Episode 86 | SaaS Pricing, Accountability Partners and a Micropreneur Success Story

Show Notes

Transcript

[00:00] Mike: This is Startups For The Rest of Us: Episode 86.

[00:02] [Music]

[00:11] Mike: 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. So what’s going on this week, Rob?

[00:25] Rob: Well I was down in Los Angeles hanging out with some friends and I managed to hook up with Jason Roberts who lives in Pasadena. Jason Roberts is a co-host TechZing. My wife and our two kids went over to his house and his wife, Sandy, cooked us some burgers and we just had a really good time. It was cool to meet his family, you know, you heard about them on the podcast. Yeah, they’re just like — just like he describes. They are all blonde. They look Swedish. But we had a really good time. So thanks. Thanks to Jason and Sandy for hosting us and we got to just — it’s so good, you know, to sit down and just talked tech and we talked startups and we talked podcast. We talked behind the scene stuff. He’s going to do a lot of meaty stuff sitting around a pool, drinking glass of wine and watching the kids.

[01:04] Mike: Did his wife get in on that discussion?

[01:06] Rob: She and my wife actually did and they started talking about how they neither of them listen to our podcasts and then Sandy joked and said, “You know, we should record a podcast about what it’s like to be married to a startup founder.” And we’re actually looking at putting something together like that and I think it’d be really interesting for Jason to interview the two wives or perhaps my wife to interview them as a couple to find out the dynamic. So anyways, we’re talking about doing something like that just about kind of how to have a family and keep sane and trying to launch your startup and there’s — there’s a lot that could be learn from hearing other people’s experiences.

[01:41] Mike: I think I remember Scott Hanselman. I think he had his wife on at one point and they were talking about either possibly writing a book or actually they were in the process of doing it and putting something together that was along the same line. But I definitely recall something from the Hanselminutes Podcast about that.

[001:59] Rob: Cool. Yeah,I know he’s had his wife on a couple of times but I didn’t know that they’re writing a book till today.

[02:04] Mike: Yeah, I could be misremembering that.

[02:06] Rob: How about you? What’s going on?

[02:07] Mike: Me, in Ohio right now, Columbus. I got a free room upgrade for Father’s Day. So I’m in a king size suite. Kind of spent some time with the kids by the pool and got a pool cover for the pool which I didn’t think it would make that much of a difference but it adds about ten degrees to the pool.

[02:24] Rob: I couldn’t say –

[02:26] Mike: It’s in the mid 80′s.

[02:26] Rob: Yup. At some point, it gets too hot. When it gets to be about one, it’ll get up in to the one like 109 or 110 in Fresno for a few days during the summer and the pool gets too hot to swim in like its feels like a hot tub. It’s not that it burns you but it is not refreshing at all.

[02:41] Mike: Ahh.

[02:41] Rob: Well hey, we have some new iTunes reviews just in the past few days, some of the good ones actually. One is from a Rich Hart. He says, “Great advice and cut AuditShark lose.” [Laughter] People are — people are starting to make comments in the iTunes reviews which I think is funny. He says, “Mike and Rob, I absolutely enjoy your weekly podcast. It’s always timely relevant and informative. Since I’ve started listening, I’ve created an internet business. Cut my teeth with using VA’s and find myself pushing everyday to make something happen.” Then he comments he says he thinks it’s time for you to let AuditShark in to the wild.

[03:12] And we also got a great comment from Zach and he says, “The art of enlightening others, I have to say I’ve learned more from these guys than I ever learned in business school. It just goes to show there’s no substitute for experience. Thanks, Rob and Mike” And then I like his comment. He talks about how we commented on needing a conference coordinator for MicroConf next year and he says, “I disagree. What you need is a franchise.” So [Laughter] we’re — become McDonald’s. He says, “You’ve already built the model, why not spread the love. Imagine hundreds of mini MicroConf’s across the country managed by local micropreneurs. The mini MicroConf’s remain small, personal and retaining the value of points express by past attendees.”

[03:35] Anyways, interesting suggestion. Don’t think we have any plans to do that right now. That would be more like franchising it in to almost a meetup group. So I mean Lean Startups certainly has experience a lot of success with that. I think there are several hundred Lean Startup Groups around the world.

[04:01] Mike: Yeah, I think so. You know, micropreneur meetup groups is really any difference is just there’s a huge difference between having a full-blown conference versus something local where people get together on probably a more regular basis.

[04:13] Rob: Right.

[04:14] Mike: But you and I talked about putting on something even smaller than MicroConf and just the level of effort, it’s just hard.

[04:21] Rob: Right. It’s hard to justify it, right? If you’d just do a regional conference, you can’t get the same level of speakers.  You can’t get the same level of attendees. If you try to do it one day, people won’t come in from further away than, you know, a few hours drive and you just — you kind of lose a lot of what we considered to be the magic of MicroConf. With that said, there are several meetups. And I’d say I’ve probably been contacted by six or eight people who say they are basically doing like a micropreneur meetups. And there’s — there’s one in Australia that we’ve already mentioned. There are several kind of in the Midwest and a few on the east coast. So there are things springing up. Yeah, maybe long term we’d figure out a way to better help facilitate that.

