s a Monday, Tuesday. Of course, we have the Sunday evening reception on the 22nd. Started Edition follows that, much like last year, it is April 25th and 26th. If you are interested in hanging out with a couple hundred successful or aspiring to be successful bootstrap, startup founders, you can get on the mailing list at microconf.com. Historically, MicroConf has sold out pretty quickly. You will want to be on that mailing list if you want to get the first grab at tickets. In addition, MicroConf Europe is happening here in about five weeks in Lisbon, Portugal. Tickets are still available for that, microconfeurope.com.
Other than that, in terms of work, we’re doing a lot of scaling stuff. We have gotten out ahead, it’s so nice. Remember how several weeks ago I was talking about how cues and scaling were just a big issue. They’re perpetually going to be a big issue but we’re well out ahead of them now, it just feels like you have breathing room. Basically, I put together, it’s called a platform engineering team. It’s people, they’re just going to be working constantly on the scaling now.
Typically, every four to six months, we would turn our attention to it and then we go back to building features. It’s at the point now where we just have a staff of—it depends how urgent it is—between five and eight engineers who are just constantly going to be looking at how to 2X this and how to 5X this. We’re doing a chunk of it in a sprint for Black Friday, even though our volume is historically not gone up that much on Black Friday, we do just want to make sure that we can send emails very quickly. I think the other day, they 2X or 3X our email throughput with three, four weeks of work. They re architect something and they decoupled something, doing something asynchronous. You just slowly make those wins, that’s a big one. If they can 2X or 3X it again, we will be sitting pretty even based on our most pessimistic estimates of the volume that we’ll need to send.
Mike: That’s awesome. Sounds like things are firing on most, if not all, cylinders at this point.
Rob: Yup, it is good. It will be nice to get past that. We’re still working on features but we definitely have slowed feature development just a tad in order to make sure that we’re well equipped for it and then got some good stuff cooking for the end of the year.
Mike: Very cool.
Rob: What are we talking about today?
Mike: Speaking of optimization, we’re going to be talking about planning for better productivity. This episode is based off of an article that I read over on Noah Kagan’s blog at okdork.com, we’ll link it up in the show notes. It was a series of time management tips. We talk about time management tips a couple of times on this podcast but we haven’t gone in depth into anything in probably 100, 150 episodes or so. I’ve went back and made sure that we hadn’t done that recently.
I wanted to take some time and dig into a process that he outlines on this blogpost because the title of the blogpost is Time Management, Tips of Insanely Busy People. Because of a lot of the things I’m doing, more or less juggling back and forth between all these different activities for Bluetick, it’s been difficult to prioritize things properly and make sure that I’m spending enough time in a way that allows me to move forward in every direction as opposed to making too much progress in one direction and not enough process in others.
I took the time to actually read through this and start applying some things already. So far, this week, it’s actually worked out really well. I’m getting up early and reprioritized when I do certain things. What its helped me do is essentially helped me put myself in a position where I make time for the important stuff and then rearranged the time where I’m making poor decisions or my glucose levels are low and not able to make good decisions and push that off to times where I know that that’s more of a recovery time for example.
We’re going to go through this. The thing that jumped out at me the most in this particular article is that there was a line in there that said success is fundamentally about how you spend your time. If you think about it, conceptually, if all of us had the same amount of time in the day but some people are much more successful or much more productive than other people. Kind of want to take a look at this to see if there are ways that I can apply some of the stuff that we learned and wanted to share some of that stuff.
Rob: Indeed, let’s dive in.
Mike: The first thing that comes out of this article is the recommendation to list all of the different categories of work that you need done. There’s a screenshot in this article where he’d list out all the different activities that he does into the different categories. He’s got green for gym, salmon color for Sumo work, purple for podcast planning, recording, and brainstorming, and then he has grey for growth or learning or consuming, whether that’s reading, or podcast, or whatever. Then, red is all sorts of random stuff that he likes to do. His calendar is—I won’t say it’s completely full—but there’s a lot of places where there are areas of time that are blocked off for these different activities.
The basic idea here is to figure out what things you need to be doing and then categorize them and figure out what times of the day that you are spending time on those things. If you have five different things that you need to be spending your time on, are you actually spending the time there and what times of the day or what days of the week are you spending the time?
Categories might be marketing, engineering, or support. Another category might be your downtime, rest or recovery time, which is really winding down for the evening. That’s the way I look at it. Shutting down your computer at 7:00PM or 8:00PM to put you in a position where you can actually go to sleep at night.
Rob: Yeah, I think this is an interesting exercise to do. I’ve never thought—you have work in quotes, a list of categories of “work” you need to get done because you include sleep and social time and exercise. I think it is good to think about those things as something that you have to have on your calendar because although we don’t think of sleep as being a form of productivity, it’s something that allows you to be productive the next day.
I’ve never calendared something this specifically, I have done time blocking during the day where I’ve blocked out tasks to work on whatever it is, writing, or eating. I’ll put lunch in there or obviously meetings are time blocked, but I haven’t gone outside of my 9:00 to 5:00 schedule. I don’t time block stuff in the morning or after work. I don’t know that I would do that permanently, but I do think it could be an interesting experiment. It kind of reminds me of I don’t have a personal budget, but I did at one point. I tracked it for a couple of months and it gave me a decent sense of what we were spending. That allows me to have a ball park now.
That’s what I feel this would do, I wouldn’t want everything time boxed all the time but I do think doing this one or two weeks could give you a better idea about where you’re slipping and give you the discipline, that reminder dings and it says which task, that if you’re not getting stuff done, either you’re not giving yourself enough time, you’re not realistic enough about estimates, or maybe you’re getting distracted and it can be a reminder to get back on task. I like the discipline and just the idea of tracking everything for a period of time just to see what it actually looks like on your calendar and how it feels to work like that.
