Episode 184 | When to Pivot, Gaining Trust From Early Adopters and How To Handle Credit Card Expirations

Show Notes

Transcript

[00:00] Mike: This is Startups for the Rest of Us: Episode 184.

[00:03] Music

[00:10] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.

[00:19] Rob: And I’m Rob.

[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week Rob?

[00:24] Rob: Things are good. I am in Denver for copy bloggers authority conference. I think it’s called the authority intensive. So this is more about copywriting, content marketing and that kind of stuff so I plan on knowing almost no one who’s attending which is always a good thing to kind of expand the network and then hoping to obviously meet some folks and learn more about the modern day tricks and stuff that content marketers are using and so fun so far.

[01:49] Mike: Cool.

[00:50] Rob: Yeah and had a good dinner last night with several Micropreneur, MicroConf attendees, academy members just folks who follow the podcast. Ruben Gomez was there and Dave Rodenbaugh and Rudy from higher flow which is now square hire I guess and several other folks. So it was a good time.

[01:06] Mike: That’s awesome.

[01:07] Rob: How about you? What’s going on?

[01:08] Mike: I’m trying to wind down my consulting a bit and my schedule has shifted a little bit. So I said that I was originally scheduled to be done or at least be taking a break from it for a while in September and it looks like it will be next month instead of September. Shaved about three months off that schedule, kind of looking forward to it.

[01:23] Rob: Very nice. Congratulations man. Very nice. You’re going to have more time than you know what to do once that’s all over.

[01:29] Mike: Well that is the plan.

[01:31] Rob: Yeah indeed.

[01:32] Music

[01:35] Mike: This week we haven’t done it in a while so we’re going to go through a bunch of listener questions. They’re kind of stacked up but we’re going to try and do our best to work through them. And the first one comes in from Brecht and he says Mike and Rob I’m a faithful listener by having found you only about a year ago I can’t say I’ve listened to all of them. I was wondering if you’ve ever discussed online storage in detail. I’m working on a web app for the construction industry. I’m wondering where this should ultimately be hosted. I find myself wanting to know more about services such as AWS and I thought others might have some similar questions. If you think it’s appropriate, I’d love to hear more about where you guys host your apps and the cost that you guys have. Tanks for all the free info you guys provide.

[02:10] Rob: Yeah I mean there’s a ton of options out there. I don’t think there’s any one right answer. I’ve always thought and I’ve used shared hosting on Dream Host for years. Dream Host is not a fantastic host but they’re very inexpensive and if you’re going to be building your app for six months, then it’s a great place to pay – is it $10 a month now? I don’t know what it is but it’s very, very inexpensive and you can host rails there. You can host PHP. Some Linux hosting so you can do a bunch of stuff. That is where I’ve had an account there for 7 or 8 years.

[02:38] As your server gets older, they don’t upgrade it and it gets slower and slower especially for the first several years it will work really well but I see Dream Host as a place to go, get cheap hosting and then once you get traction on something, and then once you get traction on something, once you’ve launched then you move over to one of the more expensive providers like an AWS or like Rackspace. Now I’ve heard bad things about Rackspace’s cloud servers from a friend of mine, a startup founder. He said that the performance isn’t that great so he may have to go and Hostit like an actual dedicated box or something. I haven’t done it. I haven’t used their cloud servers. We use Amazon EC2 now and that works great but it’s pretty freaking complicated. You know?

[03:15] It’s not something like Dream Host you enter a few things boom you have a website up. So if you’re more of a beginner, that’s a good place to go. Amazon is a learning curve just to learn how to provision boxes and you get bare metal and you have to install everything. So there’s a lot of time investment there but it’s certainly a good solution long term. And then what’s nice about doing with Amazon ultimately is that if you do need to store files, you have S3, if you need DNS, they have DNS service so they have a whole ecosystem around it. The one other place that I’ve heard about that’s pretty up and coming is called Digital Ocean and it’s simple cloud hosting built for developers. That’s their headline.

[03:49] And I know some folks using them. They have really cheap VPS. You can get like a $5 a month VPS through them. It’s only half a gig of memory and 20 gig SD drive but they’re scaling up really fast. So that’d be someone I’d keep my eye on and for $10 you can get 1 gig of memory so I haven’t tried it personally I do know a founder who’s using it to great effect so maybe if you have the experience, I’d kick it off with Digital Ocean instead of Dream Host and give it a try if you’re willing to experiment with it.

