Show Notes
- Tribal Leadership
- AuditShark is live. woot!
- Fflick
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 116.
[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. How you doing this week, Rob?
[00:24] Rob: I am doing good. I am on a campaign to get this t-shirt printed. Someone tweeted it out to me and it’s WWRWD. It’s What Would Rob Walling Do. It’s only 13 reserved out of and they need 50. It’s —
[00:37] Mike: Oh —
[00:38] Rob: I know, [Laughter] and I’m 13 of those.
[00:42] Mike: [Laughter]
[00:43] Rob: I thought it was funny. That’s at teespring.com/wwrwd.
[00:48] Mike: It’s too bad that they, you know, you have to get to the goal of 50 because I was thinking about getting one and then, you know, wearing around at MicroConf.
[00:55] Rob: I know that that’ll go over really well.
[00:56] Mike: [Laughter]
[00:57] Rob: How about you? What’s going on with AuditShark? You’re about a week after your early access launch.
[01:02] Mike: Yeah, so I had a couple of really, really good conversations last week with some customers who are trying it out and came across to a couple of I’ll say bugs that absolutely needed to be fixed in a short amount of time. So, I got those taken care of. But otherwise, I spent a lot of time on the phone talking to people and kind of getting their thoughts on what they’ve thought of the product, what they’ve thought of the UI, how things fit together, what things make sense and which ones don’t. I wouldn’t say it was completely eye-opening. It wasn’t, you know, a lot of the information wasn’t necessarily shocking but at the same time when you’ve worked on something for so long, you kind of I guess lose perspective of what is obvious and what’s not.
[01:39] Rob: Well, of course. Yeah, you get too close to anything whether you’re running a blog post or if you’re producing and editing a podcast like you listen to it 20 times as you’re editing and you just can’t…you can’t really tell if it’s good anymore.
[01:50] Mike: Right. So, you know, I definitely feel like I’m too close to it which is great to get some of this feedback. So, I’m going to go back and I made just a ton of notes about things that needed to change and some things that just needed to drop out of the UI like there are certain things that I left there because of the legacy way that things used to work and then it changed but I left it in the UI. And because it was in the UI, it just made no sense to the person. So, you know, some of those things they don’t really mean anything. The user doesn’t need to know that they’re there. I just need to rip them out. There’s a lot of good information though so I’m just taking that and going through and working some stuff out.
[02:24] Rob: Yeah, this step – I mean essentially you’re doing, nowadays we call it customer development, back in the day it was called just like your alpha test where you got with customers and started, you know, getting their feedback on it. I’ve always been surprise at how valuable that time is with actual people who are going to use your product. They just…they bring things to light that you could never possibly think of yourself as the programmer.
[02:45] Mike: Right, right.
[02:46] Rob: Well, I heard a Mixergy interview. I’d just wanted to raise that it irritated me and I want to bring this issue to life that I’ve seen happened before. And it’s – the interview was with Kurt Wilms from Fflick. It’s F-F-L-I-C-K was his app. And the title is “How a Side Project Led to an Acquisition?” And how – you know, his app was acquired in like six months after they launched and I guess TechCrunch reported that it was acquired for $10 million and so it’s like, wow, how did this happen? And this kid was, you know, 24 when it happened. The problem is that when they get in to it in the interview, it sounds like it was nothing like that and that it was a much more of an acqui-hire. Have you heard that term before?
[03:26] Mike: Yeah.
[03:27] Rob: Where people like Google will acquire — “acquire” your company but really what they do is they hire you and then they give you like a signing bonus. So, they acquire your company for like a hundred thousand bucks or 200,000 or and most of it is in stock. It’s nothing like the big glorious, you know, TechCrunch acquisition that everybody talks about. And I’ve seen this several times actually listening to podcasts. So, I’m not slamming Andrew here at all because that’s not…that’s not what’s going on. It’s more of the way that that these acquisitions are reported and talked about and they’re actually not…they’re not the fairy tale exit.
