Episode 21 | A Change of Direction
[00:00] Rob: This is Startups for the Rest of Us: Episode 21.
[00:13] Rob: Welcome to Startups for the Rest of Us, the podcast that helps developers be awesome at launching software products, whether you’ve built your first product or are just thinking about it. I’m Rob.
[00:21] Mike: And I’m Stevie J.
[00:23] Rob: And we’re here to [laughs] share our experiences to help you avoid the same mistakes we’ve made. So if you haven’t heard episode 20, go back and listen to the intro. We made our editor, who’s normally very stoic and quite sarcastic, she laughed…She actually sent us an email and said, “You guys made me laugh for the first time ever.”
[00:43] So all of our efforts to get our editor to laugh have finally paid off. It was the Stevie J comment. So Mike, what’s the word this week? What’s new?
[00:52] Mike: Not much. Just trying to keep up with things. And like I said, just trying to batten down the hatches and get ready for the fall. I’ve basically taken most of the summer off; mostly a summer hiatus from my blog, from software development, from pretty much everything. I haven’t done a whole heck of a lot to be perfectly honest. I’ve kept up with a bunch of things, but like I said, just kind of getting ready for the fall. Kind of putting together some project plans for some things that I have going up.
[01:15] I’m mostly doing some presales calls with some perspective customers and trying to figure out exactly what it is that they want for an upcoming product that I’ll probably be launching, thinking maybe November or December of this year. Possibly as late as January, but we’ll see how things go.
[01:33] Rob: You said you took most of the summer off, but you went to Germany twice, right?
[01:36] Mike: Yep. Went to Germany twice. Went to Switzerland twice. I actually saw fireworks right across the lake that’s in the middle of Switzerland. I don’t even know what it’s called, because I was a little inebriated at the time. But just watching the fireworks across the lake and seeing the planes kind of land over in Geneva, it was really, really cool. It was a lot of fun. I had a good time. So what about you?
[01:56] Rob: Not much new since last podcast. My wife is back to work, so I’ve been working on the new schedule, both she and I. So we kind of have shared duties with the little guy. He’s about seven weeks old now. And so I spent the morning working with him in the room, which works out pretty well for maybe the first three or four months, in my experience.
[02:14] And he would interrupt me every 15, 20 minutes. But I actually found…I was thinking about doing a blog post about this. I actually found his interruptions quite helpful for my productivity, because it made me really intense about what I was doing when I had time. Like, I was in a hurry doing everything, in a good way. Like, it motivated me to stay really focused on not wonder off when I had the time.
[02:35] And then when he did interrupt, it was just surprisingly…it was fortuitous. He would interrupt me and I would stand up and carry him and do something else. And it gave me this time to think about what I was going to do next and to kind of plan it out in my head. And then when I sat down, I was ready to roll. So it was kind of interesting.
[02:52] Of course, in two months I’ll be saying, “Oh my gosh! I’m getting nothing done!” But for today, the first real day of this, it was pretty good.
[02:58] Mike: That’s cool. Yeah, I’ve found that even in the past in other stuff that I’ve done, if you try and focus on being productive, you are actually a lot more productive because you are concentrating on it. And if you’ve got deadlines and things like that, you really have to buckle down and make sure that you are not wasting time doing things that either don’t have relevance or aren’t necessarily as important to get done right this second.
[03:22] It definitely does help. But it seems to me like there is almost a cap on how productive you can be at any give them. So it’s not as if you can force yourself to be more productive than that. But there is obviously that lower limit, and YouTube counts on that end of the spectrum.
[03:37] Rob: Yeah, totally. Facebook, Twitter, and all those things.
[03:44] Rob: So when Mike and I started the podcast, we had said that we were going to examine some different formats and just take it as it comes. So this week, we decided to change the format up a little bit. We are going to be talking about some of our own experiences, some things going on with our own products, and things we’ve been trying recently, as well as look at relevant news that’s going to be relevant to self-funded startup entrepreneurs. We will talk about stuff from any source, frankly, that we feel is relevant to us and to you, our audience.