[04:18] Mike: Just to kind of piggy back on the things that you said about Dream Host I use Dream Host as well and I’ve also kind of encountered some of the speed issues that Rob has over the years because they don’t tend to upgrade those machines terribly often but about a week or two ago, I got an email from them saying that they were going to be upgrading my machine. So they took my VPS and they actually moved it to another machine that has an updated hardware platform. So things seem to have gotten reasonably fast on that machine. So they do upgrade them on occasion but Rob’s definitely right. I mean they will go for years without upgrading it especially if nothing breaks.

[04:53] On the Rackspace side, what I found was that their version 1 cloud servers were quite a bit slower. Recently they’ve started doing everything on their version 2 of their cloud platform and their version 2 servers are all backed up by SSD drives. So there’s a huge difference between version 1 and version 2. You do have the option to migrate from version 1 to version 2 but I haven’t done it yet because I have a lot of stuff on there and there’s a lot of DNS entries that I would probably have to upgrade because they are switching things from IPV4 to IPV6 and I don’t know all the implications about the additional IP addresses that I’ve had there.

[05:28] So the last thing that I used is Microsoft’s azure platform. So I’ve got some servers out there. Initially they seemed like they were a little slow but I think that it’s in many cases very similar to what rob experienced with AWS is especially when you’re going towards the hosted platform for azure where there’s a huge learning curve to be able to spin up and spin down those machines and get all the software and everything else that you need installed on it and be able to deploy new builds and things like that. It can be extremely complicated so there’s a huge learning curve there.

[06:02] If you can get away with avoiding all that stuff, I totally would before going to that. I think that it’s great for having the back end and all the different storage options and load balancing and all that kind of stuff but I almost feel like its overkill for I’ll say entry level Saas applications because you don’t necessarily need all that stuff. You can get away with just a single server at Rackspace or something like that. And you can also get just a single server as a VPS over on the azure platform but it’s just a sort of different technology there.

[06:30] Rob: Yeah. This is such a form of premature optimization or can be. Unless you have paying customers or a decent size launch list then I would choose cheap hosting. I would go with Dream Host or I would take a flyer on Digital Ocean do a $10 a month thing and build and deploy on that. Until I have a reason to move off of it and bite the bullet. That means until you have enough load or until you’re having enough problems that you need to do a migration. We had to do a migration of the drip database within the first few months because we got a bunch of customers, had a bunch of load and we moved from a Roku post grade instance so I moved into EC2 and it did suck like it was I’m not going to paint a pretty picture of it but we got it done really quickly and I don’t regret the fact that for the previous year we weren’t on this enormously expensive database server which is what we’re on now.

[07:20] Because a, it saved money and B, we didn’t need to get a DB involved because the post grade one, we had to do the backups and did a bunch of other stuff for us. So at this point it was like well this idea is viable. we have paying customers and it justified me A) getting a DB involved then paying him to get everything setup with backups and all that kind of stuff and B) just to do the move and to really get a beefy server. So this is one of those things to put off as long as possible within reason I mean if customers are having issues, that’s the time to start making a quick move to a new server platform.

[07:51] Mike: Anything where you’ve got a virtual machine of any kind, you always have the option to throw money at the problem and buy yourself time and that’s kind of the bottom-line here. If you can buy in to a VPS at the lowest possible level you can always throw more hardware and more money at the problem later when you do have paying customers. So thanks for the questions Brent.

[08:09] Our next one comes in from Joel and he says hi Mike and Rob. My question is how do you know when to pivot? I’ve been putting it off because I feel that many entrepreneurs pivot too early. My Saas app launched three years ago and is making a steady income. It’s a horizontal membership management tool for nonprofits but I found that 80% of my customers are youth ministries. Targeting this market specifically might have an upside but it’s not a guarantee and I don’t want to lose the other 20%. So what’s the rule on when to pivot to a specific vertical? Is it 80-20, 90-10 60-40 or something else? Thanks. Joel.

[08:38] Rob: I guess it really depends on the growth. So first of all I don’t think there is a role. I think it’s got to be a gut feeling. I think that putting it off as long as possible is probably a good thing because I also think a lot of entrepreneurs pivot too early. With that said, if you’ve been flat in terms of earning for 6-12 months and you’ve tried all the marketing approaches and the optimization and I mean whatever approaches you can to grow this and its not growing, then that’s where I start thinking about not pivoting but about either niching down which is what you’re looking at or niching out, deniching and going to a more horizontal.