Mike: One of the things that I found when I was going through this was something that I haven’t done for a while now. Pay more attention or pay enough attention to exercising and going to the gym. Part of that was because my shoulder was all messed up for a while, but I also recognized that when the end of the day came along, 6:00, 7:00, 8:00 at night, I lost the decision making ability to actually go to the gym. I would think about it and I would say no because I didn’t have the willpower to actually go to the gym at one point. It’s like I’ve been making decisions all day long, some of them were very difficult, I just couldn’t bring myself to do it.
I think that a lot of people fall into that category, and I’ve done this myself in the past where after a hard day at work, you come home, you eat dinner, and then you sit on the couch and watch TV, but then you also snack which is a universal problem almost but you’ll sit there with popcorn or potato chips or something like that and you’ll veg out in front of the TV. You can’t stop yourself from eating those potato chips or the popcorn or whatever, and it’s because you don’t have any decision making capabilities left, you’ve lost the willpower.
What I do for example was I switched my schedule around and I put gym very first thing in the morning. The past four days, I’ve gotten up somewhere between 5:00 and 6:00 in the morning and gone to the gym which is not normal for me. I do not do that, but I’ve actually found it very easy to get up and go to the gym first thing in the morning just because it’s the first thing I have to do. I’ve had a decent length of sleep, go to the gym, and it’s hard to discount going to the gym that early because I’ve made no other choices at that point.
Rob: Wow, that’s impressive. I have heard that exact thing that you slowly lose willpower during the day and that’s why midnight snacking and making poor decisions, buying things on Amazon late at night or whatever, are so much more common than when you have the energy.
It’s interesting, a big part of this I think is knowing yourself and how you work. There are certain times of the day where you are going to be more productive. The majority of people are most productive in the morning when you’re fresh. I find that I get a second wind often around 10:00PM and I used to work from 10:00PM to 2:00AM was when I’m ultra productive, like in college, at that time. That’s when I would do all my homework. And then even when I got out, I would write a lot of code when I was consulting and didn’t need to be in a day job, I would write a lot of my best code at night.
Over time though, having kids wrecks that. I learned to try to adjust back to mornings. I do think that knowing what constraints you have and knowing your own personal body clock is another big thing that you’re going to want to know before you start putting things on the calendar during the day.
Mike: One thing you mentioned there was doing code late at night and getting that second wind. I can do that as well but for whatever reason, you’re walking out the door and going to the gym at 7:00, 8:00, 9:00 at night, that takes a lot more effort and willpower for me to do it than sitting down and coding does.
Rob: I agree. I’m on the same boat.
Mike: I think that it’s partly because of how interested you are in what it is that you are trying to get as a goal. I think there’s a lot of things that factor into that, but I recognize that I was not going to the gym and it was because I was pushing it off until later in the day. I didn’t have the willpower to make that decision anymore. It really helped.
Rob: I’m actually reading a book right now called Sleep Smarter, 21 Essential Strategies for Better Sleep, or something like that. In it, he talks about how they’ve done studies and that exercising in the evening is actually not good, that it amplifies stuff and it can negatively impact your sleep. Some people say I exercise in the evening, it makes me tired and then I go to sleep, but the studies have shown that that doesn’t tend to be the case in general so it is actually better to work out—I think he said no caffeine after 2:00PM in general, and you get the most sleep benefit if you worked out in the morning. If you worked out in the afternoon, it was a wash. Then if you worked out in the evening, it was a detractor to your quality of sleep, so something else to keep in mind.
Mike: Let’s move on so we can get into some of the different experiments that Noah had gone through in this article. The next step is after you’ve listed all the different categories of where you think you should be spending your time, your ideal workload for the week, then track how much time you’re actually spending in these areas. It’s very easy to put yourself in a situation where you think that you’re spending an hour on something and you actually spend two, or three, or four because one we’re not very good at estimating our time, but two we’re also not very good at looking back retroactively on oh, how much time was it that I spent on that yesterday? Unless you’re tracking it right at that point, it’s very easy to mis-estimate how much time you’ve spent on something.
Rob: Mis-estimate? Remember that bushism, mis-underestimate? That was good.
Mike: Yes.
Rob: I think it’s really easy to go through your day on autopilot, and especially with ADHD inducing tools like Slack or Twitter or Reddit, if those are your jam. Even your email inbox. You can just wonder from thing to thing, checking them every 10 minutes, and that could be your whole day and you never get anything done. I think this entire thought process is a way to help you not do that and also looking at a calendar and actually slapping an hour on something and saying I only have an hour to do that, it’s a great way to force yourself to get stuff done and to focus. I think especially, I would pair this with my most productive times of day, I would pair it with a small amount of carefully titrated caffeine, I would have a playlist like deep focus or I have some punk playlist that I put on loop. I think that is the way you’re going to eek out the maximum productivity, but it’s the first step here as you’ve just said, becoming aware of where you are spending your time versus where you think you’re spending your time.
Mike: That’s exactly right. Once you have figured out where you are actually spending your time, you start to compare it against what your ideal time would look like so that you can analyze that and figure out where you need to make adjustments in order to improve it.
The first experiment that Noah had done was he went through and organized his time by what he called energy level. There were a couple of different things that he classified some of the work as. He has manager time, maker time, which he was talking about on this podcast before where manager time is you’re doing things that require management capabilities. For this type of stuff, you need anywhere from 30 to 60 minute blocks of time to handle that stuff. Whether it’s taking phone calls, or meetings, or checking email, or managing people, or doing certain types of planning work. Those are all essentially manager time.
Maker time, he says block off two to four hour blocks of this time so that you can really get into something. That includes writing, coding, any sort of creative activities where you need a couple of extra hours of uninterrupted time in order to work on it. If you’re interrupted, it’s going to throw off your schedule and you’re not going to be able to be as creative and be as productive on that stuff.