[04:12] So we’ll look at hacker news, and podcasts, and blog posts, and questions that people send it. So without belaboring this point too much, I think we should just dive right into our first topic and let people hear it.
[04:25] And we’re planning to probably use this format for several episodes, maybe for the foreseeable future, depending on how much people like it, and we’ll just take it from there.
[04:32] So Mike, you had told me that you were doing a Google Chrome experiment. Tell me a little bit about that.
[04:39] Mike: Yeah. So a while ago, when Google came out with Google Chrome, I decided to give it a try. And at the time, it was really not…it was the first version of the product, and I didn’t think it was particularly good or compelling.
[04:52] Recently, I’ve gotten really, really fed up with Firefox. And most of it has to do with the fact that its memory management is just positively awful. I mean I’ll sit there and I’ll run…I’ll look in Firefox. I can easily chew up probably between two and three gigs of RAM just between those two applications alone. Because I use Outlook 2007, and It’s got a memory leak in it someplace.
[05:14] And it just continues to chew up memory, and you don’t actually see that it’s chewing up memory in the task manager until you shut it down, at which point it frees up like a couple of gigs of RAM. So if I leave Outlook open for days at a time, which I tend to do quite often, it just sits there and just churns through my memory, and eventually my system is going to crash.
[05:33] Between that and Firefox, which will regularly chew up anywhere from 500 megs to about a gig and a half of RAM, regardless of what switches I’ve toggled inside. I mean I’ve gone into the little configuration settings within Firefox and I’ve changed all sorts of things. I’ve told it not to use memory above a certain amount. I’ve told it to throw out stuff when it’s done using it. It doesn’t matter what I try, it continuously just chews up memory. And I quite frankly got sick of it.
[06:00] A friend of mine mentioned to me, he was like, “Hey, you should try Google Chrome again.” I went out and I said, “OK. You know what? I am going to give this an honest shot.” And I decided to just go for a full day without using Firefox at all. I mean I screwed up very first thing, because I clicked on Firefox and I immediately shut it down and switched over to Google Chrome.
[06:18] And I decided, “I am not going to use Firefox at all today.” And I started using it, and there is actually an import mechanism to import all of your bookmarks from either Internet Explorer or from Firefox. And it actually imports all of your cookies, all of your saved links, all of the sites that you have visited, and all of your saved passwords.
[06:40] Rob: I know. I couldn’t believe that when I started using it. I was really impressed.
[06:44] Mike: Right. I mean it was absolutely amazing. And literally, the only thing that I noticed is that most of the websites that I went to, if I had already saved cookies, what would happen is it would pop up and it would say, “You have to log in,” which typically, I don’t have to do for most of these sites, because it has a cookie.
[06:59] But it already had pre-populated the username and password there, and I just had to click “save my information” and then click login and I was done.
[07:06] So using Google Chrome has just been absolutely amazing. And the really nice thing is that every single one of the tabs that I open, it launches in its own process. So if I close that tab, it closes the process and it frees up all of that memory just by default.
[07:21] It’s been an incredible experience. The only thing I could see myself going back to Firefox for is for some of the plug-ins for web development. But that’s really about it. I just don’t see any compelling reason to use Firefox at this point. I can’t think of one.
[07:35] Rob: OK. So let me tell you your first problem. Your first problem is that you are still using Outlook. Move to Gmail, man! Move to Gmail! But seriously, I’ve gone through the same thing. I mean you and I were talking a couple of weeks ago, and I said Firefox is the new IE. And it just is chewing through…I get easily through 800 megs of memory on Firefox by the end of the day.
[07:55] And it didn’t used to be like this. I’m not sure what the deal is. I’ve disabled all of the plug-ins and uninstalled almost all of them. Although, like I left Firebug and Web Developer disabled but installed. But it still would just chew through everything.