[09:13] Since you’re already horizontal, I would consider just putting a landing page or kind of a mini marketing side together for the niche for the youth ministry niche that you’re looking at. And experiment with starting to drive traffic to that page and set to the home page if they’re coming from the youth ministry places. Or if you already have a bunch of organic traffic and it’s all going to the home page, then switch the home page and then add a separate landing page for everybody else for the generic version and start trying to send your generic traffic there.

[09:41] I don’t know if that’s as much a pivot as just trying to position yourself. Right? Trying to hit different audiences with your marketing. It actually requires major feature revamps, that’s what I would consider that’s a product pivot. You’re talking more about a market pivot, a market or a marketing pivot and those two are of different levels of effort because market and marketing can be changed fairly quickly whereas product involves getting developers involved, writing new features, changing on boarding, changing on boarding email sequences, it’s a whole different deal. So if it has been a while and you haven’t had growth I would first look at trying to do a market pivot but almost splitting it like I said where you have multiple sites and landing pages and you can cater to multiple markets and only kind of worst case would I then think about okay am I really going to change the app in order to cater to this audience?

[10:31] And I would also ask, is there a way that you can find this out without going and writing code? What’s the quickest way to validate this assumption? Could you ask your existing customers? Could you ask your existing trial users? Do you have an existing email list of people who’ve been going through a mini course that are just prospects and not even trial users. Could you try to survey those three audiences with questions that will get rid of this assumption so you’re not just guessing but you’re actually getting some data upfront that can help guide this whether you make this pivot and then what kind of pivot it needs to be.

[11:02] Mike: Yeah as Rob was talking, one of the things that I thought about was there’s a website that I’d look at a while back for managing membership website called groups is grou.ps and if you go to their website, they have – it seems like if you start looking at their website, and try and figure out whether or not it’s applicable to you, they have like all these different landing pages all over the place that target all of these different niche markets that might want to use their product like they’ll have specific areas and landing pages for youth ministries. They’ll have one for coaches, college coaches, high school coaches. They’ll have some in there for like ballets, just all this stuff in there that they’re trying to market to all of these different things.

[11:41] And it seems to me like if you’re a small business, it seems like doing a lot of those all at once is probably very, very difficult to do and I think that Rob’s kind of on the right track going down and in figuring out whether or not you can validate those assumptions about whether or not the specific markets are going to be more applicable or kind of the valuable area to go after even if you ignored those other ones. I mean can you market much more effectively the app to just youth ministries versus that other 20% was your message getting deluded by trying to gather that other 20% and increase that percentage.

[12:14] It almost feels like if you’re not doing that already and you’re kind of originally gathering that 80% already, it almost seems like doubling down on that would probably be the way to go. I mean it seems like if you focus on them, you would probably attract a lot more than you already are because they may not be finding you. How are these people getting to your website? I would start backtracking a little bit and see if maybe your marketing message is getting spread through these ministries? I mean maybe that’s where a lot of the source of your marketing efforts are coming from, it’s not from you directly it’s from these people sharing the word. They go to conferences or talk to each other and say hey, well how do you manage your membership? How do you get people to come in a lot more? And maybe they’re sharing it. So it maybe has this sort of viral component to it that other industries that might use your products might not have. So Joel, hope that helps. Thanks for the question.

[12:58] Our next one comes in from Stefan and he says hi guys long time listener here. I have a question for you about Saas billing. Do you use a specialized payment provider such as Chagify, Recurly or ChargeBee to handle recurring payments done in retry management or do you manage all this through custom code? I’m looking to switch to one of these providers as my biggest headache right now is managing failed payments. It’s turning into a real time sync. As you know, customers do not like updating credit card details. All the best, Stefan.

[13:26] Rob: So I don’t use Chargify or Recurly. In some apps we use PayPal subscription which I don’t recommend. In other apps we use Stripe and we custom code everything because I want to be in full control of everything. I would actually recommend going to Stripe and using their subscription API. They will handle a bunch of that stuff for you. They handle the dunning emails. The retry manage all that stuff and it just requires – there’s no extra cost for that. The nice part about doing that is its cheaper than using Chargify Recurly or ChargeBee me because they add an extra percentage on top of a service like Stripe.

[14:03] In addition, once you get that going, there are some providers that are now tying into Stripe that are doing like phone calls to your customers to get them to update credit cards. So one that I know of is called Churn Buster. Its churnbuster.io I’ve had a look inside that but I can’t use it. I would use it in a heartbeat but I can’t use it because with Drip and HitTail we don’t use a subscription API. We just use the bare bones make a charge API and we have all the scheduling and the retry and stuff built into our code.