[04:53] Mike: I’ve been to a couple on the east coast. Usually it’s more me kind of organizing it or saying, hey, I’m going to be in this area for the next week or two weeks or whatever and then people going to reach out and three or four or five people want to get together, then we just go out some place to have dinner or something like that.

[05:14] Rob: Right. And the meetups I’m talking about are more like accountability meetups and sometimes they get a speaker to come in or they’ll share knowledge that that one of them maybe discovered over the past few weeks. I’ve actually done some video Q&A with a couple of them as well where they’ll just Skype me in and then we’ll have like a 30-minute thing and they’ll talk about the projects and we’ll just chat about it. Any updates from you this week?

[05:34] Mike: Well, I had an interesting discussion with Patrick McKenzie this past week about AuditShark pricing. One of the things that he’s been doing lately is he set up this training area of his website and I just — I signed up for it because I like hearing the sorts of things that he talks about. The first one was a video that talks about how to make your first product experience awesome and then he followed it up with I think it’s called the Black Arts of a SaaS Pricing which was pretty interesting. And it’s kind of timely because I’m looking at pricing for AuditShark right now.

[06:02] So I e-mailed him and just say, “Hey, this is what I’m doing. What do you — what do you think of it?” And he had some interesting takes on it. His idea was actually to instead of doing like a per server pricing for AuditShark, essentially use different levels. So you know, maybe the first level and say — he was just throwing numbers out there but say $50 a month for up to five servers and then up to $500 a month for twenty five servers and then I think the next level was fifty servers for $500 and then five hundred servers for $5000, then above that, contact us for enterprise pricing.

[06:34] Rob: Are those the specific tiers he laid out?

[06:36] Mike: Yeah, those are the tiers that he laid out which I found interesting because of the numbers and I was like, well it seems to me like one server and $50 would probably be more appropriate than, you know, five and fifty but I was also looking at that thinking to myself, well, if you do one in $50, it doesn’t give you a lot of leeway to do some of the techniques that he kind of outline which was if you change your pricing tiers and then measure kind of the before and after conversion rates and you also calculate the profit margins from each of those, it allows you to change the numbers on the page without changing the actual prices.

[07:12] I found that interesting. I didn’t realize it until after the facts but obviously I said, “You know, you don’t need to reply to this. And this just got my internal thoughts.” But then I started beginning to think about that. I was like, oh that makes sense. You can just change those numbers without changing the pricing because obviously changing the pricing on your page is kind of a big deal but if you just change the features that you’re associating with each of those pricing levels, it’s not nearly as big of deal.

[07:35] Rob: Absolutely on with HitTail just within the last month as about a month ago based on some advice and discussion in one of my Masterminds some guy said, “You know, you should raise your pricing.” We kind of discuss how to do that and what I did was I kept my pricing the same and I lowered the number of visits that each tier gets. It is the same pricing just like you’re talking about. That’s resulted in zero changing conversion rate which is awesome because it means that I’m essentially making more money, right? Because I’ve essentially raised my pricing because these people are signing up, you know, they’re being upgraded in to higher tiers. I can totally see that. I hadn’t — I’d never thought about the advantage of having that when you’re split testing pricing but it’s definitely a good tip to have.

[08:12] So I’m intrigued, I’ve actually giving this quite a bit of thought because there’s been several apps that I’ve been — been kind of working with some entrepreneurs and they’re looking at having that strict per seat pricing that you and I have discussed, you know, you’ve always kind of have that number per month, per server or per seat for AuditShark and we batted that around. Even over the past week, I thought about like the advantage of tiers and that you can essentially segment customers. So it’s not just this linear escalation of pricing but it’s to add one more server, you know, they only had ten bucks a month but they actually have to jump up a tier in essence, right?

[08:48] And now, as soon as they go to eleven or they go to sixteen, they kind of go over your tier than they do have to make a substantial jump. And that’s how most apps work now, right? That’s how SaaS apps work. I mean if you look at, you know, Basecamp or Highrise or any of these, it’s not a gradual — it’s not a per user cost. It’s actually doubles. It’s – the rule of thumb that I’ve always use as you pick a price and then you double it and you give them more than twice the amount of stuff they get at the lower plan. And so his pricing though it sounds like he was doing 10x.

[09:15] Mike: Yeah.

[09:15] Rob: He had 5500 and 5000. That’s typically a broader range than I do. I mean I would think of 4999, you know, 199 but –

[09:23] Mike: It was five servers for $50, twenty servers plus some sweetener for five hundred or two hundred servers for 5000 and then two hundred plus was call.

[09:31] Rob: Got it –

[09:31] Mike: That’s what it was. It wasn’t 550 or 500, it was — the point I was kind of getting at was at the very low end, it was not one server, it was five and that was kind of the starting point. He said that the idea was that if you have ten servers, you’re likely a very, very different business from somebody who has only two, you know, regardless of whether they are high-value servers or low-value servers. You know, somebody with ten servers has — well, like what he likes to refer to as a metric ton of money. And he said that it doesn’t really makes sense to charge linearly from one to ten in his estimation.

[10:02] Rob: Then that totally makes sense. And that’s why there’s a couple of guys that like I said I’ve been talking to and I’ve recommended they do tiering as well. And I think I’ve always look back at the FogBugz model. I’m realizing that I’m not a fan of that model and I see lot of disadvantages to doing it that way.

