Episode 222 | The Stair Step Approach to Launching Products
- How Star Wars Conquered the Universe
- In-N-Out Burger book
- Rob’s old duck boat website
[00:00] Rob: In this episode of Start-Ups for the Rest of Us, Mike and I discuss the “stair- step” approach to launching products. This is Start-Ups for the Rest of Us, episode 222.
[00:15] Welcome to Start-Ups for the rest of us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products; whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:24] Mike: And I’m Mike.
[00:25] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Mike?
[00:30] Mike: Well, last week I had talked a little bit about some of the Twitter and Facebook advertising campaigns that I was doing. Somebody pointed out to me that one of them was using this massive image that had not been re-sized properly so it was like 700k on a page.
[00:44] Rob: Nice.
[00:45] Mike: And I re-sized it. It only needed to be 65k.
[00:48] Rob: Oh, man. Was it impacting page load time? I mean, obviously it would have some impact but it could be negligible. If it’s like three tenths of a second people are not that likely to notice.
[00:59] Mike: The total page size was only about 2.5 megs so you add 700k to that and it’s like 3.2 which is about a third of the size but it depends a lot more on latency at that point than anything else. And I don’t think that it was a big deal but with a file that size, depending on how long it takes to download that one and how your browser is probably only going to download that and maybe one other thing at a time.
[01:24] Rob: Yeah, obviously if someone was hitting it on mobile or something it would be a bigger deal but you’re probably not targeting mobile users, right?
[01:30] Mike: No, for the most part I think I excluded them. Although the Twitter ads, I don’t know if those were excluded. I haven’t really fully reviewed the results and stuff yet because it just ended but I need to go back in and take a look at those things to see if it impacted it at all. I’ve got data so I can go back and adjust things in any way. I’m probably never going to know for sure whether it had that much of an impact but it was a stupid mistake.
[01:51] Rob: If that’s the worst thing that happens to you this week I’d consider yourself lucky.
[01:55] Mike: Right. The other thing I noticed was that on the Twitter ads – because I’m experimenting over there, I haven’t really run Twitter ads before, but when a Twitter ad is finished, if you give it a dollar amount, when it’s done it’s listed as being exhausted.
[02:10] Rob: Nice. I like that. It’s just so tired that it has to stop.
[02:14] Mike: Yeah.
[02:15] Rob: That’s cool. So, continuing with my stretch of reading a lot of books, I have a couple other books I wanted to mention today. The first one, it’s called “How Star Wars Conquered the Universe” and it’s a pretty thick book. I think it was twenty something hours on audio which is more than I tend to attack but it’s by a reporter from Mashable, and he basically wanted to write the definitive history of Star Wars and how Lucas came up with the concept and how he was influenced and then launch of all six films and the re-releases and all the controversies around it. He really goes in depth. I was super impressed with the quality of the research. I’m a Star Wars fan, I have been since I was a kid. I’ve seen the movies a lot of times and I know a lot of trivia but this guy dove in way deeper than anything I had ever read so if you’re at all interested in that, or even if you’re not a Star Wars fan, it’s fascinating to hear how every movie pushed Lucas to the breaking point, whether it was the financial breaking point or the sanity breaking point. It reminds me of launching a start-up. It pushed him to the edge so many times where he struggled even to complete the movie. I highly recommend this book.
[03:30] The other book is called “In and Out” and this is one, if you have considered reading it I would recommend against it. I really love hearing start-up tales and “In and Out” is a hamburger chain on the west coast of the United States and they’ve stayed private. They’re privately owned, they’re not franchised and they still basically have the same menu that they did when they launched in the ’50’s. It’s a really cool story about a business that’s staying small even though there are a couple hundred restaurants around the west coast of the US. The book itself was not very well researched, not very well written and overall I would just say if it’s on your wishlist I would probably take it off. I was pretty disappointed with it. It felt very surfacey. It was like, “this happened next, and then this happened” and the other thing I didn’t like was that it was really pro “In and Out”. It kept saying, “and then, due to the founders’ will and determination they launched another ten stores.” But they had to have done something negative over those fifty years and it really skipped over that. It wasn’t a harrowing tale. It was more of an encyclopedia or a long Wikipedia entry about it.