[08:09] And when I originally installed Chrome, it was screaming fast. And someone had told me, “Oh, no, it’s only because it doesn’t have all the plug-ins. As soon as you install plug-ins, it’s going to slow down.” And frankly, I haven’t installed any plug-ins. And I’ve left those two in Firefox that I use regularly, and it’s like you said. I’m going to pop back into Firefox, or I have been when I need to look at CSS stuff through Firebug. But other than that, I’ve been really impressed with what they’ve done with Google Chrome.
[08:33] The one thing that makes me laugh is that the Google toolbar doesn’t install in Google Chrome. So if I need to check PageRank for stuff, I need to go back into Firefox. When you go to download it from Google Toolbar, it says, “This only installs in IE and Firefox.”
[08:46] Mike: That’s pretty funny.
[08:46] Rob: Oh, the irony.
[08:48] Mike: I haven’t bothered to try using any of the plug-ins or anything like that. Literally, it was just an experiment to use for a day. And I shudder to think what Firefox is turning into. It’s steadily gotten worse and worse, and I don’t know what the developers or the product managers behind it are really thinking. It seems like it’s got no direction and the code has just gotten worse and worse.
[09:08] And in terms of the plug-ins, I know people can sit there and say, “Oh, well, if you disable all the plug-ins, everything is fine.” And that’s totally not true at all. I mean I’ve disabled all the plug-ins and it still sucks.
[09:18] Rob: You know what’s interesting, is that in the history or browsers, like, no browser has really maintained superiority for very long. Netscape came out; I guess it was tops for a couple of years. And then IE knocked it off. And now, I guess IE still is the most used, huh? I think it’s the most widely used browser still. So maybe it actually has had superiority for, what, seven years maybe? Eight years since it has been the most used browser?
[09:44] Mike: One of them has got to be the most used browser out of all of them. It’s not like they are going to have an equal share of being at the top of that pyramid and then suddenly somebody knocks it down.
[09:52] Rob: Right, right. No, but I was thinking that it went from Netscape to IE, and now Fire…
[9:58] Mike: There’s your problem—you were thinking. [laughs]
[10:01] Rob: Ah! That IE was number one and now Firefox is number one, that’s not the case, I don’t think.
[10:06] Mike: Yeah, I don’t think it is. It seems to me like Firefox is probably much more used among web developers and people who are in the IT field. But I don’t think that, in corporate environments, Firefox is widely supported. And I can say with relative assurance that that’s not the case. Most enterprises use Internet Explorer, and a lot of them are still on IE 6.
[10:27] There are a lot of people who have migrated to IE 7 or IE 8, but they’re really a couple of years behind in the enterprise environments. You’ll have a huge bulk of users there that are going to be on IE for the foreseeable future just because it’s bundled with the OS.
[10:43] Rob: All right, next topic: iPad. So I got an iPad about two weeks ago. And, as I talked about on the last podcast, I’ve used it to replace my Netbook when I’m on the road. I’ve also really enjoyed using it around the house, consuming content and checking email and stuff like that.
[10:58] The one comment I have is now, when I go back to my iPhone, it’s super-awkward. Everyone was saying, “Oh, the iPad. It’s just a big iPhone.” Well, I feel like the iPhone is just a little iPad now. You know what I’m saying? The iPad is just such an awesome device to use that my iPhone now feels too small. It’s harder to type, and it’s just harder to surf the web or do anything.
[11:22] Mike: I’ve found that as well. I completely see what you’re saying, because I experienced the same sort of thing whenever I try to go back to my phone.
[11:29] I think part of the issue that I also have is I have an older iPhone, or at least I had one. And the new iOS 4 software running on a 3G iPhone really, really slows it down. The hardware is not designed to run that operating system, and it doesn’t run it very well. So you’re almost forced to upgrade.