[14:33] Now the reason we did it that way is 1) because it didn’t take that much time to write. We already had it built for another app but we’re able to just move it in and 2) because there’s some really fine subtleties that I wanted to be in control of in terms of upgrading and downgrading on a monthly basis based on usage and if you have that it does get a little more complicated because you have to keep hitting and updating subscriptions through the subscription API but all that said, if you can, let’s say you have a reason not to, I would consider using that subscription API because not only do they give you the basis for it but then there are these other services tying it into that I think can help with the dunning emails and the retry management that you’re talking about.

[15:10] Mike: Yeah. The only downside to using that which I use it for one of my apps is you basically have to create web books on your side to be able to handle those call backs to your application to be able to perform those different actions which is not a terribly big deal I don’t think because you’re still going to have to write code to handle a lot of the stuff anyway. Another option is to use bestunning.net and they have basically a mechanism that hooks into that stuff for you and again you’re probably going to have to write some code there as well.

[15:38] Personally I kind of went the custom route just like Rob said to just kind of be in control of the entire process from beginning to end and you know exactly what’s going on and if you have special cases, you don’t have to worry about it. You don’t have to worry about working around somebody else’s API. You don’t have to worry about somebody else doing something that’s going to break your stuff. The biggest thing that I have to worry about is whether or not Stripe is up and running and whether everything works properly. As long as they’re making sure that all their code is backwards compatible with other API’s I really don’t have to worry too much about it. If you don’t have the time then definitely use one of those other options but I think that if you do, then investing in writing that code yourself is probably a better option. So thanks for the question Stefan.

[16:15] Our next question comes from Khalil and he says hi Mike and Rob. I’m building a startup in Saudi Arabia which involves a centralized website to act as a portal for patients in the kingdom to create appointments with any medical provider in the region online. Currently we’re looking for an early adaptor for our system but all medical centers that we’ve visited so far is skeptical of having an integration with our system. What do you think we should do? How do I get enough trust form these people to have them act as an early adapter for a medical application?

[16:45] Rob: As a first time bootstrapper, I don’t know that I would go after medical applications. In the US they have HIPAA laws which are the health privacy act laws and they are very, very strict and it requires a lot of work and typically medical providers won’t work with some bootstrapper like a single founder with no funding and just kind of person off the streets so to speak. It’s tough to say. I would hate to tell you to bail on this idea but this seems like an uphill battle. If you can’t even get people to talk to you about how are you actually going to make sales on the long run?

[17:18] Mike: It sounds to me like the value proposition doesn’t overcome the trust issue. I don’t know exactly how you would overcome that trust issue, I mean really, maybe you go after universities where they have a little bit more openness with regards to the information that they’re sharing for example. So there’s any sort of clinical research or something like that on going on where they’re going to be publishing and sharing the results of those things, then potentially that’s an avenue but I think that going after those medical centers directly would probably be difficult just for the reasons that Rob pointed out.

[17:48] Rob: Try an alternate route first because you’re trying to attack that problem head-on right now. Right? You just go into the big medical place trying to go in there but if you can figure out someone who maybe doesn’t have the restrictions of the medical privacy like Mike said, people are doing research or someone who’s already make it public or just somewhere where it’s a little bit of an easier in, that’s what I would look to do because the value proposition outweighs the risk.

[18:10] If you’ve tried to validate that and you’ve talked to 10 facility and they all basically said no chance, then to me you’ve kind of validated that the assumption is incorrect so then the next step is what do you do? I don’t think it’s well how do I build trust? How you build trust is you’d raise a bunch of money and build a huge product and I mean that’s how you build trust. You say we’re backed by so and so. What are they going to trust? What name can you have on your board or what name can you have as an investor or what certification do you need? I mean these are the things that would build trust but all of those things has completely changed the shift of your business. They’re expensive, all of these things make it really, really hard. To me it’s a non bootstrapper friendly business at that point.

[18:50] And so that’s what I would look as how can you take this idea and move it into something that is not either so heavily regulated or just so heavily not as willing to move forward with new technology like the medical field probably is.

[19:01] Mike: My thought with modern pivot there was that you could essentially leverage the university’s name and say we’re working with this university over here and they’re using it. So it’s good enough for them. And a lot of those universities have relationships with hospitals and medical centers in the region because if they trained doctors at the university then those doctors need to go to do their residency some place and you can kind of leverage their name.