Rob: In my opinion, I’m kind of a self identified maker in general. I hate manager schedule, I’ve happened to have had a manager schedule for the past several years as I’ve been running Drip and I still do. When you’re a manager, you need to be constantly interrupted because you have to keep other people unblocked. You can’t make them wait 30 or 60 minutes to hear from you in general. But as someone who is strictly, since I was 8 years old, has been a maker, whether that’s writing books, writing blog posts, writing code, building things, I think the entire point of this should be to protect your maker time and to make it predictable and make it something that is deliberate and something that will not get interrupted.
The work environment these days, especially with tools like Slack, I’m going to say it again, I’m a little bit of a Slack basher. As much as we use it and it’s helpful, it is like being in a meeting all day with people. It has real pluses and minuses, obviously it improves communication for remote teams, but at the same time it’s just a constant interruption stream. I wind up snoozing. I’m snoozing Slack more and more. These days I’ll do one hour, sometimes I’ll do two hour blocks. I’ll tell people look, if it’s really urgent, you break my snooze. It’s easy enough to do that with just a click. All that to say, I think that maker time, it’s really easy in today’s work environment to lose your maker time unless you’re extremely deliberate about blocking, essentially snoozing or blocking all your notifications and then not allowing yourself to wonder off into the abyss of time suck.
Mike: One of the things I noticed when Noah was talking about the results of this planning exercise and going through this experiment where he organized his time by maker time versus manager time, you look at the proposed schedule that he wanted to do and it was very repetitive from day to day. There’s reading at the beginning and then morning rituals and then writing for several hours, that was his maker time, and then back to some manager time task. And then in a couple of places he had more maker time schedule.
But if you look across that, it’s very repetitive from one day to the next and it assumes no interruptions. It assumes that nothing is ever going to change in your schedule, there’s no other meetings that happen to come up on a Tuesday or Wednesday morning, and it forces everybody else to work around your schedule which I think depending on who you are, that can work in some cases and not in others.
Rob: Yeah, depends on how much control you have. I think if you are a founder or the CEO and you can dictate your schedule, I think you’re in a pretty good position. I think if you are working for a small startup where communication is fairly easy let’s say, or on an eight-person team and the culture is to just allow people to be makers, I think you probably have a pretty good shot at this. I have worked at places where that isn’t the culture, marketing driven cultures and sales driven cultures, I’ve worked at companies that are both. They’re all about this interrupt driven thing and it’s all real time.
The space that you’re given both in terms of time and in a lot of times in terms of how offices are set up are not super conducive to allowing you to actually create stuff, allowing you to have that maker time makes it really hard and you have to go out of your way to do it. It’s going to depend on how much control you actually have but I do think that odds are pretty good that if you’re a knowledge worker and either a founder or even just someone working at a startup, I would bet you could pretty dramatically improve your ability to carve out that maker time.
Mike: Something else that I found interesting about this was that one of the lessons he learned about this particular experiment was that how he spent his time was not necessarily how he spent his attention. I kind of draw an analogy between that and going to the gym for example where you can go to the gym and it’s time that you have to spend but you don’t necessarily have to pay attention very much when you’re at the gym.
If you’re just on a treadmill or elliptical machine or lifting weights or whatever, you tend to not have to pay that much attention to it. You just mechanically do those things, but you can listen to audio books or podcasts and things like that. One of the big benefits of that actually has been my ability to get through a lot of my backlog of podcasts that were queuing up that I hadn’t listened to that I wanted to but I just hadn’t really found the time because I was spending so much time doing all of these other tasks. I didn’t have the time available to sit down and just listen to a podcast, I couldn’t pay attention to it. I just didn’t do anything with them.
The second experiment that Noah had done in this was that he organized some of the different tasks that he needed to do by what their value was. I really liked the way that he separated out the different types of activities. What he did was he created this little spreadsheet that essentially classified all of his different activities as either $10 an hour, $100 an hour, $1,000 an hour, or $10,000 an hour activities. He categorized them into each of these by saying if it is incompetence activities, then that’s $10 an hour, these are things that you constantly encounter failure and frustration or conflict, you’re stressed out about them, you just do not like doing them.
Under those, he put things like running errands, working on social media, cleaning and sorting things, attending meetings, stuff like that. I think that for each of us, our list is going to be different for what is going to fall underneath each of those buckets. I think the point here is to make sure that you understand what the value of those activities is not just in your personal life and in your business but you personally. Because if it’s something you don’t like doing, you’re probably going to push it off, and then it becomes more of a cognitive overhead because it’s going to be in the back of your mind and it’s going to interrupt your thoughts when you’re doing other things.
Rob: And the next rung up are the $100 per hour tasks. Just as a note, Noah pulled this list from Perry Mashalls’ book 80-20 Sales and Marketing. $100 per hour tasks are things like solving a problem for a prospective or existing customer, talking to a qualified prospect, writing an email to prospects or customers, creating marketing tests, outsourcing simple tasks, customer follow up. It’s that next level up where you’re not essentially doing the work that is kind of one-to-one stuff but it’s either revenue producing—I guess some of it is one-to-one but it’s more about revenue producing or bulk stuff like writing an email to a group of prospects where it’s one to many and there’s some leverage here, or it’s like you said, outsourcing, which is something that is gonna really give you quite a bit of leverage.
And just as a note, Noah calls the $100 an hour work competent activities. It’s tasks where you meet the minimum standard but they cause you anxiety and they feel repetitive. I think that’s a good way to think about them.
Mike: The next rung up on the letter is the excellent activities which are classified under the category of $1,000 an hour work. These are tasks where you have superior skill and reputation but you don’t necessarily enjoy them, you just don’t have the passion for them. Under his list for these, these are things like planning and prioritizing your day, negotiating with prospects, building your sales funnel, creating pay per click campaigns, delegating complicated tasks, writing sales copy, other things fall into that bucket. Again, those tasks are specifically for him. These may move around for you.