[11:46] And I upgraded to the iPhone 4, and I’ve been happy with it so far. I have, I think, run into a couple of issues where I’ve gotten some dropped calls. It seems like the signal strength in my basement for the phone itself is much less than it was in the past. But, again, that could be a result of the updates that they pushed out that supposedly corrected those signal strength things that were supposedly not accurate in the past.
[12:11] But, yeah, I know what you’re saying about going to the iPhone and now it’s suddenly almost unusable for a lot of things. You get used to that 1024×768 screen, and that basically does it. [laughs]
[12:22] Rob: Yeah, I found my iPhone after the… So I have a 3GS still and I upgraded to the iOS 4. First of all, it was an absolute klooge. It was like three hours, because every time I try to upgrade anything dealing with the iPhone, you know I’m on Windows, any time I do it everything goes to hell. It fails during the upgrade. I have to totally do a hard reset back to factory settings and then go and restore it for backup. This is like five times in the past 18 months since I got the phone, every time it upgrades.
[12:50] So, anyway, that happened again, so I wasn’t surprised. But then after the iOS 4 was installed, the volume knob didn’t work. My calls are dropping like crazy. It’s a little slow when I’m scrolling around. It’s noticeable, but it’s not unusable.
[13:05] It is pretty disappointing. Apple typically, at least from what I’ve known, since they’ve always kept control of both the hardware and software, they typically do a decent job with this kind of stuff. I’m pretty surprised that they forced the OS4 upgrade on the 3G when it can’t really handle it.
[13:20] Mike: Yeah, I’m surprised at that as well. You think that they would have done a little bit better.
Even when I did the upgrade though, it seemed like they had a different version of the iOS 4 for the different hardware. Because when I initially tried to activate my iPhone 4, I tried to restore from the original one that I had. What happened was that it tried to install it. It pushed it onto it, and then the whole thing crashed and it wouldn’t come back. I had to plug it in and basically do a factory reset on the iPhone 4 in order to get it to work.
[13:52] So it was not a clean upgrade path either. It was basically a real pain in the neck. But I got it working and things seem to be fine so far. But I understand what you’re saying.
[14:02] Rob: All right, next topic. I published a blog post a couple weeks ago, and I got a big influx of traffic. It went on Hacker News and some other stuff. The way I measure…to me the success of my blog and of a blog post, is RSS readers. That’s just what I’ve always used as my metric.
[14:22] Because getting 10,000 people to come to your blog in one day, it’s not that hard. But keeping those people around and keeping them engaged and stuff has always been what I’ve shot for.
[14:31] And I did. I got 6,000 people, 8,000 people came in a day, and my RSS subscribers didn’t move at all. I think I picked up five or something. It’s even hard to tell, right? Because FeedBurner bounces all over the place anyways.
[14:43] So what I wanted to talk about here is it occurred to me that I’ve kind of been at a plateau for a long time. And I’m wondering, do you think that RSS, I won’t go as far as to say, “Do you think it’s dead?” But do you think it’s really hard to get people to subscribe to RSS these days, whereas it might have been easier a few years ago?
[15:01] Mike: I don’t know. My subscriber count has been continuing to go up as I post. But as soon as I stop posting for a long time, or stop trying to promote my blog posts, I’ve noticed that the traffic can fluctuate. It can go up and down, and my subscriber numbers don’t budge.
[15:16] So I’ve found that unless you’re actively trying to get subscribers, you’re not going to get them. And that includes submitting your articles to some of the various feed engines and to Technorati and Reddit and things like that. Unless you get it out there and are actively trying to get those subscribers, your numbers will not budge.
[15:36] And I’ve seen that in the past where I’ll publish an article where I’ll get tons and tons of traffic for it. But if I’m not actually trying to post to the places where people will, not just see my article, but be the type of people who are interested in it.