[04:41] Today’s episode was inspired by a question from Chris Cottham and he says, “I really liked how Rob illustrated his path through small, one time sale products to recurring revenue SaaS apps in his MicroConf Europe talk this year.” So Chris obviously attended MicroConf Europe. He says, “I think it would make a great topic for a podcast. So, what I wanted to do today is talk through the “stair-step” approach to launching really any type of products but we’re going to focus more on software products today. Mike and I have tossed out concepts from this “stair step” approach for years on the podcast but it wasn’t until DCBKK and MicroConf Europe that I decided to sit down and formulate it and make it concrete. I spent five or ten minutes with a slide and demonstrated how I view the “stair-step” approach, how it works and all of that. It seemed to really resonate with people because it’s a framework for getting started and moving from beginner to intermediate to advanced. So, that’s what we’re going to be talking about today.
[05:43] The “stair-step” approach really has three steps that I talked about at the conferences. I’ve added a fourth step that we’ll talk about here that I’m still formulating and figuring out what it means and if it’s even a good step to go to. What I want you to imagine is a set of stairs and obviously step one is on the bottom and step two is above that and step three is above that and each step gets a little more challenging but you step up to that step once you have more experience. Step one is what I think is the approach that I would recommend if you’re just starting out today and you don’t have any products with any revenue because the problem that we see is, folks are coming in and they’re seeing what successful people are doing. They look at Heaton Shaw, Jason Cohen, Patrick McKenzie, whoever, and they say, “well, they’re doing SaaS apps so I’m going to do a SaaS app.” I don’t always think that’s the right choice because SaaS apps– it’s a very long, slow, SaaS ramp odf death to the revenue, it is very complicated to build them and it’s hard to market them, et cetera, et cetera. Instead, I want you to imagine step one as one time sales. Instead, I want you to imagine step one consisting of products with one time sales. Imagine a WordPress plugin or maybe a mobile app or a Magento add-on or a Photoshop add-on or even an E-book. These are just one time sales and the price point is not huge and in addition, think about it as a single traffic channel.
[07:09] Examples of a single traffic channel might be, it gets all it’s traffic from SEO or 90% of it’s traffic from SEO, or it gets all of it’s traffic from WordPress.org from the plugin repo. Or, I know folks selling things as more physical goods but their entire sales channel is Amazon or their entire funnel consists of YouTube. That’s step one. The benefits here are that you are starting small with something simple to get some revenue in the door and learn this whole process.
[07:39] Mike: I think one of the overlooked aspects of this is that it can be a lot easier to sell something that’s a one time sale or something that people just buy into up front and they don’t have this recurring payment that they have to keep paying to keep using it afterwards and people mentally think of that differently than they do the one time sales. It’s easier to convince people to do this and it helps give you that fundamental understanding of how sales work and how you can convince people to buy using different marketing messages. The marketing messages for example for a book are radically different for the customers than you would for a recurring revenue model for just about anything; whether it’s a book or a physical product or any of those types of things, or even a downloadable application or even a mobile app, those things have a fundamentally different message inside of the marketing material and how you go about on-boarding people and marketing to them. There’s a difference between the different types of channels that you’re going to be able to use for those one time products versus something that’s more of a SaaS model.
[08:46] Rob: Right, and that’s the idea here is to get some experience writing marketing copy, supporting a product, just pushing a product out to market like launching and doing something in public. A lot of folks have never done that and it’s really terrifying the first time you do that. I shudder to think of the absolute beginner who has never launched anything in public trying to build a SaaS app and launch that with all of the complexities involved in that; in terms of marketing support, the code, sales, everything that’s involved. This is such a simpler way to do it and cut your teeth in, maybe it’s the minor leagues or maybe it’s college ball instead of jumping right to the pros. We all need to go through that development. You can’t just jump up to the hardest task right away. We see a lot of folks having success with this approach. A lot of Micropreneur Academy members are doing this. There’s WordPress plugins, Magento add-ons, one off e-books; and you may not make ten grand a month and you’ll very likely not going to make ten grand a month from this thing. You’re not going to quit your job in step one but that’s not the point. The point is to get experience and gain confidence in your skills and learn one tool. I always like to think of it as I have a tool belt of marketing approaches. When I first started out the tool belt was empty and I had no tools on that. The first thing I learned, I’m pretty sure it was SEO, so then I had SEO in my tool belt and the next thing was AdWords, that was the second product I had.