Rob: And then the top rung of this ladder are unique ability activities and these are the $10,000 per hour work tasks that you can do. Noah defines them as tasks which you show superior skill, energy, passion, and desire for never ending improvement. I guess this is actually yeah, it’s Perry’s list and then Noah says he used a four tier system from Dan Sullivan to group them. He’s kind of combining the two things, the dollar per hour and then the rungs of the ladder, the incompetence all the unique abilities.
$10,000 per hour stuff may be things like improving your unique selling proposition, creating new and better offers, repositioning your message and your position, negotiating major deals, selecting team members, public speaking. These are really high value, high impact tasks that frankly, you’re probably one of the only people in your organization who is capable of doing them and they’re within your zone of genius.
Mike: What I like about Noah’s assessment of this is that it’s not important that you actually make $1,000 an hour or $10,000 an hour doing these things, but the relative value between the different tasks and those different categories, that’s the important piece. Those are the things that you need to pay attention to and make sure that you’re spending enough time on the stuff that would provide a heck of a lot more value than the things that are low value that perhaps you enjoy doing them but they don’t provide a lot of benefit to the business and they really don’t move it forward.
If you’re spending an exponential amount more time on support tasks, you really enjoy doing it, that’s greta but it probably doesn’t move your business forward because there’s other things that it is taking time away from that you need to dedicate some of that time towards.
Rob: What I’ve noticed is that if you’re a solopreneur, then it’s likely you’re going to start off doing all of these and then you slowly outsource the lowest ones on the totem pole. The higher you get up in this ladder, it’s harder to find good people at a cost that you can afford if you’re a boot strapper. What I’ve seen is that as my team grew and then post-acquisition, that it is so much easier with a, a larger team, and b, more resources, more money to be able to find people who can do these things very well and find someone whose zone of genius is outside of yours, who’s not a co-founder but actually hiring a director or a VP or a whatever who can really level up and do $1,000 an hour and $10,000 an hour tasks.
It’s pretty unique to find someone like that. It is very expensive. In general, it’s expensive. Obviously, you can find a unicorn somewhere, a diamond in the rough. These are things that are more of a challenge to do with a small team and/or a bootstrap team, but it’s still something that I think you should strive to do.
Mike: I think one of the things that Noah’s getting at in terms of assigning the dollar amounts to these is that it’s not necessarily how much it is of value to the business but if you were to do those things, what would you want to be paid for them, or what could you potentially get paid for doing those things? The $10,000 an hour work, you could potentially get paid a lot more for them versus the $10 an hour stuff. It’s stuff that you don’t like, it’s stuff that you’re not good at. Those are the things that you can mentally classify as oh, I need to outsource these, oh, I need to delegate these tasks to somebody else, not just because you’re not good at them but also because they don’t bring you any joy or fulfillment in your daily life. Chances are really good that you’re probably going to push those off to the future or just simply not do them. That’s where you get out of balance in terms of the amount of work that’s getting done in some of the different categories. Does that make sense?
Rob: I think it does.
Mike: Once you’ve classified all these different things and looked at the different ways you can cross section them, you look at when these different activities take place in your schedule and then adjust your schedule to fix what’s not working and then optimize what is working. If the things are not working, if there’s a balance that is completely out of whack for example, the activities you should be spending a lot more time on you’re not, those need to either get delegated or you need to dedicate the time to do those things. That could be by pulling away time from those activities that you really simply do not like doing or you’re not very good at. Take those things, offload them, outsource them, and move on to doing the things that you are really good at because you can provide yourself or your business a lot more value by doing those rather than those lower level activities that you just simply don’t enjoy.
Rob: Realize that Noah ran two experiments. One, he organized his time by energy level. The other one, he organized his time by the value. It’s a different way, it’s a different lens through which to view the tasks that you have to do. He had different takeaways trying both of those. It doesn’t come out at the end and say you should do one of these and the other one didn’t work, it wasn’t like that. I kind of feel if you’re going to do this that you should try both of them and see which one works better for you, but I also think just doing each of them will be a learning process for you to figure out which tasks you should no longer be doing, which ones are at your $10, or $100 levels, that you didn’t even realize you were doing. I think that’s a big part of tracking your time and running through these experiments is going to do.
Mike: I think if you’re really strapped for time, the title of the article as I said is Time Management, Tips of Insanely Busy People. He has a 80-20 version of the article at the bottom that you can go take a look at. It’s only a couple paragraphs. It gives you all the different highlights, and some of them we talked about in this episode. It’s a very interesting read, I would definitely highly recommend going through and taking a good, long look at this, especially if you’re strapped for time and find yourself juggling a lot of different things.
Rob: I think that wraps us up for the day. We have zero questions right now in the queue. No voicemails, no written questions. If you have a question for us, you can call our voicemail number at 888-801-9690 or you can email email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Mike: Isn’t saying you’ve got no questions kind of like announcing on Twitter that you’ve got no emails in your mailbox which is going to let people comment on it so then you get more emails?
Rob: I don’t know, but that would be good if people send us questions then we’ll have them for the next Q&A show. Man, we were doing Q&A shows every other week trying to get through those. It was pretty cool the volume of the questions that were showing up. I can’t remember the last time we’ve literally had zero questions in the queue. I think it may have been a couple of years ago.
Mike: Yeah, I think so. Oh well. Hopefully we’ll hear from people and we can answer more questions on the show.
Rob: Indeed.