[19:28] Now, it’s not say that you don’t go after that and just stay there. I mean that’s entirely possible. It maybe that it’s very lucrative to stay over there but I think that would probably be the easiest way but as Rob said, just going head on is just probably not going to work. It seems like you’ve validated that’s not going to work. I think that the appropriate thing to do would be to kind of pivot a little bit and then see if that works and if not maybe look around and see what your other options are. So thanks for the question Khalil.

[19:52] Our next question comes in from Paul. Hi Mike and Rob. I love your podcast. I’m very happy I found you guys. Here’s the issue I have. I run an ecommerce business in the past that I started from scratch that allowed me to learn every aspect of the business from marketing and technical to customer service and operations. It also helped me identify many gaps that are there in the ecommerce business. One of the gaps I identified was the inability for smaller merchants to obtain a discounted shipping rate from major couriers unless they ship large volumes. Also here are only a few order management systems that allow multichannel processing and provide shipping discounts.

[20:23] So about six months ago I decided to build a system that will integrate with multiple sales channels so that will multiple sales channel such as eBay, amazing, magenta, big commerce etcetera as well as shipping carriers. The system provides merchants with a simple way to print multiple shipping labels using discounted shipping rates. I was able to negotiate volume discounts with DHL and UPS and I’m now negotiating with the United States postal service. About halfway through development and I’ve dropped a significant portion of my savings into it which has put me in a slight state of anxiety. I find myself jumping around constantly changing scope from starting small and building a system for eBay only and for DHL.

[20:57] The next day I wake up and feel that customers would not be interested in only those two options and I changed the scope to eBay, Amazon and a major shopping cart working with DHL, UPS and FedEx. Listening to your lean startup episode kind of put things in perspective and I’m more confident about the strategy now.

[21:12] Rob: My first advice to Paul is I don’t think that you can go based on your gut feeling because day to day your gut feeling will change especially if there’s a lot of money on the line and you’re stressed about it. I think you should stop writing code and I think you should talk to people who are willing to pay you money for this. I would try to connect if you’re not already connected with the tropical MBA audience, there’s ecommerce podcasts, there is the Dan and Ian’s DC. There’s a lot of ecommerce folks in that space who are they’re nice folks. They’re willing to lend an ear and if you run an ecommerce site you may know a few but that would be my question is what are they doing and what can you build for one customer or five customers who are willing to pay you money?

[21:53] So if they only need eBay and DHL and they’re like yes I would pay X amount for that, find them and build the product for them. But if they say no, it has to have all these things, then either decide to build all those things which sounds like a ton of work to me or find someone who has a little simpler use case.

[22:07] Mike: You get those first couple of customers that need one of them. I mean I can’t imagine that a small retailer would have a preference for who they want to use. Do they want to use DHL or UPS or FedEx or the postal service? It seems to me like they would have a preference and on their website they’re probably only offering one or two of those options. So build those options for that one customer and then expand from there. I don’t think that you need to launch with all of them. You need somebody to pay money of course but starting with one customer, two customers or three customers who have overlapping needs, that helps gets you where you need to be and eventually down the road sure you can put those other things in the roadmap but I don’t think that they need to be there on day one.

[22:45] Rob: Right. And this is something that Dan Norris had talked about who launched informally where he built 15 integrations or something. He said he regretted doing that he should’ve started with one, figure out if it was valuable and then expanded from there. So I will link towards that. I would also say you mentioned the value proposition. There’s these two sentences. You said one of the gaps that I identified was inability for smaller merchants to obtain discounted shipping rate unless they have large volume. So that’s one value prop. Then you say also there are only a few order management systems that allow multichannel processing and provide shipping discounts. So we have discounts and we multichannel processing. Which of those is most important? Which one is the wakeup in the middle of the night what are the ecommerce people really want? Do they want discounts or do they want multichannel?

[23:27] Because my guess is it’s not both. And if you dump one of those, you make this a lot simpler because if you dump the multichannel, and you just go after discounts then I would just start with one provider. Right? But if you find out that no, these guys really want multichannel and discounts would be nice, obviously discounts are always nice. Right? But the multichannel is super important, then your revenue model comes into place. Because if the discounts aren’t as important then you can take the cut or you have some play there. But trying to offer both discounts and multichannel I guess there’s a reason that hasn’t been done already either dealing with complexity or price so I think you kind of want to nail then that single value prop of these early stages of bootstrapper you can’t serve too many masters with your product.