[10:10] Then I had SEO and AdWords and I started acquiring and building products that I knew I could market with SEO and AdWords. So, if you learn the ins and out of SEO or AdWords or Amazon or WordPress.org or YouTube or any other single traffic channel, and then you build a fairly simple product that sells for twenty to fifty dollars a pop, you’re going to learn a ton from doing that. And with that confidence and a little bit of revenue that’s where you start moving up into step two. Step two is basically to repeat step one until you own your time. It’s until you make enough money that you can buy out either your salary gig or any consulting work you’re doing. An example of this is, a colleague of mine, a friend of ours has three WordPress plugins now and he has basically bought out his time. He didn’t do it with just one. It wasn’t this big splash and it didn’t happen right away but he learned how to build and launch a WordPress plugin, how to market it, how to do the support and all of that stuff and then got one to market and basically has repeated that twice. At this point he actually quit his job this month. This path from step one to step two is a lot easier than trying to jump straight up to the most complex task.
[11:25] Mike: The nice thing behind doing that is that once you’ve done something once, it makes it a little bit easier to do it the second time, especially if you’re repeating almost the same process because you can use the things that you learned from the first iteration through that process on the second time and the third time and the fourth time. Eventually what you’re doing is you’re growing this revenue base that you’re going to be able to use to essentially replace what your current revenue stream is.
[11:49] Rob: Right. And this interesting thing with this “stair step” approach is that I kept seeing it with people at the academy, people at MicroConf and I kept seeing them start small and then build up and eventually get to the next level and be able to buy out their time. I noticed it was a pattern which is why I started thinking about something to try to classify it or have a higher level theory about it. Then I looked back at my own experience and realized that a lot of what I did fits the “stair step” retroactively and I had no idea about that. If you look back at products I owned I had DotNetInvoice which is one time sale downloadable software, I had “Apprentice Lineman Jobs” which is essentially a job board. It’s a subscription but it’s very short lived. People only look for one or two months but it’s a small price point and it had a single source of traffic, SEO, CMS Themer which was a theming service which was a one time sale, it was a higher price point but it had one source of traffic which was actually banner ads and then I had a couple E-books that I had purchased on random topics like beginner bonsai and there was one about building a duck hunting boat and all of these things had a single source of traffic and none of them made more than, some of then topped out at between three and four grand a month but each one of them taught me one more thing. It was either SEO or AdWords or banner ads or PPC advertising or copyrighting and how much it takes to support a software product versus an info product. So, it’s interesting that I essentially followed this path, kind of stumbled into it.
[13:25] Mike: What Rob has done for example is, he had DotNetInvoice and Apprentice Lineman Jobs and CMS Themer, which are all completely unrelated areas but if you map things out in advance you can make those things into the same business or address different problems inside of the same market vertical such that you are building upon your previous audience. Essentially you have this lower end product that is a one time sale and then you look up stream a little bit and say, “okay, well, what is the next step? What is the product that somebody who has purchased this and actually implemented it would use after this?” Essentially what you’re doing is creating this closed feedback loop where customers that you’re bringing in hopefully purchased the first product and then you may very well be able to get them to buy into the second. So, depending where they come into the process, you may have additional higher end products that you can sell them. Your initial product might be an info product or a book of some kind. Then you might sell some specialized consulting services around that. Then you might have a SaaS app or something along those lines. You’re basically just moving up the sales funnel maybe with higher price points. You don’t have to do that in advance. There are certainly places where that’s not only not warranted but you just simply can’t do that. But that’s an approach that you can think about.