[15:51] Because the numbers that you get from your traffic statistics don’t necessarily tell you a lot about how many people stayed there for an average of four minutes or something like that. Basically, they’ll tell you, on average, the people spent this much time there, and it’s hard to extrapolate a graph of how long each person stayed, if you know what I mean.
[16:11] So I think that that’s more the issue than anything else. I think you get a lot of drive-bys when you get a viral article like that, because there are a lot of people who will post it, and they post it to a service like Twitter or to Facebook or something like that.
[16:26] Those sites will actually hit your website just to do a screen scrape or something like that, but you’ll get a traffic hit even though nobody actually read it. And I’m not saying that every single time that happens, but I do see a lot of traffic from all these different sites for various blog articles that I’ve written that they’re just screen scrapes more than anything else.
[16:44] So you get a lot of traffic that is just a screen scrape comes in, and then somebody else’s screen scrape does the same thing on their site, and your article goes viral. And a lot of people pick it up and push it out there. But a lot of your traffic is actually not real people behind it.
[18:12] Mike: I don’t think RSS is dead. I think that it may very well be a factor of the traffic that you’re trying to get. For all I know, part of it may be just initial buzz around particular topics, too.
[18:23] There are obviously people out there who are still steadily gaining blog subscribers. I’ve seen a lot of that over the past six or eight months, where you look at a blogger who’s out there who’s posting new articles, and one month he’s got 2,000. The next month he’s got 5,000, and it just continues rising from there. People are still using RSS. I think it’s just a matter of finding, I’ll say, a new audience more than anything else.
[18:46] Rob: Yeah, I think it might just be a one-off thing I just noticed for the past few months. I guess with FeedBurner doing all its crazy stuff.
[18:52] Mike: [laughs]
0:18:53] Rob: And then I think they dropped. I don’t know. Did your subscribers, when they evened out, did they drop a little bit? Because I think I lost a few hundred when it did finally even out.
[19:01] Mike: No, actually. Mine went up. I keep an Excel spreadsheet that I download from FeedBurner. And I do some, basically, trending. So I do a 30-day rolling average of what my subscriber count looks like.
[19:15] And there was a period of about maybe a month or two where things were just all over the place. It would bounce by as much as 50% in some cases from day to day. It was just ridiculous. I’m looking at it saying, “Is this my server going nuts or is this FeedBurner?”
[19:30] Because, obviously, it could be either one. And if your server goes haywire for a day or something like that, then the stats don’t get to FeedBurner and, of course, your stats are going to be all messed up.
[19:39] I came to the conclusion eventually, after talking to you, that it’s FeedBurner that’s just not handling things well. And I looked at the trend of where things were going, and my traffic was on its way up and my subscriber count was going up. It maybe seemed a little lower than I thought it would have been, but not drastically. So it wasn’t off by like 10%. It may have been off by like 3% or 4% or something like that. It wasn’t a huge amount.
[20:02] Rob: Yeah, that’s the same thing I saw. I was down about 3% when it finally leveled out. I feel like I’ve been there for six months at that same plateau. And so that’s kind of why, even though I’ve been publishing articles that have been doing well in a lot of the social news sites, and have been getting ample traffic, just really not picking up any new RSS subscribers.
[20:22] I mean it very well could be me or that I’m not hitting a new audience or something like that. I was just kind of tossing it out to see what your thoughts were.
[20:29] Mike: I think that a lot of it has to do with frequency of how much you post. I’ve noticed that if you post once a week, you tend to gain a lot more subscribers than if you post like once or twice a month.
[20:38] Rob: Yeah, I post pretty much once a week; I have a new post. What’s next?
[20:43] Mike: So you actually had a guest post on your blog recently, and it was by Ruben. And the blog post was called “Why Free Plans Don’t Work”. And I’ll summarize the gist of the article by quite a bit.
[20:56] But basically, Ruben goes in and he has a product called Bidsketch that he has that is a SaaS app that is out there for web designers to be able to create bids and proposals for projects that they are working on, or that they are trying to land.