[04:04] There are so few fairy tale lottery exits like the Instagram exit, the 10 million — $20 million exit. There are far fewer of those exits than…than are actually reported and once you dig in to the details, you find out that either it was just an acqui-hire and the amount was over reported or there was a tiny amount of cash upfront and the rest of it is in stock and the stock started losing value. I mean there are so many caveats to these types of the acquisition. So, I’d just I wanted to bring it up more as like as a listener or reader of these kinds of stories have a little bit of skepticism when you’re…when you’re hearing this news.
[04:37] Mike: Yeah, I love the fact that when Andrew started asking him how much money he made and asked if he made a million dollars from it because it’s a relatively small team and it was a $10 million acquisition and he just wouldn’t talk about it. He wouldn’t even confirm or deny that he made more or less than a million. He just said, “I made a good amount of money but I don’t really want to talk about specifics.” And he said, you know, Andrew said, “You’re not even going to say more than a million?” He said, “No, I’d rather just not talk about the money part of it.” I understand from a business standpoint why some of these companies go after these smaller companies in terms of the acquisitions but it’s obviously not something that the rest of us could pull off and it’s…you have to take the stories with a bit of a grain of salt.
[05:15] Rob: Exactly. Yeah, well, I definitely understand why Google would acquire them because they’re talented developers and that’s…that’s actually something Paul Graham has talked about where the…with these acqui-hires they are a major danger to YC companies because as soon as you see someone gets YC funding, well, you know they’re probably going to be pretty good product people, right? They’re going to be able to crank something out and they’re motivated and they have convinced the YC team to give them money. So…so there’s a lot of pluses going for them. And so, he said a lot of the YC teams get contacted within the first few weeks of being announced and they get in to these talks and they – it’s presented as an acquisition but by the time they get to the end, they realized that they’ve really got themselves a job with a like a small signing bonus like I said earlier. And so, I think this is …has been common and it’s certainly becoming more common as time goes by.
[06:05] Mike: So, hey, you know, we’ve talked about upgrading our machines in the past and I have reframe from doing so for properly almost six years now aside for my laptop. I’ve finally get broke down and decided to buy a bunch of new hardware for a new desktop.
[06:18] Rob: Nice. Wait, you’re going to build a new computer? Why not buy a new one?
[06:22] Mike: Mainly because I don’t want to pay for it but at the same time there’s also…there’s a former a hacker in me that just loves to build the hardware. So, to give you an example, years and years ago before anybody was really in to like the liquid cooling of computers, I went through and I started building my own liquid cooled computer and this was, I don’t know, probably 2000, 2001 timeframe. One of the things that I did was I said, “Well, I want to build a custom case.” So, as a custom case, what I started to do is I started building a case made out of Lucite which is kind of like plexiglass. It’s clear but you can cut it and it’s a lot easier to cut than plexiglasses. Unfortunately, the whole thing never really turned out very well because of the fact that when you start cutting Lucite, it tends to generate static electricity and it was not somewhere I wanted to ultimately put my computer parts.
[07:17] Rob: Yeah, sure. So, are you going to buy parts and assemble it from scratch?
[07:21] Mike: Yeah.
[07:21] Rob: Okay. How long you think it’ll take?
[07:23] Mike: A couple of hours. It’s not very long. I’ve built tons of computers before. I mean I own the business for several years just building computers.
[07:30] Rob: Right.
[07:30] Mike: So —
[07:30] Rob: Now, I remember Dell was your…was your biggest competitor you said.
[07:34] Mike: Yup.
[07:34] Rob: What’s the advantage of doing it that way instead of buying it off-the-shelf because if I were going to do it, I would buy it off-the-shelf. But I’m interested to hear what…what you get out of it that way.
[07:42] Mike: There’s a couple of different things. One is that I can get a six-core processor which I couldn’t get off-the-shelf and without paying through the nose for it. It’d be really hard to find one and I probably have to go like Alienware to get it and at that point, I’m immediately looking it like 3 or $4000 to buy the new machine. You know, I don’t need to spend that much money on it I spent I think around 1800 and I’ve got like a six-core machine with a 500 gig SSD drive and 32 gigs of RAM. I mean this thing is just stack and it’s relatively inexpensive. So, even including the cost of my time which I don’t necessarily put that much of a price tag on it because I kind of enjoy doing this stuff anyway, it’s not something I’ve done in a very long time and I’m like, well, you know, it’s getting about that time. So —
[08:25] Rob: Right, yeah, very cool.