[14:42] Rob: That’s a mistake that I made early on was as you said, I did it in disparate niches so I did not have the advantage of building either an audience or more likely a customer base that I could then sell more things to. That’s the one thing with the “stair step” approach. I wouldn’t say it’s required that you do it that way, that you keep it all in the same market, but it’s definitely going to be easier for you if you can. It’s always easier to sell a new product to your existing customers or an existing product to new customers. But it’s never good to sell a new product to new customers unless you absolutely have to. I think that will give you a leg up if you take that focus. On the other hand, it was either me or the podcast received an email from someone saying, “I want to start the “stair step” approach but I’m thinking if I want it to all be in the same niche then I need to think five years out because what I launch today has to relate to everything I build in step two and the recurring revenue app I’m going to launch in step three.” I think you could put a little too much importance on that initial product at that point. If you’re holding off because you’re just not sure you want to be in this niche for five years then I think you’re over thinking it.
[15:57] Mike: Yeah, I would agree. I think if you’re starting out you don’t necessarily want to try to plan that far out in advance because you may very well launch this one time purchase and it may not go anywhere. It may just be that the market doesn’t want what you have to offer or that there’s not enough money there or that you can’t reach those people. There’s all these problems that I can see with that and if you aren’t sure of all of those things and you’re trying to plan around this vast sea of unknowns you can very well talk yourself out of doing anything at all before you map everything out. At that point you’re basically just wasting a heck of a lot of time planning for things that are just never going to occur.
[16:37] Rob: So then step three is basically getting recurring sales and in our world this typically means SaaS. It doesn’t always have to be that way but I think that’s the direction you move. One of the benefits of SaaS, we’ve talked about it before, is the fact that you don’t have to get a large sale upfront. You can get a smaller sale every month from that group of customers. And there are pros and cons to this that we discussed ten or fifteen episodes ago but the bottom line is, if you want to build a sustainable revenue stream then having one time sales is not the way to do it. So step three is going after recurring sales and examples of this, they’re all around us, an app like Baremetrics or Bidsketch or Drip, Planscope or there’s even recurring info products like Brecht Palumbo who is a Microprenuer Academy member and host of “Bootstrapped with Kids” podcast. He has distressedpro.com which there’s some software to it but there’s also a lot of training. We have microprenuer.com and the Microprenuer Academy which is essentially training. There’s no software involved with that. So, you can go both ways it doesn’t just have to be software. Even productized services I think could fit into this level if you get folks to sign up to a subscription for them.
[17:53] Mike: Yeah, most of this conversation today is limited much more toward the software side of things and getting started but you’re absolutely right that there’s a lot of other ways to have different up sells for people that can buy into, whether that’s with their wallets or with their mentality. If you look at what we’ve done with the Microprenuer Academy, in some ways you can look at it as a complete sales funnel where we’ve got our blogs and I guess I’ll say our online profiles but we’ve also got the podcast which is free to everybody and then if you want to buy into the Microprenuer Academy and those types of approaches and that community, there’s a fifty dollar a month price point with that and then up stream from that is MicroConf and there’s a lot of different ways that that whole life cycle of products could be viewed. The “stair step” approach kind of falls in line with that.
[18:45] Rob: Yeah, I agree. If you just think about our ecosystem as a funnel. I don’t think either of us intentionally did this but there’s all these things that kind of feed into each other. My book is one thing. Certain people hear about my book from the podcast and from MicroConf but other people hear about my book from something else and then they later listen to the podcast or become an academy member or buy a MicroConf ticket. All four of those things really feed into each other. Brennan Dunn is another guy who has done this really well. He has multiple e-books and podcast, a blog and his software product. And he runs training, in person training. So that all fits in and he will actually say that he stair stepped it in the wrong order. He launched the SaaS first and it was so hard to get traction that he went back and started writing e-books and stuff to make money and then realized that the experience he gained there and the audience that he built fed back into it. The “stair step” approach is not about building an audience. I don’t think you need to be a personal brand or build an audience to do this. But I do think that building a customer base and then learning these skills, how to launch, how to market, how to copyright, all of that stuff is the key to it. So, don’t feel like you have to be a big personal brand in order to make that work or even have this big ecosystem of products. I don’t necessarily think that if you got to step two and you had the WordPress plugins and you decided, “I’m going to launch a SaaS app” and you sold those WordPress plugins enough to give you a runway to then go build the SaaS and grow it, I don’t think that’s a terrible decision. I’d take it on a case by case basis but I think that’s an option. You don’t necessarily have to keep everything as you’re moving up the stair steps.