Episode 360 | The One Where Rob Takes Over the Show
Show Notes
In this episode of Startups For The Rest Of Us, Rob takes over the show and answers a number of listener questions. Topics include launching a book and dealing with two sided market places.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups For The Rest Of Us, I complete my coup to take over the podcast. I kicked Mike off and I’m going to be answering listener questions on my own. This is Startups For The Rest Of Us Episode 360. 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 and I’m here to share my experiences to help you avoid the same mistakes we’ve made. This is a milestone in Startups For The Rest Of Us history. Funny thing happened, as I was planning the podcast this week, I actually wasn’t able to make our normally scheduled time, nor was I able to make several other times that Mike tried to meet up with me to record the podcast. As a result, I proposed that I find a guest. I contacted a couple of guests and neither of them could make it this week. Frankly, the week became pretty crazy. There’s some stuff going on on the personal side that I’m sure we’ll talk about in future episodes as they unfold, but suffice to say it was me basically running from work to home, back to work, back to home, and didn’t check email for a few days.
Before I knew it, it was Friday morning and poor Josh, our editor, was expecting a podcast recording a few days before that. Here I sit with about an hour to put out a podcast episode and I wanted to go through listener questions. I always have thoughts and opinions on the questions that come through and I have done a few solo episodes over on the podcast I do with my wife, zenfounder.com. I figured I’d give it a shot for Startups For The Rest Of Us as well, it will be an interesting experiment. We’ll go through basically our entire backlog, I think we only have four, maybe five for today. I want to talk through the questions and comments, and we have a voice mail as well, and then lend my thoughts on those.
Our first email comes in from someone who prefers to remain anonymous. The subject line is, “THANK YOU. Finally launched, first 24 hours were an awesome success.” He says, “I’ve been to several MicroConfs, three of the last four years in the US, and I’ve been a long time listener of the show since Spring of 2013. After a few different projects and non-starters, last October, I re-focused and went back to what I’m good at, video based, on-demand training. Today, I concluded a 24 hour special launch offer to my subscribers. My first ever launch, and first time taking payments other than as a contractor. After my 24 hour email launch, I wound up with over $100,000 in sales. This was a lot of work and a lot of fun getting ready for launch, including dealing with Hurricane Irma. I wanted to express thanks to you guys for everything you’ve done for micropreneurs like me. I just put the wannapreneur out to pasture. Cheers.”
As usual, we love success stories like this, and this is why Mike and I started the podcast while we run the conference and really why we have Founder Cafe, our online membership site, foundercafe.com. This is the part about making a difference. It’s always interesting to me. I haven’t tended to start companies to make a difference, I’ve tended to start companies to serve a business purpose, to serve a need, and to make money. Whereas the blog, the podcast, the conference, Founder Cafe, just everything, the book, everything that I create, my content, that’s to actually make a difference. I know we make some money from it, but I’ve in my life made ten times more money from actually building software startups, products, and websites for that matter, than I have putting content out.
I know some people want to start companies to make a difference, there’s this Steve Jobs ‘I want to put a dent in the universe’ or you see a lot of folks in Silicon Valley saying they want to change the world with their startup. Personally, that has never been my aspiration. Yet, I have wanted to change the world in some fort or fashion. The fact that the podcast and MicroConf helped this person get to $100,000 in sales in the first 24 hours of launching, and obviously they built up to that. They had a subscriber list, this isn’t some cinderella story of them just putting something out and it’s selling $100,000 in 24 hours. They put in a ton of work, probably took a few years of building a list. I got to say, that’s the way to start the stair step. Congratulations.
Our next email is a question about launching a book as part of the stair step approach. It’s from Arthur Johnson and he says, “Hey Mike and Rob, it was pretty funny for me when you released Episode 350 featuring a listener question about launching books the exact same day I launched my picture book for kids. It’s called The ABCs of Programming. Like Dan, the author of the question, also thought writing a book was the best way to get started on the stair step approach. It’s a simple product, and unlike a SaaS or one-time software, you don’t get bogged down in the code. This has let me focus on learning process, marketing, and advertising. Since both of you have books, do either of you have any tips on launching a book, specifically if you’re doing it at step one of the stair step approach? Thanks, Arthur.”
I think books are a fantastic way to get started on this precisely for the reason that he said. You don’t get bogged down on the code, you also don’t get bogged down in support, and bugs, and all the stuff that goes along with the complexity of code. In addition, people buy more books than they buy software. I buy one or two books a week probably, either physical or audio, and I read most of them. Most people don’t. A lot of people buy a lot of books with the aspiration that they’re going to read them and consume the content eventually and they don’t, whereas people less often buy software out of this excitement to learn something. They typically buy it only when they have an actual task to accomplish.
Something like the ABCs of Programming or anything that’s going to teach my kids programming or make them better at something, entrepreneurship, learning how to manage money, I’m all in on these types of things, especially if it’s written by someone who is putting it on Indiegogo, KickStarter, or someone who I can tell has a lot of love and care for that thing; it’s not just some big publisher putting a book out, but it’s actually an individual who probably has kids themselves for example.
Yes, I think this is a very good idea if you’re thinking about it. I would go to Kickstarter myself, that would be the first thing. There’s a network effect there, there’s a lot of people on there, a lot of them have kids. It’s just something that whether you’re launching a book to kids or not, it’s probably beside the point, but you get the idea here. I’m on Kickstarter a couple of times a week and I’m looking for projects that are interesting and relevant to me. If it can teach me a new skill or teach my kids a new skill, or is kind of a new and unique thinking around a gadget, that’s the kind of approach that I personally would take.
Obviously, if you have your own audience, there’s another approach there. It doesn’t sound like you do, but that’s where you get that network effect from Kickstarter. It’s pretty easy to promote and you’re basically pre-selling, so as long as you have the cover and a few pages, you don’t even have to have printed the thing, you have several months after that to go get it printed. You can go to one of the print houses that are in China that will print hard cover books and you can ship them back here.
Whereas if you pre-launch on your website, there tends to be a little more skepticism about whether you’re actually going to deliver it. I know there are some Kickstarter projects that have never been delivered, but it’s more often than not, especially the high profile ones, they’re gonna deliver something eventually. There’s that confidence level. When I back something on Kickstarter, I do assume that eventually it’s going to come out one way or another, even though Kickstarter does say that it is not a store.