[24:08] Mike: Yeah. It seems like going overboard on simplifying it would probably be appropriate because if you get rid of the multichannel and then just focus on the discounts it makes your marketing proposition a lot easier too because you can say hey if you sign up for this service, we’ll be able to get you volume discounts and well be able to save you X dollars a month on your shipping based on whatever percentage is and we’re only going to charge this month to you. So it’s a no brainer at that point. It makes selling people very, very easy at that point.

[24:34] Rob: Right. Get big company discounts even if you’re low volume. Right. I mean that’s kind of the headline that I would start with if that’s truly the value prop.

[24:43] Mike: So second point was I want to your opinion about my business model. Most of the competitors out there are all based on monthly premiums ranging from $50 to $150 monthly. I thought that I would not be changing my customers anything but take a small cut of the shipping labels that they print. Being that I’m providing a discounted rate I thought I would charge a small percentage of the label cost without the customer ever feeling impact.

[25:02] I think this is a bad idea and the reason is because you almost get into the situation where you’re going to end up with a lot of people signing up because they want to check it out because they’re not paying a monthly fee and whether they use it or not is almost immaterial to them because if they only pay for it when they use it then if they’re going to use it a lot then great. But you may very well end up attracting a lot of the people who don’t necessarily have a lot of money. They don’t have enough volume and you’re going to have a thousand customers that give you like pennies on each month. And I would be very concerned about that.

[25:38] I mean you’d much rather have 50 customers paying you $50 a month than 1,000 or 2,000 customers each of whom you’re only getting maybe $3-$5 a month because they’re only shipping out one or two things. That would be an area of big concern to me.

[25:53] Rob: I have concern I think this could work but I think it needs a specific couple things to fall into place. 1) That percentage should not be small. You need to make a substantial amount on each package and that’s where I was saying if you can nail it down that they really just want the multichannel, you don’t even need to talk about discounts. There’s a company right now and I forget if there called shipped or ship it, they are making all their money because they give these massive volume discounts and they will take your stuff and ship it for you but they just charge you the rack rate, the list price for the UPS stuff and they take the entire float in between that and that can be several dollars per shipment and that’s the kind of revenue you’re going to need especially if you’re going after small ecommerce sites so what do they ship? 10 things a month? 30, 40, 50 things a month? We’re not talking about thousands a month or else they’d get the volume discount.

[26:44] So if someone’s only shipping 20 things a month and you’re making 20 cents per then you’re making $4 a month off you customer. You’re done. You’re never going to be able to acquire customer for less than that. So if you are going to try to go after this model, I’m talking a buck, $1.50 per shipment that you need to make and so then those 20 shipments actually makes you $20-30 a month and if they stick around then you do have some kind of lifetime value there. I like the idea of trying to go around the monthly subscription model that the other guys are doing however you’re a bootstrapper and that makes it a lot harder because the clearest path to revenue and profitability for you is to have recurring revenue.

[27:25] And so to me, this can be something to try out but in the first month or two, if you have people signing up and their volume is really low and you’re not making enough money, I have seen a number of companies including shoppify. When shopify first launched, all it was was a cut. It was a percentage. There was no monthly fee. Within six months they had a $20 monthly fee and now if you look at them, their monthly fees are pretty substantial to be honest based on volume. And the reason they did that is because that’s the way you grow and that’s the way you actually build a profitable business is having these monthly fees for better or worse I know that some customers may not like them but the customers that do and the customers that actually are willing to pay it are going to be the best customers. Those are the ones that you really want to get in and use the product.

[28:08] So I’m a little concerned about it. The ones that I know that take that percentage are typically funded companies and they can outlast. And in fact if you go back and watch Jason Cohen’s talk from MicroConf 2013 he talks about the idea of bootstrapped business and he says don’t build a business where you’re taking a small percentage off of each transaction because you’re probably not going to get to the level of volume. And so that’s what I’m saying. If you do take a percentage, it needs to be a large one.

[28:32] Mike: His third question is what do you think is the best approach to make this type of product? I thought it was just starting out with 1-2 customers and have them running with it for some time. I could also use my ecommerce business for testing.

[28:41] Rob: That’s two different questions. Right? One is how do you market this and two is like you’re talking about doing customer development. For customer development I would hope that by this point that you have 5 or 10 people lined up that are really chomping at the bit to use it. If you don’t, please stop writing code and please go find these people whether it’s through your network which is probably where I’d start, whether it’s their forums, whether it’s through writing into tropical MBA podcast, whether it’s I don’t want to get down and send a bunch of email but it’s that’s type of audience where there’s going to be people who can at least tell you if they need it or not. Right? It’s going to be an easy discussion when you talk to 30-40 of ecommerce vendors and they all say hey, this is fantastic. Heck yes, build this. This is what I need. Or they all say this isn’t really solving my problem. And that latter response is going to be really disappointing to hear but it’s better than continuing down a path that may not yield you anything in the end.