[20:23] Mike: I agree with that point. That’s one option and there are certainly viable reasons for saying,”okay, I’ve already got this one product but I want to do something completely different.” I think both of them are valid approaches. Going back to what Brennan had done where he had kind of done things out of order, we did things out of order with the Microprenuer Academy as well because we launched the academy first and that has a subscription model to it and then we did the podcast which is kind of down stream from that. And then we did the conference which is up stream from that. So we did things in the wrong order as well but it’s not something that we planned out front. We just kind of fell into it and decided, “what is it that we want to do next and what are people looking for?” Sometimes you just need to get into the market to figure out where things need to go or where they should go. And where they should do in some cases may very well be in a completely different market because you don’t want to deal with it anymore.
[21:15] Rob: Exactly. And then step four is something I’m still mulling over. I did not mention this in the MicroConf Europe or DCBKK talk. I mention it offhand. I think step four might be having multiple recurring apps, multiple SaaS apps or something but to be honest, few companies or people that I’ve seen are able to maintain this because basically one eventually takes the lead and makes so much money that the others seem inconsequential. So, if you look at what 37signals did as an example, they just kept launching apps, kept launching apps and then Basecamp, I’m assuming, 10x’ed or 100x’ed everything else and at that point it’s just hard to devote any time to something that’s making you ten grand a month when something is making you a million dollars a month as an example. I don’t know their numbers but you get the idea. There are a few companies, like Wildbit does this, they have multiple SaaS apps. Certainly you and I have multiple projects going on. I have multiple SaaS apps plus the academy and conference and stuff. So it’s not impossible to do but I have definitely found it hard as some of my apps grow and they tend to X other apps in my portfolio. I have a really hard time going back to those apps that are making the small amounts. I think at that point that’s when you want to sell one off or shut it down even if it’s not worth selling. So I’m not sure that step four is aspirational. I don’t know that getting to multiple recurring is really necessary. I do like that it diversifies you. When I had issues, HitTail’s revenue took a hit when Google did the not provided stuff and it was nice that I had other revenue streams but I’m not sure that trying to manage multiple SaaS apps or multiple recurring revenue streams should be a goal for everyone.
[22:54] Mike: Yeah, if you look at what Basecamp has been doing, even over the past four or five years, they used to have, I think it was called “sortfoloio”, they got rid of that, right now they’re in the middle of the process of getting rid of things like Highrise and changing their company name from 37signals to Basecamp and getting rid of all of the other things that they’ve build and they’ve sold and launched and been successful with them but they haven’t been nearly as successful. They spell out in fairly large detail on their blog and in a lot of their communications that “we’re getting rid of all of these other things because they serve as distractions.” I was at the Business of Software, I even met somebody who was heading up one of the business units that they’re spinning off and saying, “okay, we’re going to take this entire product that is making money that could fully support at least a couple of people and just get rid of it because it is taking time away from our core business and that’s where we make our money.” Even in the stuff that I’ve done and Rob, obviously in the stuff that you’ve done, there’s things where you get to a certain point or you just don’t want to work on them anymore because it’s not worth the time or you lose motivation for it, and at that point it becomes a mental drain because it’s always in the back of your mind and you’re thinking to yourself, “oh, I should devote some time to that” or you’re coming up with ideas for it. But if you don’t even own it anymore it’s a lot easier to not think about it.