I’m trying to think—I’ve backed probably 150 projects, I have to look at the exact number. I don’t know if there’s one that I’ve never received, there is one that I received probably two years, two and a half years after it was supposed to arrive, and it came just like two weeks ago. I was very surprised by that. But a lot of things like the books, the author, it tends to be a passion project and they tend to be mostly done with the book at least in writing it and getting part of the art done, there’s not a ton of risk in that not getting done unless someone just totally flakes on it.
All that to say, I think launching a book, I would go for that. A Kickstarter thing to get the network effect, and then beyond that of course you’re going to put it on Amazon. I even debate the amount of effort to set up a solo landing page these days for a book like this. I probably always would personally, especially you can get the square space theme or WordPress theme, gets them up there with the gum road purchase button but the advantage of having channels like Amazon or Kickstarter I think is a big deal.
In addition, since it’s called The ABCs of Programming, I might even think about a little bit of Amazon SEO where The ABCs of Programming for Kids is going to get you to rank for that term ‘programming for kids’ because I know that I’ve searched that title, that phrase, probably ten times in the past year just looking for different programming books for kids because I want to teach my kids how to program, I want them to learn. You don’t have to go too far down that road, but it is interesting to think about when you’re one of these big, essentially it’s a search engine.
Google is the largest engine, YouTube is the second largest, and at one time Yahoo! was third and I’m not sure that’s the case anymore. Amazon’s got to be up there in terms of search traffic, and certainly for commerce search traffic, I can’t imagine it’s not number one. Then there’s app stores as well, we’ve talked about the Android App Store, it’s the Google PlayStore now, the iOS App Store, and all those things. These are all search engines where you can get in the line of sight of search traffic. If you are just a little bit clever or a little bit deliberate about thinking through some keywords that people might specifically be searching for—and you don’t want to jack up the title of your book of course—if you think Programming For Kids, and that actually works in this title pretty well, that’s obviously something I would think about as well. I hope that helps, Arthur. Thanks for your question.
Our next question is a voice mail.
Michael: Hey Rob and Mike, Michael Needle here. I’m currently launching [alltheguides.com 00:10:02], an online platform that innovates on the current process for booking and outdoor adventure guides. Before I get to my question, I want to say that I love, love, love the show, thank you guys for all the insights you provide. I found the show a few months ago and I’ve basically gone through all the episodes available on iTunes, really been helpful so far.
In Episode 262, 13 Signs You Should Kill Your Idea, one of the signs is that you’re building a two-sided market, which is exactly what I’m doing. Knowing how difficult this could be, what hints or suggestions do you have for someone who’s committed to doing this exact thing? Any best practices you’re finding in product-market fit, testing traction channels for both sides at the same time which is generally building this type of SaaS app. Thanks in advance for taking the time on this question and thank you again, so much, for producing the show.
Rob: This is a good question. I’m glad that you asked this. There’s a lot of questions about two-sided marketplaces that come through. They are one of those things that once you have a network effect, they’re very powerful, but they’re so hard to get started especially if you’re not raising funding, very, very difficult to pull off.
Two-sided marketplaces, the key is that you have to focus on one side of the market. One side of the market is going to flock to your site once you have the other side and you need to figure out which side to get first. For example, you look at GroupOn, two-sided marketplace. They had to get a bunch of retailers on one side and then there are consumers on the other. Zero consumers will come to that sight until you have some deals, some retail deals. You can promise them deals, you can probably start building a mailing list, but what you really need to do is you need to go out first and you need to get enough retailers on the site that you can start bringing consumers to it.
Once you get a big swath of consumers, you get that snowball going, it’s so much easier to recruit the retailers. You do a little on one side, just enough to get the other side to snowball and avalanche. Once that avalanches, then the second side will be a piece of cake.
In your case, you’re looking for both. Guides, and you’re looking for people looking for outdoor adventures. The strategy I would take is I would—you have even a third channel because this is geographical. It’s not like eBay where there are buyers and there are sellers and they can be anywhere in the world because of the postal service, you have guides and you have consumers. Much like Uber or Lyft, you also have a geographic thing because they need to be together in the same place.
The first thing I would do is geographically limit this and I would pick some type of tourist place, look at them. Number one outdoor adventure spot in the United States. I don’t know if that’s going to be in Colorado, if it’s in California somewhere, but pick that and pick a 40 mile radius or one town and make it work there.
This is what Travis and his co-founder did with Uber. I only keep bringing Uber up because it’s a parallel story of what you need to do to what they did, and they did only black cars, they did only San Francisco. At the start, I’m pretty sure it was one or two of them literally driving black cars, they rented black cars and they were driving themselves just to figure out if this thing would work, and then they started recruiting the black cars. You needed enough black cars that then you could recruit the other side of the deal, the consumers in essence. And then when you had a bunch of consumers, you can get black cars automatically because the black cars want the money. It’s like this back and forth.
For you, I would do the same thing. I would pick a small geography, I would get 10 guides or 20 guides on the platform and they’re going to be the people who are willing to take a flyer on you. I was going to say you can give them a special deal but I don’t even know if you need to, I think when you say that you’re gonna be Uber for outdoor adventure, some people will think that’s cool and some people won’t.
Maybe you talk to five or ten guides. For every one you get to sign up, that’s okay, this is the hustle. You talk to 100 guides, you get 10 or 20 on the platform, then you’re going to go out and you’re going to just blanket that area and you’re going to blanket that internet with whatever you can do, whether it’s Facebook ads, Google Ads, whether it’s retargeting, whether it’s blog posts, whether it’s posting in forums. That’s the online stuff.