[29:34] Mike: Right and those discussions are going to help you formulate what the best approach to market the product is because they’re going to tell you where they would’ve searched for it or where they already searched for it and what sorts of things that they’ve looked at and what they found lacking. I mean just talking to customers and asking them bluntly what else have you tried or what else have you used to solve this problem that has not worked? You get that answer back from people and they will tell you not only what they’ve tired but why it didn’t work for them.

[30:00] And that can guide you to figure out how your products needs to be positioned in terms of the negative marketing effects to say this is not how we work. We do this other thing over here and you tell that to people upfront because chances are really good that other people have encountered that same problem and they tried whatever the other solution was, it didn’t work for them and the reasons were the same. And you can leverage that to your advantage with your own application.

[30:26] Rob: Yeah and I think the answer to the first part which is what is the best approach to market the separate product, its every marketing approach that I would use for any SaaS app because that’s essentially what this is. There’s SEO. There’s content marketing. There’s paid acquisition. I mean it’s all the stuff that I would use. There’s no best approach. It’s that you have to try a bunch of stuff, figure out what works and double down on them.

[30:45] Mike: And his last question is my other concern is the competition. These guys were all pretty big with deep pockets and provide many more features in a shooter period of time. I would argue that’s probably not true. The fact that they’re bigger means that they’re probably going to ignore you and even if you come out with some great feature, they’re probably just – even if they do see it, they’re probably just not going to bother implementing it because it’s just going to take so much time to implement it in their environment because of corporate red tape. If they are that big, they will largely ignore you until you start stealing enough business and any given market where they have sales reps and they will notice at that point.

[31:21] But I remember talking to the VP of marketing of several companies that have been purchased under his watch and he basically said flat out he’s like large companies will not notice you until multiple sales reps have their deals stolen from them and they tell their manager in the same quarter because there’s relatively high turnover there and you just will not get notched. I would not worry about that.

[31:46] Rob: I think the only thing you need to figure out is how are we going to answer the question when someone says how is your product different than big competitor? Right? You need to be able to answer that in one sentence very quickly and not need paragraphs of like well we have these other features and we have blah, blah it’s like what is the value prop? You can say well they only do one shipper and we do all five or they don’t gave you bulk discounts even if you’re a small vendor. Those are the two things that you’ve mentioned that peaked my interest the most.

[32:15] So if they do both of these things then I don’t know what your competitive advantage is. And if they don’t do those things but those things aren’t important to potential customers then you’re going to have a real struggle. But in terms of big competitors, I would not even worry about them at this point especially if you’re building something that is different enough that small businesses will take notice.

[32:36] Mike: So Paul thanks for the question and we have a second Paul for our last question. He says hey guys, I started listening to the show a couple months ago and its really changed how I think about my startup. Want to say thanks to both of you for such an awesome podcast. My question is this. I sell downloadable shrink wrap software, analytic tools like Kiss Metrics make it possible to see that Joe visited my website, browsed some pages, subscribed to a mailing list and downloaded the software. But then there’s a disconnect. Joe works for a big company and his company only buys software from approved vendors so the person who enters their credit card to buy the software usually isn’t Joe. They may even work from a different company. From analytics point of view, are there ways to know that it was Joe who eventually bought a license even though someone else actually paid for it? How can I test ways to increase the chance that Joe will buy a license if I can’t tell whether Joe did buy a license? Thanks. All the best.

[33:20] Rob: Well, first thing is you can’t. I mean there’s no way to do it for sure. But the first thing I would do is start doing email domain match ups. I know you said it could be from a separate company. My guess is that’s less of the time. So if you can start matching up the domain name of the email address, cross everything right across your marketing funnel, your trials, your downloads, your page, your customers and just match those up then it can at least give you some insight that there were multiple people from the same company looking at and buying.

[33:49] We’ve done this. I’ve done this with .net invoice because we see similar stuff or multiple people from the same company evaluated and a different person buys. So that’s a decent way to do it. The other way I would do is when someone buys a license, I would either have a question right there when they buy it or I would have email follow-up that basically says how did you hear about this? Can you please let us know if you’re buying this? Are you buying this on behalf of someone else? How about that question on the purchase page? Ask if they’ll enter a name or enter an email or enter a company name. Just try to get a data point there. But that’s the only way.