[10:16] Mike: I think that with FogBugz once you get past a certain point, it actually becomes much, much less expensive. So for example, I’m looking at their pricing now, from 24 to 150 users, they have a tier which is 599 a month or 719 a month for both FogBugz and Kiln. And then the next level up is a 151 to a thousand users and that one is $1,199 per month for both FogBugz and Kiln. So you can –

[10:42] Rob: So that’s insanely cheap.

[10:44] Mike: Yeah, I know it is. That’s — I found that interesting that they –

[10:46] Rob: Yeah.

[10:47] Mike: … kind of go to that at the higher end, they’re not charging–

[10:49] Rob: I agree.

[10:50] Mike: … targeting exponentially more.

[10:52] Rob: Yeah, that’s tough. That’s a tough sale for me. They either know something about their numbers that we don’t or they’re leaving money on the table with that. I wouldn’t discount stuff that much at the high end because like Patrick says and this is been very obvious in every business I’ve ever had, the people who are at the higher end tend to have more money to spend. And in general, you can’t just charge them more per seat, right? You can’t charge the little guy in a less per user and then as you go up, you actually charge more. I mean you have to give — you do have to give some kind of discount but it’s a huge mistake in my opinion to have an enterprise plan where 80% discount or something, you know, if you have a thousand users. That’s the way everyone does it and your competition does it, that’s how you have to price it and that’s fine and that maybe the case here.  But I’ve never had a business where as it gets to the high end, I give substantial discounts.

[11:36] Mike: Yeah, what I find really odd is that it’s $30 a month for both FogBugz and Kiln and then if you just kind of extrapolate that and say well for a hundred users that would be $3000 a month but on their pricing tier, that’s unlimited and in fact, their low ends tier goes from 24 to 150 people and that’s only $700 a month.

[11:56] Rob: So they give a really big price break as you go up.

[11:57] Mike: Yeah, when you started getting in to enterprises they expect like –

[12:03] Rob: Yeah.

[12:03] Mike: … a 50% discount, you know –

[12:05] Rob: Right –

[12:05] Mike: … that’s — that what they expect.

[12:06] Rob: And I bet FogBugz competition which is where it’s like Atlassian and a few others, I bet they do the same thing and I bet this is more of a competitive move. If you publish pricing on the web, you’re going to have to be competing with those folks whereas if you have a product that, you know, doesn’t have a direct competitive, then it’s a lot harder to do that.

[12:10] Mike: Yeah, I think that Atlassian specifically targets enterprise customers with their pricing.

[12:30] Rob: Yeah, they do.

[12:30] Mike: So there’s — there’s this considerably different but it also requires considerably more resources in order to run it.

[12:35] Rob: Right. Okay. So no final notice on your pricing but it sounds like you’re working on it.

[12:40 Mike: Yeah, I'm working on it and I'm definitely going to move towards a some sort of a tiered pricing model, you know, I'm having my designer rework my sales page, my pricing page a little bit so that it's got four different levels there instead of three. And as somebody pointed out to me when they were kind of reviewing the pricing page was that I had green check marks and red X’s next to some of the different sets of features and they're like that looks like a warning flag to me of "Oh, don't choose this because of this."

[13:08] Rob: Right.

[13:08] Mike: Which I found interesting so I’m going to — I had talked to the designer already and said, “Look, you know, you got to remove those red X’s and they have to be like grayed out X’s instead. So –

[13:18] Rob: Right. But once you get started with your pricing stuff, I would guess that first ten or twenty customers you have, you’re going to be negotiating pricing and then you’re going to trying to figure out what works for them and then you’re going to learn more as you go. I mean the bottom line is when you’re starting out, you’d just have no idea what people are willing to pay. You can ask them all you want and make a best guess at it but we’ve known several founders who, you know, go in to it in the first twenty or thirty customers all get different pricing based on how they’re — how they’re able to pay.

[13:46] Mike: Right. Yeah and honestly, we’ll probably do the same sort of thing when I launch AuditShark. I mean I’m going to go to the people and you know, I probably won’t specifically publish pricing out there. I mean I’m going to go to my list and start talking to people individually and start signing them on. They’ll probably all have different pricing and till they get in and start using the product and then I can get feedback from them to say, “Now, that you’ve seen it, is this worth what you’re paying?”

[14:10] Rob: That’s the thing. Yup, you have to figure out if you’re providing the value that because you can convince someone with marketing to charge them, you know, a little lot higher than you otherwise could but then when they get in there if your churn rates really high because they’re like, “Ahh, this isn’t worth it” then you need to adjust pretty quickly and it’s such a heavy learning experience the first several months you have an app out because it’s just so young and you’re trying to figure out which way to where to go that try the most value for them.

[14:32] Mike: Right. And I think you can definitely short change yourself in many ways on that on some of the pricing. I mean you can say, “Oh well yeah. I’m only going to charge you $10 a month” when you should really be charging them a hundred and they’re getting a hundred dollars worth the value out of it.