[21:10] And he started out trying to do the 37 Signals model of having a free plan and trying to get people using the product and using the freemium model, and trying to get a lot of people to use it, and then hopefully converting those free users into paid accounts.
[21:23] And what he ended up finding was that a lot of people would sign up for the free account and would never go to a paid plan. And this really flies in the face of what I think initially was touted as the crux of the 37 Signals success for all their different products.
[21:41] You can feel free to correct me if I’m wrong, because I’ll be honest. I didn’t really follow 37 Signals, for the most part, when they were first starting out, and I’m really not familiar with a lot of the history behind it, exactly when they did what.
[21:53] Rob: Yeah, I’m not sure either. I just saw the quote in the post. I’ve only been following 37 Signals for a couple of years reading their stuff. So yeah, I don’t know how much of a contributing factor it was or how much they touted it.
[22:03] Freemium is the poster child for the venture-backed companies that don’t build anything that someone will pay for. And so, I don’t know it’s so much against 37 Signals, although I think, you know, they certainly did have a free plan, and they still do, but it’s a lot more hidden right now.
[22:17] I think the post was more going after kind of the sentiment that floats around that although you might need to charge for your stuff, you really can have this forever free plan, and that that’s a great idea, and that that’s a marketing expense.
[22:29] Mike: I think the misconception that people tend to have is that people who sign up for that free account are eventually going to upgrade to a paid account. And in the article, Ruben clearly shows that…what was it? 0.8% of free user accounts eventually upgraded to a paid account. That’s less than 1% of the free accounts. That is not very much at all.
[22:50] I think that it is just misleading to people to think that if you create a service where you’ve got this freemium pricing strategy, where you’ve got a free pricing plan and then you have these paid pricing plans that people can upgrade to as they need, you are going to end up with all these people who find your service and start using it precisely because the things that you are offering are free.
[23:09] And I just don’t think that in most cases it will work out. As you pointed out, the venture-backed companies and the Angel funded companies, they are able to do this because they are interested in getting eyeballs. They are interested in getting users, and making money be damned. They are trying to just get eyeballs and get people to use their service. And once they get bought out, what do they care?
[23:29] Rob: Right. And I feel like the freemium model and the free plans, they are kind of like a really sharp sword. If you are a master swordsman, you can wield that thing well. But just some guy off the street coming up and grabbing the sword, like, you are going to chop your arm off.
[23:43] And that’s essentially what is happening, is the freemium and the free plans, there is a place for them. It’s not that they never ever work. It’s that you really have to understand how they work, why they work, and when it doubt, don’t use them. And only put them in place once you have a real reason to do so.
[24:01] I guess the big response people were saying is that, like, free plans are a marketing expense, and you make it free so that everyone will come use it. And frankly, it doesn’t work out that well. When Ruben and all the people he interviewed, and he looked up metrics from several other companies like MailChimp and other stuff, their free plans caused them a lot of issues. The ultimately had a lot more spamming from their free plan users.
[24:22] When Ruben shut his free plan down, his conversion rate shot way up. So although you could say, “Well, 0.8%, that’s not too bad.” But it…I don’t even remember. It doubled or tripled or something once he shut it down. He just got a heck of a lot more users.
[24:36] And for a single person company relying on this income stream, multiplying your income each month by two or three, it’s a huge deal.
[24:43] Mike: The other thing you have to remember is that those hundreds or thousands of other people who are using the product, if they are not paying for it, you still have to offer some type of support for them. And that support is going to cost you, whether it’s in time or money, if you have somebody else doing the support for it or if you are doing it yourself.
[25:01] You are basically taking time away from your other development efforts or the other products that you are working on, and you can’t get that back. And if these people aren’t paying you for that time, it’s just not worth it.
[25:14] So I think there is a big tradeoff. And as you said, it’s a sharp sword. And if you know how to use it, it can work out well for you. But I think that it takes practice. And I don’t think that the first product that most people launch, I don’t think that going with that freemium model is going to work out so well.