[24:10] Rob: That’s right and that’s something you always have to weigh is whether to sell it and walk away or to keep it running in the background because there is a mental weight to it like you said. If you’re listening to this “stair step” approach I think you could feasibly be skeptical and say, “well, if I ultimately want a SaaS app, why would I start with a small product?” Maybe you really don’t want to launch a small WordPress plugin, you just want to do SaaS because that’s what the cool kids are doing or something. I think that the optimal way and the way to maximize your chance of ultimately being successful at it is to do something like this “stair step” approach but I think there are other avenues. I think if you were to intern within a bootstrap SaaS app and have someone mentor you and teach you the ropes, that you could feasibly learn it without doing it yourself and then go launch your own SaaS app. So I do think there are other ways around it, they’re just a lot less common. They’re going to be harder to find because how many of those opportunities are there compared to how many people are there who are able to go launch the WordPress plugin and go up the stair step?
[25:11] Mike: Yeah, I almost look at the different steps as learning experiences where somehow you have to figure out the knowledge within that particular arena. The “stair step” approach is obviously one method for doing it. Doing some sort of mentorship would be another method, and then going straight to step three and beating your head against the wall a lot to figure out all the different things that you should have learned in step one and step two, that’s another mechanism for doing it but there’s the risk of going straight to that step and beating your head against the wall so many times that you get frustrated and you just give up. So, I think there’s definitely some inherent risks there but there are also some very clear, exceptional cases out there where people have successfully gone straight to step three. I would say that in some cases, not all of them, but some cases, those are used as examples of “this is exactly how you build a software product and this is exactly how you build a company from the ground up.” I’ll point specifically to 37Signals for that because I think a lot of people have held them up on an alter and said, “this is exactly how you do it. We scratched our own itch. This is the way to do it.” And then you’ve got all these other people who are going out and scratching their own itch for a product that not everybody is going to pay for. So, there are definitely ways to do it and there are I’ll say red flags for other ways that it can be done but aren’t necessarily going to be successful. Success is not something that you can just say is going to happen. There’s a lot of red flags but there’s also ways around some of those red flags.
[26:41] Rob: I think 37Signals would have been successful whenever they had done it. They’re very smart and they’re great businessmen and they build things people want and all that. But I don’t know that they would have grown to how large they are as quickly as they did without their timing. They really hit SaaS at the early stage right as the concept was taking off and they got in first and they really got a first movers advantage which I think is great because they took a risk and it paid off for them. But I think that in the decade since Basecamp was launched, I think it launched around 2005-ish, a lot of things have changed so five maybe six years ago, still going directly into SaaS, I could see that potentially working. I don’t think it was nearly as competitive as it is today. So many people want to launch SaaS. It really is something that the funded companies are talking about, B to B is talking about it, B to C is talking about it, it really is something a lot of people are aspiring to and as a result a lot of people are doing it and a lot of the niches that didn’t have SaaS apps a few years ago have them now. So that’s where it’s just become so much more difficult to do it that I think jumping straight into the deep end of the pool is going to fail more often than not. That’s not to say it can’t succeed sometimes, and as you’ve said there are examples of people who have done it and even examples of people who have done it more recently. But what I tend to find is if you dig into their stories a little more, someone might say, Josh Pigford, with Baremetrics, he launched a SaaS app and it was successful but if you look back at his story he basically had two other smaller apps, he did stuff before that. It’s that ten years to overnight success type thing. You could say the same about me, right? Some would say, “oh, he has a successful SaaS app with Drip” but I have this whole long history of launching things, launching smaller things and then moving up this ladder. So it’s not that it can’t be done I just think it’s done a lot less often, especially these days.
[28:32] Mike: Right, and as you moved up that ladder you’ve built things that are more and more complicated. A duck boat E-book is a relatively uncomplicated thing but you get to something like Drip and that’s very complicated. There’s a lot of moving parts that are constantly moving and shifting whereas selling somebody an e-book on how to build a duck boat is relatively straight forward in comparison.
[28:54] Rob: That’s right.
[28:55] Mike: But if you take that example of how to build a duck boat as an e-book, you can translate that to one section of a marketing campaign that you might run for Drip. All those things that come up in step one and step two basically become these modules of knowledge that you drop into place when you get into things that are a lot more complicated and become a lot more successful because of the modular learning process that you went through before.
[29:22] Rob: That’s exactly right. Each one is, like you said, a module that fits together. I think that’s a good analogy.
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