[14:44] Rob: Right. And but I think the thing is early on like when you only have ten or twenty customers, some people are going to get in and they’re going to get, you know, a lot more value. You’re going to under charge them, bottom line and you’d just have to do that and just grandfather them in and move on. I mean that’s just the way it goes, right? Because you’re not going — this app is not going to have ten or twenty customers. You’re hoping to have hundreds if not, thousands of them. And so if you’re really mucking around with pricing early on which you should be to figure out that the optimal, you’re going to make some mistakes both high and low as you go forward. And so I don’t think, you know, if someone is paying ten bucks a month that they really are getting hundred dollars worth of value, well, good for them. Thanks for being a charter customer. I mean that’s –

[15:18] Mike: Thanks for the feedback. I mean that’s –

[15:19] Rob: Absolutely.

[15:19] Mike: … what you’re doing. You’re basically paying for them in a way for their feedback. I mean sure they’re giving you money but you know, feedback.

[15:26] Rob: Right, right. And I don’t believe in large betas. I believe in very small betas and you can give discounts to beta people. I wouldn’t use that as a reason to kind of under charge everyone. You know I’m saying? I mean I might bring in a handful of people four or five and give them a discount but I think beyond that, you really got to start getting to where people are basically getting the value out of it that they’re paying.

[15:45] Mike: Right.

[15:46] [Music]

[15:49] Rob: So I got a e-mail this week from Tope. He’s a long-time Micropreneur Academy member and he’s a founder of App Design Vault. And this is a great e-mail. He says, “Just got an e-mail from AppSumo today and it made my day. HitTail was featured alongside my product App Design Vault.” And then he took a screen shot of it and attached it. “I’m a lifetime Academy member and a lot of what I learned went in to the marketing and the DNA of App Design Vault. I quit my job seven months ago and making — and I’m making a full-time living from the business. So definitely seeing your product and mine in the same context is a good thing to see. Thanks for all your help on the podcast and the Academy. Thanks. Tope.”

[16:25] So this is just — it’s another one of those success stories like this is a stuff a love hearing, right? This is [Laughter] why we’re doing the podcast. This is why we started the Academy. Frankly, App Design Vault kicks ass. I’ve always love this idea. It’s basically iPhone App design templates. And he’s got a great call to action on their home page. If you’re an iPhone app designer, it’s a no brainer. He says, “Give me your name and your e-mail. I’m going to send you an app design worth $70 to your inbox just for doing this.” And then, you know, he says, “Join over 2000 users who are making their apps rock.” And it’s just a big gallery of all kinds of different iPhone app design templates. This is just such a great market to be in right now, right? Because instead of actually building the app, they’re selling the tools for people to build apps and since it is such a growth market, everyone is talking about it. There’s just a lot of search going on and there’s a lot of people talking about it. So I love — I love the niche and he executed it well. So thanks — thanks for letting us know, Tope.

[17:15] Mike: Yeah, that’s really cool to hear. I mean I saw the AppSumo e-mail come in as well and I saw HitTail right next to App Design Vault and that was — it’s pretty cool to see. I mean it’s that point –

[17:24] Rob: It is.

[17:24] Mike: It’s nice to talk to people but then to see the social proof I’ll call it, it’s very cool app.

[17:29] Rob: Yeah. So you have that — the AppSumo deals are going to pretty well. They run their deals for longer now. It’s kind of a different set up. They used to just do one day and they would e-mail everybody but it’s like they have the list segmented now.

[17:39] Mike: Uh huh.

[17:39] Rob: So it’s kind of several weeks that I have to wait to really — I can see daily updates but it’s not like this big massive traffic like it used to be. Used to basically be on e-mail support all day for eight hours [Laughter] because you get so many questions because their list is like 6 — 700,000 people. So when they e-mail out to, you know, it’s — it’s a rush of traffic. But so far, it’s doing very well and sales are going well.

[18:02] Mike: Yeah, I hadn’t thought about how to manage a list like that but it does make a lot of sense that they would segment their list like that so that way they probably evens things out a bit. So it’s kind of space little things out and they level out the traffic a little bit.

[18:14] Rob: Right.

[18:14] Mike: It’s very cool. I somehow landed an accountability partner for AuditShark this morning.

[18:20] Rob: Sweet. How did you that?

[18:22] Mike: I didn’t actively try for it. Somebody contacted me through my blog and basically in a very nice way said that “I’m going to e-mail you assuming that it’s okay with you, I’m going to e-mail you every week until you get AuditShark launched and out the door.” So I thought that was really cool. And I had — we had an e-mail exchange back and forth a couple of times to kind of let him know where I was with AuditShark and what sort of things were going on. I sent him an e-mail link to the temporary sales website that I’ve been working on just so he could kind of see what it looked like and where the things are at. And he said he liked it. He had some good suggestions for it. So I’m going to take some of those in to account and you know, rework a couple of different things.

[19:02] One of the things that I got was that I keep hearing from people that they think that I’m waiting until everything is perfect with AuditShark before I launch it and you know, people are saying, “Oh, you got to launch it. You got to launch it.” And it’s not that I’m holding off until everything is perfect and that, you know, all my I’s are dotted and T’s or crossed. It’s just things are just not ready. I mean I can give it to somebody right now and it would work and would do what it needs to do, the problem is that the back end of it is kind of builds around this idea of a set up policies and a library of these control points that you select and you can push down to your machines and pull it back the results for.