[25:31] Rob: I think you make a good point about having to use resources to support people. You know, especially if you have an app that uses a lot of processing power or a lot of hard disk space or something. Not only are you using physical resources, but the support time is just the most precious thing you have.
[25:47] And one of the commenter’s on the post had said, “Well, if it’s free, then they should just have forum support.” And I’m thinking to myself, then you are going to have a bunch of pissed off free users, which is the exact opposite of what you want.
[26:00] You know, you are going to have an army of people who can’t get support. And they are just going to tell everyone and say negative things about your app instead of building up a small community of people who are just loving it and saying positive things about it, and likely paying for it.
[26:12] I think that it’s a common thought you don’t need to charge for your product in general. We see in Fast Company and Tech Crunch and stuff, everyone is giving stuff away for free. But as a one person company, man, you really just can’t give it away for free.
[26:25] And not only that, even if you have a paid plan, not having a free trial that ends at a certain date, a seven day trial or a 30 day trial that ends, I think is a mistake in almost all cases. There are some very minor exceptions. Ruben actually talks a little bit about it in the post, and there is some good discussion of it.
[26:43] What I liked is that there were some really intelligent comments. There’s like sixty something comments on the post. But there’s some really intelligent comments of people who are using free plans and it is working for them.
[26:52] And if you look at them, they are in some pretty specific…not niches, they are just in specific “it” cases where it works. But in general, if you have a SaaS app aimed at a niche, I would expect that you are going to be much better off not having a free plan. A free trial is OK; a time-limited free trial of your app is fine.
[27:12] Rob: Well that about wraps up our topics for today. So Mike, do we have a listener question today?
[27:16] Mike: Yes, we do. This one is from Justin Shumara [sp]. He wrote back to us a couple of episodes ago. He said:
[27:22] “Hello. I wanted to just start with thanking you guys for going over my last question on the podcast. I really appreciate it. I have another inquiry in regards to handling multiple products. If a micropreneur is managing multiple products, should those products be treated as separate entities, meaning the support is separate, finances are separate, and anything else related with keeping them product running is separate, or, versus having an umbrella company of sorts that owns an handles the products under one name? Thanks guys. Keep up the good work. Justin.”
[27:46] Rob: This is a good question, actually. I think there are three or four different pieces to it. You can say, “Should I keep these products separate?” And what does that really mean? It can mean that I form a new LLC or a new sole proprietorship or a new DBA for each one. It can also mean do I have separate PayPal accounts or bank accounts for each one? It can mean do I have separate email accounts and handle support totally separately for each one? And then, do I handle the marketing separate for each one? Those are kind of the four things that come up for me.
[28:18] The way I have handled it as I’ve grown, as I’ve started having more and more products, and I’m starting to approach a dozen products right now, is that for the company structure…preface: I am not a lawyer. I only know US law and stuff. So I have consulted with a lawyer and a CPA, and this is a good solution for me here. But obviously, you are going to want to consult with your own lawyer and CPA.
[28:40] So the way I have essentially done it is that I have a single LLC. I didn’t want to create an LLC for each product. It’s very expensive to try to do that, especially when you have small products that aren’t generating a huge amount of money.
[28:53] And so, I think that a pretty good solution, the way that I’ve done it, is to generate this umbrella company, whether it’s a corporation or an LLC, whatever you generate. And then that umbrella owns all of the products.
[29:05] And that doesn’t mean that you market that company to anyone. You might barely have a website for that company. No one is going to come to that website. You don’t search engine optimize that website. You are really trying to sell the products, so those are the key things.
[29:17] So in terms of the company, yeah, I would see it as an umbrella. In terms of PayPal accounts or payment processing accounts, it depends. It depends on if you think you might sell the product at some point. Because if you have a number of products all going into a single PayPal or merchant account, it can be sticky down the line to separate that out. It makes it hard to report on and such.