And then the offline stuff, assuming people living in that area also need it. I don’t know if everyone’s just flying into town, then offline won’t actually be that helpful. Where are people going to be located locally when they need a guide, are they going to be in REI? Is there a bulletin board in that REI? You can post a flyer or you can post your flyers on the counter at a local outdoor place, or you can make a deal with five of the outfitter shops that they will pitch you.
I don’t know the system, maybe you’re in direct competition with the outfitters and that doesn’t work but you get the idea. It’s like think locally, where would someone be located when they’re looking for this or when they’re thinking about it? There might not be a ton of local opportunities, maybe it’s all online. You got to try both to know what’s going to work and what’s not.
To summarize, I would geographically limit yourself and then I would focus on one side first and that’s going to be really, really hard to get and get just enough that it’s minimally viable, and then I would launch on the other side. You’re trying to bring in all the consumers to basically book the guides that you’ve signed up. You’re taking a small percentage of that, which is the challenge of this thing. Until you get to thousands and thousands of bookings, taking your 10%, 20%, 30% fee, this isn’t going to amount to much. You are definitely going to have a long road ahead of you, but I do wish you good luck on your journey.
Our next question comes from Chris Portier. The subject line is Pet Projects and Learning. He says, “Hey guys, first off, love the show. Been listening for about three to four weeks now on my commute to work, it’s amazing, props to you guys. I work in marketing for a Fortune 50 company and I love what I do, but it isn’t quite aligned with what I want long term. I love learning and I learn best when I have an idea, a theory, or a best practice to put to test in an application. I find it hard to find something that I can do on my own. I really want to learn and work my way up the project ladder to something that is sustainable/impactful. What things could I do/steps could I take to do smaller scale projects where I could take my learnings and put them into practice? Thanks guys. For reference, these are things like best practices, video techniques, targeting techniques, data analysis, and pretty much a little bit of every gospel of marketing.”
I think, Chris, you haven’t heard me talk about the stair step approach to bootstrapping yet and I’m not going to go through it here because it’s like a drinking game at this point, every time I talk about stair stepping, everybody takes a shot. I would recommend a couple things that one, you go search Google for the stair step approach to bootstrapping. You should find a blogpost on my blog, softwarebyrob.com, as well as a prior, at least a couple prior episodes, of Startups For The Rest Of Us. Listen through that and it should give you ideas about how to take something that you can do and launch something.
Whether it’s a book or whether it’s a WordPress plugin or whether it’s a video course, it’s something small. One time sale, typically a single traffic channel, that single traffic channel might be SEO, it might be people finding you in Amazon, it might be you have a small email list even at 500 or 1,000 people, and you’re not going to get rich off this but you’re going to learn so much. You’re going to learn how to make money on a project or a product like you’ve never done before. When you’re used to trading dollars for hours, that first dollar that comes to you that is from something that you made and just made a copy of is incredible, it is life changing. I say that with no exaggeration. It changed my life.
When I see people email in about their first sale, you can tell that it is life changing even if you only make $500 from this first product, it is incredible. The confidence that gives you, the experience you get, you learn what’s hard and what’s not, and you learn what you like to do and what you don’t. Maybe you learn this isn’t for you at all and you just want to be a higher paid, salaried worker, or you want to be a higher paid consultant. That’s a good lesson to learn. It’s a good thing to know instead of sitting there for years pining away thinking that the entrepreneurial life is for you. Odds are, I think once you make the money, you’re going to realize boy, I want to do this again and again and again.
That’s the stair step approach, it’s stepping up from one thing to the next, to the next, and doing what you love. If you’re motivated by learning long term, entrepreneurship is for you. Thanks for the question, Chris. I hope that’s helpful.
My last question for the day is a fun one and it’s from Brad. He says, “I hope you’re well. I’m taking a stab in the dark, I’m writing a blog post for my website on what it takes to be a successful podcaster. I was hoping you’d take a few minutes to add your comments.” He has a forum and I may or may not look at it, but I just thought it was an interesting question.
We do get this now and again of how do you launch a podcast, how have you guys become successful, how do you handle this, how do you handle that? I think the bottom line that I’ve realized is that you can hack initial growth of a podcast, I see folks doing this, I think it’s good, I think it’s basically kind of like doing SEO for iTunes in essence. You launch your podcast, you email your list, you get everybody to download it, and then you catapult to the top on New & Noteworthy. And then you got to build momentum from there.
That’s a great way to launch. That’s a tactic. What I’ve learned and realized through my experience and the experience of watching other people launch a great fanfare and some of whom have stuck around and some haven’t, is that it’s about showing up every week or twice a week or three times a week. It’s about showing up. It’s about relentless execution, which is a phrase that I use often. I don’t know any other way to build a large podcast audience other than to put in the time. You look at the largest podcast in the world, you look at Serial, you look at This American Life, you look at StartUp and The Gimlet Shows. You look at the Tim Ferriss Show.
You look at whoever else, Stacking Benjamins, they put out either a show a week, some put up three shows a week, but they put in time. You know that although Tim Ferriss is the four-hour workweek guy, you know he’s spending a ton of time prepping those guests, booking guests, I know he has people helping him do that for sure. He ships a show or two every week. He didn’t just rest on his laurels and his name and ship a podcast and then not record again. There is an aspect of being entertaining, providing value, and all that stuff. Yes, table stakes. You look at This American Life, amazingly entertaining.
Also, hundreds and hundreds of person hours per episode, but they show up. They ship an episode every week. I think that would be the first takeaway, don’t think that you can do it sporadically, you can do it as you feel like it. At this point, shipping weekly is now table stakes. I think two or three times a week is going to be even better, you’re going to build the audience faster.
The other thing that you should think about is there are really only three values or three pockets of value you can get from a podcast. One is entertainment, two is relationship—it’s a one sided relationship but there is a relationship. The third is tactics, how to. Let’s cover each of those a little more in depth.