[19:40] But the problem is I don’t have that library built and I don’t have a good way to get things in to that library. So that’s what the tool developers that I’ve hired are working on right now is they’re working on the tools that will build those control points and build the policies that will then go in to the library. So I’m hoping that they’ll be done with that within the next four or five weeks but the UI is complicated So you know, until that stuff is done though, I can’t really move forward with pushing the product out which sucks in a way but at the same time, you know, I’ve also got other things to work on while they’re doing that.

[20:11] Rob: Yeah, I think I mean to summarize, you built AuditShark yourself for a couple of years. You spent two years. You were – or maybe a little more than that and you were focusing on banks and you thought that banks were going to be your market. You had it in there and as it got towards at the end, you found out there were a couple of things. One, that your — kind of your customer development, your discussions with banks were misunderstood, right? They were talking about one thing. You interpreted it differently. When you finally got to it, it turns out you hadn’t actually built what they wanted. And B, the sales process was going to be so high touch that you decided you didn’t want to go down that road.

[20:45] Now we can go to on all types of discussion about whether, you know, what you could have done earlier to avoid that and all that stuff but that’s fine. Once you got there, you realized, I can’t do this. I’m not going to go forward with this and so you decided to pivot. And then you were saying, “Okay, I have this code base that does something and it can help some group of people. Where is that market?” And as MicroConf came around, you started asking folks there and it turns out you’re going to be probably pivoting towards servicing people who have web servers and app servers and you’re going to be scanning for like vulnerabilities and that kind of stuff. That takes retooling of your app, right? Bottom line like you needed then figure out what the new feature set is. You don’t have to rewrite the whole app but you absolutely have to either you or have someone else write some code to now get AuditShark to do what this new market needs.

[21:15] Mike: Yeah. And the thing is there’s not a lot of that piece that needs to be done. It’s just the fact that there’s this library in the back end that needs to be populated somehow. And the –

[21:39] Rob:  Right.

[21:39] Mike: … only good way to do it is to manually do it at the database

[21:42] Rob: So there is work that has to be done whether it’s code or not and some work has to be done to make it fit this new problem you’re trying to solve. You’re now trying to reachieve problem solution fit, right? Or achieve it. Period. So now you’re trying to achieve it with this — this new market, this new group of people and that is going to take time. You do a lot of consulting. You consult, you know, most of your — of your full time hours during the week and you’re also doing a blog and a podcast and doing this other stuff. So it’s not as if this is your full-time gig. So the fact that it takes you a couple of months to pivot is not surprising to me but it does seem like a lot of comments are coming through that are saying why haven’t you launched yet.

[22:19] And while this has been a long, you know, a long process, a two or three-year journey of you figuring this app out. Some mistakes were made. At this point, I don’t think you can launch like you have to get this stuff done before you do it and of course, I would love for you to pull a bunch of all nighters and launch next week but that’s just — that’s not realistic. If you think Mike should talk to more customers or get in to more detail or do more customer development, that’s fine like I can deal with that as like a more valid opinion. I just don’t think it’s reasonable for you to say, “All right, you should just launch tomorrow because the app is actually not done. It doesn’t solve the problem that you’re trying to solve at this point.

[22:50] Mike: Yeah, that’s definitely accurate. There’s a couple of tools that need to be built in order for the product to really work in this market. And right now, it’s just not there.

[22:59] Rob: Our relationship is never really been about like keeping each other accountable with our apps like I don’t come to you and say, “Hey, I need feedback” or “I need you to keep me accountable on this” and you haven’t either and that’s why the accountability episodes where we really dove in to AuditShark, we’re kind of weird because we don’t necessarily have that relationship. We do have a business partnership with MicroConf, the Academy and the podcast but aside from that like I don’t particularly like unsolicited feedback, let me put it that way. So when people give me unsolicited feedback and they tell me how they think I should run my business or how they think I should develop my product, I don’t like it and I irritated with those people in general.

[23:31] And so I don’t feel like I should sit here and tell you unsolicited, “You should do this, that and this with AuditShark” because it implies that somehow one of us knows better than the other or something like that. Now if you came and said “Rob, you know, I really want your feedback” which you have. You’ve actually done that offline several times where after the podcast, you’ll show me your sales site and you say what do you think? But to sit here in a public form and for one of us to kind of dictate to the other, “Well Mike, I think you’re doing this wrong and you should do this, that and this” I just, yeah, I just don’t know how – how helpful that is and you and I don’t particularly have that. We just don’t have that relationship, right?

[24:02] Mike: Yeah. I mean you made some points. I mean I’ve gotten some unsolicited feedback from people saying, “Oh, you should do this and this and this.” And I’m looking at that feedback saying I understand where you’re coming from because I haven’t share all of the information with you but you’re so far off in left field but that’s just not even remotely close to accurate. And I don’t even know where to address how many problems there are with what you just said. So it is hard and you know, I try to share as much as I possibly can on a podcast but I obviously don’t share everything. I think this particular episode we’re doing a lot more just because we’re focusing more on, you know, what sort of things we’ve been working on but I don’t think that everybody wants to hear about AuditShark every episode or HitTail every episode. I mean that’s not –

[24:40] Rob: Right.

[24:40] Mike: … what this podcast is about.