[34:20] Mike: I mean in terms of something like Kiss Metrics, you’ve got all the data down to the point that where they downloaded the software, what you don’t have is the person who came in and actually made the purchase and should be able to basically hand some of that information off to a VA or something like that to have them basically take a look at that very last stage in the funnel where there’s a purchase being made.

[34:41] The other thing you could do is you could also try and match it up on the licensing itself. So when you send them a license, ask them to register the software and as part of the registration for the software ask them for their email address and you may be able to open up a browser something like that and get their cookie information that way but obviously that’s not going to work if they’re installing it on a server and they downloaded it from their desktop so there’s some issues there. But you may very well be able to get them to enter in their own personal email address there and use that as essentially a mechanism for feeding some of that information in. It’s not full proof. It’s probably the best you can do but I think that in general, I think this entire problem is pretty hard to solve.

[35:20] Music

[35:24] Rob: If you have a question for us, call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.

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7 Responses to “Episode 184 | When to Pivot, Gaining Trust From Early Adopters and How To Handle Credit Card Expirations”

  1. Hey Mike & Rob,

    Just wanted to send a quick note saying thanks for covering my question on when to pivot. Definitely gave me some things to think about. This podcast is a great resource for any solo bootstrapper!

  2. Hey Mike & Rob!
    Another great episode. I want to comment on hosting options for a startup. I was surprised to hear when you guys discussed AWS & Azure as options you pretty much focused on the IaaS offerings, specifically the hosted VMs (AWS EC2 & Azure VMs). From my POV the IaaS is great when folks need to migrate form on-prem to the cloud or use components that need to be configured to run on servers and aren’t ready to deploy to the cloud. With IaaS you have to deal with patching, security, A/V, malware, performance, etc… you’re in the management of your OS… you’ve simply outsourced your hardware.

    However the PaaS offerings in the cloud are much more appealing IMHO when building a new product. Using this option you don’t manage servers… you only buy the services you need like websites or storage or databases or messaging… etc. This also allows you to leverage new-er service options like notifications (for mobile apps) and media services (for rich media apps). Plus, you only pay for what you use (unlike with VMs where you pay for using the VM, even if the VM is only utilized ~15%).

    Both AWS and Azure have options for startups to save a ton of money. AWS has a startup initiative called “Activate” and also a Free option where you get a quota for a number of features. Microsoft has their BizSpark program which includes a sizable Azure credit so you use any of the services you want, with no quota, but you get the first X dollars creditted off your bill (and if you go over, you can elect to have that charged to your card or just tell Azure to stop using the service). Plus Azure offers up to 10 websites for free (there are some usage quotas on there).

    Both of these options are awesome for a startup because you can effectively develop your app, and maybe make it a good ways into your launch, without spending a single penny on your hosting. Plus if you hit it big, you can also scale out a heck of a lot easier than scaling out VMs IMHO.

    Keep up the work and great show… and great MicroConf!!
    -AC
    me: http://www.andrewconnell.com | @andrewconnell
    my startup: http://www.kerrb.com | @kerrbapp

  3. Hey Mike and Rob, thank you for covering my questions and giving me great advice. Love your podcasts and anxiously waiting for the next one.

    Paul.

    Twitter: @shipmax

  4. correction: my twitter handle
    https://twitter.com/shipmaxcom

  5. Hey guys great EP always delighted by the shouts! :D

  6. More people should consider Linode.com and DigitalOcean.com for better spin up times, networking and compute performance. Ask yourself how long it takes to spin up an instance on AWS, Azure, or Rackspace. I don’t think it will be anywhere close to 55 seconds. Though if you are just getting started and need something simple, Dreamhost or Bluehost would be better options.
    Linode.com recently started offering per hour pricing to compete with DigitalOcean.com DigitalOcean and Linode offer different configurations as well as API / CLI ( command line interface ) for administrating servers. Both providers now have data centers in multiple geographies (Asia Pacific, Europe, SF, multiple US)
    Note that DigitalOcean.com offers
    512MB, 1GB, 2GB, 4GB, 8GB, 16GB, 32GB, 48GB, 64GB
    Linode.com offers 2GB, 4GB, 8GB, 16GB, 16GB, 32GB, 48GB, 64GB, 96GB

  7. On the last question about matching up licensing between the person who uses the product and the person who paid for it – could you perhaps record the IP address of the people who research or trial the software, and the people who buy the license, and compare them.

    If they’re a large company, both people may not have the same IP, but they could well be on the same subnet (i.e. the first three sets of numbers would be the same.)