You think about entertainment, this is This American Life. That’s a great example, Serial as well. You don’t listen to it because necessarily you have a relationship with anyone in the show or you feel the people in the stories on a long term, ongoing basis. Maybe you might listen to this podcast, Startups For The Rest Of Us, you might listen to Jordan and Brian on Bootstrapped Web. You’re following along on the story, it’s the journey of acquiring HitTail and selling it and launching Drip and being acquired by Leadpages. You listen to Mike go through Audit Shark and through Bluetick and his launch. Over time, there’s a narrative. Again, same with Bootstrapped Web, you follow along on their journeys of launching things. That’s the relationship side of it.
There’s a little bit of entertainment but it’s mostly because you like the people. That’s not how I feel with This American Life, although Ira Glass is obviously an amazing talent. I don’t necessarily listen to it because he’s the host. If they still put out the same quality show and someone else was hosting it, I would listen to it. I’m not sure that I would with Bootstrapped Web because I know the people, same thing with The Art Of Product Podcast. It’s Ben Orenstein and Derrick Reimer who’s my co-founder of Drip. Same thing, it’s their journey and you’re following along as they’re launching and building products.
I don’t want to get confusing here. What I’m saying is that the entertainment piece—I can listen to a comedy podcast, I can listen to a podcast about roleplaying games, and it’s just fun. It’s something to take my mind off of real life, in essence. That’s one thing you can do. If you’re good at that, do that.
The second one is the relationship and that’s building up a long term narrative that people really want to hear. You maybe could say a little bit that Serial is like that, although it’s more the story that you get tied to. Obviously, Sarah Koenig, the host, again if suddenly next season she was not the host, I would still listen to Serial because it’s a good show. For me, that, again, is more about entertainment.
The relationships are when you really start bonding with the people and their stories. If you met them in person, you would feel like you knew them. You can tell, man, I want to be this person’s friend, or maybe I don’t want to be this person’s friend but they’re interesting to listen to. I think sometimes folks listen to Marc Maron which is the WTF Podcast. There’s a bit of entertainment there.
There’s also the ongoing relationship of what is Marc going to do next. If you’ve listened to him for years, you’ve seen his whole journey from the depths of being an interviewer on a small podcast to having his own TV shows come out and really launching himself into fame. There’s a relationship aspect. That’s where the entrepreneur journey that’s going to take years is designed pretty well for that.
The third is the tactical piece. I think tactical can get you started, it’s what gets an initial audience going if you have no name because just coming onto a podcast and starting to tell your story isn’t that interesting, typically, especially if you’re just getting started and you don’t know what you’re doing. A lot of times, something tactical can be there to help people justify listening to it.
When I say you don’t know what you’re doing when you’re just getting started, you certainly know something. If you’re doing anything, you can talk about the experiments you did that week with SEO or AdWords, and then you can put out a podcast about here’s how I failed at AdWords. That becomes something that people can learn from.
Long term, this is feedback we’ve gotten about this podcast, if you listen to 350 episodes of this show, the tactics at a certain point aren’t that helpful anymore because you’ve gotten so far past where tactics are helpful, if that makes sense. I know that for me, a few years into my entrepreneurial journey, most of the podcasts I listen to that talk about five ways to do this, ten ways to do that, had very little value, had tips here and there, and I would always note them down. They had so much value upfront when I was just learning.
When you’re a beginner, you’re just thirsting for knowledge and that would help me, and I’d make notes, and then I’d go in and I’d implement him and I’d see what worked and what didn’t. As time goes on, more of the tactics come from your peers, from mastermind groups, from in depth conversations with friends and colleagues from attending conferences like MicroConf or BOS and getting new ideas from a really crafted one-hour presentation, from trying things on your own, and honestly still from podcasts. I don’t want to downplay that, that even though we put out 350 episodes or even though Conversion Cast has 100 episodes or whatever, trying to think of some other—I used to listen to some SEO podcasts. I still would pick things up because things do change and people try and do interesting things.
I think having a mix of probably two of the three that I just named which are entertainment and the relationship which is kind of long term narrative, and tactics. Having two of those three, you can pick any two, frankly, I think is a good combination to have. Then, just relentlessly executing on it and shipping every week. You’re going to start out pretty crappy, as Ira Glass says, it’s hard to get started creating any type of art because your taste is up here and your ability to produce that art is way down here.
It’s painful to hear yourself write a song or play music or produce a podcast or build a business or write copy or speak on stage because you know what it means to be good at any of those things and you’re going to suck at it for a long time, but you have to suck at it over and over until you get better. Eventually, you will see yourself on stage or you will listen to a podcast episode, or you will look at copy that you wrote six months ago and you will think to yourself that is badass, I’m good at this now.
That’s what relentless execution gets you; it’s showing up everyday and it’s doing shit that scares you.
I’m going to wrap up this episode. I think it’s funny, I don’t actually know if Mike’s going to listen to this, I don’t know if he listens to the show after we record it. He may never know unless you email and taunt him or post a comment, don’t taunt him I’m just kidding. You should totally let us know if this was an interesting format at all or if you feel like eh, we should have two people, I don’t know, I’m just curious. Now and again, it’s not like we’re going to plan to start doing a solo podcast episode, it really, truly was an emergency thing and I wanted to have new content out for you guys next Tuesday but would be interested to hear your thoughts.
You can email us at questions@startupsfortherestofus.com, post a comment on the website at startupsfortherestofus.com. This is Episode 360. You can also call our voicemail number at 888-801-9690. Our theme music is an excerpt from a song called We’re Outta Control by MoOt who was offered up under the Creative Commons license.
It’s actually interesting, go to YouTube and search We’re Outta Control by MoOt and you can hear the whole song, I’m sure they’re in Spotify as well. It’s kind of a trip when you hear it because you’ll hear the intro which is the part that we use. And then when he starts singing the verse, it’s so weird for it to continue and not to fade out after hearing our version hundreds and hundreds of times.
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Thank you for listening and I will see you next time.