[24:43] Rob: Right. The issues that we discuss here a lot deeper and a lot more complex than we probably play them out on this podcast. I got a good e-mail. I thought it was funny. It kind of relates to this topic of maybe someone outside your business thinking they know more, you know, they know what’s best for it. I got — I got an e-mail. A guy was canceling HitTail and he said, “Thanks for canceling my account. If you guys offered a plan of $4.95 a month that allowed the X visitors a month rather than, you know, whatever your currently offering, I’ll definitely be back. At this certain level that’s when I started to see proper visitors and feel free to passes feedback on to your people, I’m sure you’ll get a lot more business doing this as well.” And so basically he’s saying to lower your pricing. Funny thing is I get — probably get an e-mail like this maybe one or two a month from the several hundred people that signed up for trials. That’s right –

[25:27] Mike: Is it your lowest plan $10 a month?

[25:29] Rob: It is.

[25:30] Mike: So he’s saying that this extra $5 a month is just not worth it.

[25:34] Rob: That’s what he’s saying, yeah.

[25:36] Mike: Oh, okay.

[25:36] Rob: And it’s so hard to make money at $4.95 a month for anything but the implied message here is that the best price is less than– it’s always less than whatever you’re charging. The best price is always that, right? And whenever you get these e-mails and the second thing is always imply to charging less will always result in loads of customers. And neither of those is accurate as we’ve known.

[25:57] Mike: As single support e-mail would totally blow that $4.95 out of the water.

[26:01] Rob: I know. When you are living and breathing and inside something and you know all the numbers in the metrics, I know that I do not want customers at $4.95 like it’s just wouldn’t work. It would lower my lifetime value too much. So I will pass, you know, on customers who want to pay $4.95 and if they’re able to get value out of it at $9.95 and up — I mean I have customers paying a hundred dollars a month and are very happy with the app and I want to get a lot more of those.

[26:24] Mike: No, I totally understand and I completely agree. It’s so hard to explain to people that they’re wrong because they don’t have the data but you don’t necessarily want to share the data with everybody either.

[26:35] Rob: Yeah, I don’t — I didn’t want to say explain to them that they’re wrong. I don’t know if it’s about right or wrong. I think it’s more about how you, you approach the business, right? It’s like if you want to take your business up market and try to make it like more valuable and find the people who are willing to pay the higher end prices, then you go about things a certain way. But if you’re trying to go for a freemium product, I mean that — frankly when I bought it, it was — there were some freemium users and people were saying “You should start a free plan and you’ll get a bunch of customers and…” I’ve never seen it work with bootstrappers.

[27:01]I can’t think of a single bootstrap company that has ever kept their free plan around. A lot of people launch with it and then they winded up cutting it out. There’s that Why Free Plans Don’t Work blog post that Ruben did on my blog that was on softwarebyrob.com. It was quite a successful post because he pointed out this fallacy that we can use the same approach as like a venture funded company trying to do the freemium model and what freemium can work is very, very difficult to pull off. So I need these most people’s images of how a product should be launched and the pricing and all that stuff is sorely warped if they haven’t actually done it themselves.

[27:35] Mike: Yeah, I considered a free plan for AuditShark but I couldn’t think of a good way to actually make it work and provide enough value that people would view it as a valuable service but limited enough in such that they would want to upgrade and I just couldn’t come up with anything this kind of — it’s not worth of time and effort, really.

[27:54] Rob: Right. So anyways, I think kind of to close that loop. We were talking about AuditShark and whether you should be launching right at this very minute or whether you are in process of pivoting and that you need a little bit of time to pivot. If there’s one thing that I would say, I would like to see you talking to consumers like actually talking to them on Skype or pretty intense e-mail conversations. But before you build something, I want to make sure — I would like to make sure that you’re building really what they need.

[28:19] Mike: Yeah. At this point, I mean the product is what it is and there is not much but the core of it is going to change. I mean it can pull back results from a machine pretty much anything that you want. I think what I really need to find out is what sort of format they’re looking for the data to come back. I mean what underlying problem is that they’re to solve and for the most part of the people that I’ve talked to have said that they want some level of assurance that somebody is looking over their shoulder and making sure that they’re not doing something dumb on their machines. I really feel like there’s a big difference between what the small people want versus the big people want.

[27:01] So like the large customers, they basically want to save money because to them a data breach is obviously is a huge deal but it takes them forever to close the loop on that and notify customers whatever the statistic was. There was something like $43 per record loss. So you lose a hundred thousand records and you know, there’s a couple of million dollars in cost associated with that because you’ve got all these other things that you need to do and this is more for like losing credit card information. But for a small customer that, you know, let’s say that you were using AuditShark for, you know, your server and what it would cost you if your entire HitTail server was cracked open and hacker stole all the data. I have no idea how to even estimate what that would cost. I mean I have no idea how many customers but let’s say that it’s a thousand customers for easy math and you know, $43 a record that’s, you know, $43,000.

[29:44] Rob: Right.

[29:44] Mike: Is it realistic to say that that’s how much it’s going to cost you? You know, I don’t know. I’m not — I’m really not sure when it comes to things that are not credit card related. I mean you can look at all these studies but it’s very skewed because those much smaller businesses don’t report that information. They’re not statistically significant, you know, because regulators don’t come down on those small companies. So it’s just very hard to translate those larger customers and the fees that they pay for those data losses into the much smaller customers. So I think the motivations for buying AuditShark are going to be radically different.