[29:38] So while I wouldn’t recommend getting a new merchant account for every product, because it gets very expensive that way, there is kind of this fine balance between how long you think you are going to own it, how much revenue it is actually generating before you break it out.
[29:51] So I do not have a separate PayPal account or merchant account for every product, but I do have more than one to kind of keep some of them separate. And ones I know I’m going to keep long-term, and that are less messy and low volume, I have them grouped into a single merchant account.
[30:05] And then the last two are support and marketing. This is kind of a no-brainer. Unless they are really related and they are going to be selling to the same audience, in my opinion, you handle support, it’s all separate. You can handle it through the same interface, like FogBugz or email, but you just have separate support emails.
[30:21] And certainly, the marketing, if you are attacking different niches, obviously, there are going to be different websites, because it’s different SEO terms and just a whole different approach. What do you think, Mike?
[30:31] Mike: So, to kind of clarify what you said, you basically have a hybrid approach where some of the businesses that you have, you kind of lump all of them together into a single PayPal or set of merchant accounts, and there are others that you basically separate completely from the rest of your business products, I’ll say.
[30:49] Rob: Yeah. As it grows and something starts to get higher volume, that’s typically when I’ll break it out into a different merchant or payment account, because it becomes worth it to do so. It makes it much easier to report on that thing, and it’s now paying for itself. You know, it’s paying for the merchant fees that come along with having that additional account.
[31:07] Mike: Got it. So I think I went a little bit more extreme than you did. I actually own two S Corporations.
[31:14] Rob: Holy smokes!
[31:16] Mike: [laughs] I own Moon River Software, which is an S Corporation, and then I also own Moon River Consulting, which is a separate S Corporation. And I have to file taxes for each of these companies separately.
[31:26] And although I own both of them, I basically keep everything separate between the two. The way I work things, like hardware and software, is I actually have one company that leases equipment and software from the other. So there is a payment that goes back and forth between one company and another, but it’s not logged as a loss or a gain to me personally.
[31:47] Because I had checked with my CPA about this, and he said that I could actually sell one company to the other for a million dollars and it would be the same as if I sold it for zero dollars or for $1 between the two companies, because ultimately, I end up with a negative on one side of my balance sheet for my personal taxes and then positive on the other side, and it just completely cancels itself out.
[32:08] I keep things separate between them, but the primary reason I did that is because the two businesses grew to the point that they were each doing such significant volume that it made a lot of sense to separate them, because one of them was selling software and the other was selling consulting services. And I was making so much money from each of them that there was just not a lot of overlap between them, and there was enough differences that I really wanted to separate the two.
[32:35] So after talking to my CPA and talking to my attorney about it, the risks were there for the consulting company to get sued for certain things, and then there were obviously risks on the software side that it just didn’t make sense to have one company paying both of those expenses, because it didn’t seem like the math worked out for some of the things, like insurance, and benefits, and things like that.
[32:58] So I ended up separating the two of them. I have been running the software company for probably close to five years now, and the consulting company for about three. So that’s how I did it. I think that just from the question alone, it shows that Rob and I each have different answers and there is not a single solution to the problem.
[33:16] You have to find something that works best for you based on the specific situation that you are in. I think getting some professional advice from both a CPA and an attorney is going to be beneficial to you, because those two people are going to tell you different things.
[33:30] Your CPA is going to tell you things that protect you from a tax and financial perspective, whereas your attorney is going to tell you things that will protect you from a legal perspective. And those two types of protection do not always overlap.
[33:43] So you really have to be careful. So talk to everybody, get all the information ,and make sure you are making the right decision for your specific scenario As you’ve heard already, Rob has an LLC. I have two S Corporations. The things that you are looking for are different based on what particular protections you are looking for and what your situation is.
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[34:25] Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. A full transcript of this podcast is available at our website: startupsfortherestofus.com. We’ll see you next time.