[30:18] Rob: Right. That’s what you’ve started to pin point, you asked that question in the survey kind of why would you need this, what would your pain point be. Your working that in to your — your copy, your marketing materials and that’s what I’m saying. I think that going deeper into those issues and trying to figuring out if there is one or two or maybe three issues that you kind of segment people in to that they’re trying to combat and figuring out which one of those to attack first but keeping it as simple as possible. I mean it’s like, you know, I’m coming back to the HitTail feature I just released with the articles. I started off with this awesome spec and I drew it up like a true developer should and it was gold plated and had all this logic in it and I looked at it said “God, that’s going to take a month to build.”

[30:57] And I just threw everything out and I said I’m not going to — I was going to offer three different levels of quality. I was going to offer all these choices of length. I was going to offer all these — there are all these features, you know, with the market place, rather market place I’m working with that I could choose and I basically just hard coded all of those in the code and I made one length, one quality level one price. You click the button to order or not. And as a result, I could totally simplify that you and I are in the entire integration. And it sets, you know, it’s a really minimal feature. Basically, I stripped it down and I think that’s where you’re probably headed or I hope you’re headed, you know, it’s to figure out what that minimally viable feature set is  in order to get that those first customers onboard.

[31:37] Mike: Yeah, I’m not so worried about the feature set because like I said I mean the product’s library is what it is. I mean the product does what it does. I’m not changing that at this point. How I portray to the user is a little different. I mean I may need to massage that stuff a little bit but I mean in a fundamental level, it tells you whether something is configured properly or not. There’s an error message that could pop up as well or there is something that comes up and it shows up as purely information. So you know, like the operating system it’s Window 2008. Okay, well that’s not right or wrong. It’s just it is what it is. And then you’ve got, you know, you might say, well it’s the latest service pack installed, yes or no. And if it’s not, that’s a bad thing. If it is, then that’s a good thing, you know. So you’ve got your okay’s versus not okay results. And then the fourth thing that can come out is honestly an error. And that covers pretty much every single case you could possibly think of for pulling back configuration information.

[32:27] [Music]

[32:30] Rob: So I think I’ve selected my next product idea.

[32:33] Mike: Oh yeah? What’s that?

[32:34] Rob: Yeah, well at this point, I’m going to keep it under wraps.

[32:38] Mike: [Laughter]

[32:39] Rob: The thing is I’m months — I could literally be six to twelve months out for even starting to work on it because I’ve got — I’m trying to stay focused and I’m dying because you know, like us entrepreneurs, we totally want to do the next thing because the next thing is way cooler than anything we were working on now. Yeah, right now I’m like focused with an exclamation mark, right? I’m like trying not to wander off the path like HitTail. I’ve just gotten the funnel optimized. I’m starting to market it again after a few months off and things are really starting to take off. They’re starting to do well how about I said that way. As much as I’d like this next idea and I think that it could provide value to a lot of people, I don’t want to have a bunch of ideas going at once, you know?

[33:14] Mike: Yeah, I talked about it in our previous podcast where I said that me having AuditShark going and then this Altiris Training site, then my forum –

[33:21] Rob: Yeah.

[33:21] Mike: … software is kind of being reworked and I’ve actually had sales requests and questions and stuff come in for all three of them in the past week and it’s just — it’s a juggling act. It really –

[33:32] Rob: Yup.

[33:32] Mike: … in a way kind of sucks. You know, it’s my own fault for putting myself in this position but I’ve had people sign up for the — the training site and there’s things that are just not ready yet. And then I’ve had people come in and say, “Hey, can you get the demo up and running for your forum software? I really like to see what it looks like specifically so that I don’t have to buy a site unseen.” There’s all these things going on and as I said before, my worst fear is that everything is going to kind of come to a head at the same time and that’s starting to happen. So I –

[33:58] Rob: Right.

[33:58] Mike: … I would definitely hold off. [Laughter]

[34:00] Rob: Yeah — and the thing is I mean I say I think I’ve settled them my idea. I haven’t settled any idea. I’ve settled on the fact that there maybe a need for certain thing is and what I really need to going to do is start talking to people, getting out there and if there really is a need and verifying and all that. And frankly, I don’t have a ton of time to do that right now and I don’t have the focus to do it. I totally could outsource it like I could sketch stuff up and send it to a developer and have them starting building it. But I just — I don’t want — I don’t think that’s a right decision right now. I think that I need to do more on research upfront to make sure that it’s solving the problem and I need to basically not be doing either those things because I really — I’m struggling to fight off the urge to start this product and I should just stick with HitTail for now.

[34:41] Mike: Yeah I have several other things that I have thought about and I’ve got them in a Google doc somewhere and I’m just looking at them. Every once a while, I look or I’ll glance at it and say, “Man, I’d like to do that but there’s just not now”, you know.

[34:52] Rob: Yeah.

[34:52] Mike: And I don’t think that there are market opportunities that are going to go away anytime soon.

[34:56] Rob: Right.

[34:56] Mike: So I feel like I’ve got time.

[34:59] Rob: I am coming up on a one year anniversary of owning HitTail.

[35:02] Mike: Oh cool.

[35:03] Rob: … that crazy? Anyways, you had I think one more thing you want to chat about.

[35:06] Mike: Yeah, actually. Do you have like a build server for any of your products?

[35:10] Rob: I used to.

[35:12] Mike: You used to –

[35:12] Rob: I don’t have at this point.

[35:13] Mike: You don’t okay? Okay. Because I was wondering how you – right now I’m starting to run in to some issues because I’ve got multiple developers working on, you know –

[35:20] Rob: Oh yeah.

[35:20] Mike: … the same code base.

[35:21] Rob: Yup.

[35:22] Mike: So merging code and making sure the check-ins from different people are all –

[35:26] Rob: Yeah.

[35:26] Mike: … working and it’s starting to become kind of a pain in the neck. I did start taking my build server and moving it out, you know, in to Rackspace that I didn’t had it hosted locally so it could do everything out there. And it’s one of those things where it’s like I would love to have that build server up and running right now so that it could do all those automated checks and everything else. I just don’t have the time in it.

[35:46] Rob: Does it — do any of your developers have the expertise to — I mean isn’t it CruiseControl? Is that still the standard because a couple of years ago, last time I set it up that’s what I used. And most developers knew how to — most .NET guys they know how to install that.

[35:57] Mike: Yeah. I’m using Final Builder. So –

[36:00] Rob: Okay.

[36:00] Mike: … it’s a little bit different. You know, I don’t know. I might be able to hand it off to one of my guys.

[36:04] Rob: Kind of give it off. Yeah. Obviously –

[36:05] Mike: Yeah.

[36:05] Rob: Obviously, you have to check it and make sure it’s done right but that might be — might be the better solution. You’re using Source Control at this point, right?

[36:11] Mike: Yeah, yeah.

[36:11] Rob: Were they able to merge? Okay. So it’s not like they have standard copies.

[36:15] Mike: Right, right. And I mean everyone is using Kiln and you know, they’re checking their code in and the issue that I’m running in to is just it’s like certain times not everything is being checked in so that in compiles on their machine but it doesn’t necessarily compile for anybody else.

[36:30] Rob: Right.

[36:30] Mike: So that’s one of the issues.

[36:32] Rob: That’s a big one. Yeah man, as soon as you ramp up to two developers from one, it is such a big deal, right? It is like a big leap. And then going from two to three, it’s not as big of a leap because you get these processes handed out.

[36:45] Mike: Right. And that’s what I’m trying to figure out is how do I put this process in place without actually having to do [Laughter].

[36:50] Rob: Yeah. Now, I hear you.

[36:53] Mike: So I mean part of it, you know, making sure that the code is good quality and everything else. So I’m going to have to do some of that anyway. I mean I’m going to have to review the code which is not that big of deal. It’s just making sure that it’s all following the rule. So I think there’s FxCop or something like that. I used to use it. It’s basically to make sure that all the code was following specific standards but I haven’t used it in a while. But I was had the issue. It would flag a lot of different things and say oh, this is wrong or that’s wrong and it’s like, no, that’s fine, don’t worry about that. And I never really dug in to it enough to figure out how to tackle some of those switches. So maybe — maybe you’re right. Maybe I just hand it off to one of these guys and say, “Hey, can you, you know, work with the build server and just straightening out all the stuff?”

[37:32] Rob: Or you could at least give it a shot.

[37:33] [Music]

[37:36] Rob: So if you have a question or a comment for us, you can e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. You should subscribe to this podcast in iTunes. You can search for Startups or you can go to StartupsfortheRestofUs.com and subscribe via RSS where you’ll also find a full transcript of each episode. Thanks for listening. See you next time. 

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5 Responses to “Episode 86 | SaaS Pricing, Accountability Partners and a Micropreneur Success Story”

  1. Hey guys – good show. Mike, get your ass in gear and launch that puppy!

    For the new listeners: Puppy = AuditShark.com

    By the way, I was fooling with Tagxedo.com. Very cool app. Here’s a word cloud for this epidosde:

    http://www.tagxedo.com/artful/5c06aba11e174ca7

    Enjoy!! Jack

  2. Great episode. One comment:

    Rob said: “I can’t think of a single bootstrap company that has ever kept their free plan around.”

    I think MailChimp fits this bill: bootstrapped, and they have a “forever free” plan:
    http://news.ycombinator.com/item?id=2958358

    • >>I think MailChimp fits this bill: bootstrapped, and they have a “forever free” plan:

      Good point, except they didn’t “keep a free plan around” – they did not have one when they started. They began as a paid only service, and added freemium once they were quite profitable.

      At that point they were much like a venture backed company because they had a large amount of money in the bank and a mountain of recurring revenue. See this post for a discussion of how hard they thought about it before going freemium, even at their scale:

      http://blog.mailchimp.com/going-freemium-one-year-later/

  3. Jack, I’m working on it. People really just have no idea how much I’ve done on this thing.

    Tagxedo looks really cool though. Funny to see AuditShark embedded in there like that.

  4. Todd Beuckens June 29, 2012 at 4:34 pm

    Enjoyed the show as always guys.

    As for listener comments about auditshark, I could not disagree more. First impression means everything. Imagine a restaurant opening its doors before it is ready. People will eat there and never go back again. Same applies to web businesses. Glad to see you are taking the time to get it right after the pivot.