[08:26] Music
[08:30] Mike: Today we’re going to be talking about how to build a great team, The idea for this episode came from a book that I read recently called Tribal Leadership. There’s three different authors to it. I don’t remember all their names off the top of my head but the subtitle to the book is Leveraging Natural Groups to Build a Thriving Organization. And I’ve been given a lot of thought lately to how I want to structure my business kind of in the future because I know that AuditShark is not something that can be done alone. I mean there’s grand aspirations behind it and what it can become and the level of complexity of the products to such that it’s just not something that I can do alone.
[09:03] So, I’ve been looking around and just see if I can find good reading material around how to build a team and how to put one together, you know, who to talk in to, what traits to look for and the Tribal Leadership book is one that I came across. There’s a lot of great points in there about how to identify people who would be a good fit and who wouldn’t and how to structure a team such that they work together as a team and have the same goals and are going to work willingly towards those goals without kind of torpedoing one or another.
[09:32] Rob: All right, let’s dive in.
[09:34] Mike: To start off with, there’s five stages of people and by…five stages of people, people go through these five different stages in life and you have to go from one stage to another. At some point, you can’t just skip from stage one to stage three or stage four. And stage four is considered the stable stage. Stage five is for people who are building something great that is…that is kind of an outlier. But stage one is generally people have the mentality of life sucks and this is kind of the attitude where open hostility comes from people I mean this is the type of attitude that you see from people who are in prison. They just don’t like anybody. They’re not willing to help other people because life sucks so why should you go out of your way to help somebody else because it’s just…it’s not going to matter to them at the end of the day.
[10:19] Rob: So would you say that – let’s say someone who’s like hostile on an internet forum. Would you put them in stage one or would that be more stage two?
[10:27] Mike: I think that would be more stage two and —
[10:29] Rob: Okay.
[10:30] Mike: So, stage one is “Everyone’s life sucks. It’s not just mine. Everyone life’s sucks so I’m going to do the best that I can to make my life better at other people’s expense.”
[10:40] Rob: Got it but it’s like more physical anger and hostility and aggression and that kind of stuff.
[10:45] Mike: Yeah, I mean that’s kind of the way it’s portrayed in the book. I mean you could probably take it to different levels on the internet but with stage two, the attitude is more along the lines of “My life sucks” and people at this stage are generally surrounded by people who have some sort of power that they lack or at least that’s the view that they have. They feel that their life sucks and they’re the victim of circumstances or something that they don’t have that other people have. And that’s kind of where the internet troll kind of comes in.
[11:13] Rob: And I also knew some folks like this kind of stage two people at several of the jobs that I…that I worked out where we all go out to lunch and they would just spend the entire time kind of complaining about how, you know, they weren’t being paid enough or how their boss was this or that and it was always everybody else’s fault. Does that accurate for a stage two person?
[11:35] Mike: Yup. Yeah, that’s exactly right. And the other part that kind of goes with that is that if you ask them what they’re going to do about it, they never have any answer. They are like, “Well, I’m not going to do anything about it because there’s nothing I can do.”
[11:46] Rob: So, that old thing that I’ve said of employees complained entrepreneurs get it done, maybe that who links in here where I’m thinking more of like a stage two person as that complainer who just isn’t willing to kind of take the bull by the horns and make things happen.
[12:00] Mike: Right.
[12:01] Rob: Got it.
[12:02] Mike: So, moving on to stage three. The stage three person has an “I’m great” mentality. And there are lot of people at this stage and we’re going to be talking a lot more about moving people from stage three in to stage four in this podcast because the people who are at stage three tend to be more of the professional level and this is – and in unfortunate ways, it’s kind of encourage by the corporate world. When you go to a job interview, one of the questions that you tended inevitably to be asked is, you know, “Why should we hire you?” And then you have to sit there and you have to explain how great you are and you know, why they should hire you because of all these great things that you’ve done.
[12:37] And all they’re doing is really reinforcing your view that you are great and because of that it just promotes you to continue down that path and not seek to go beyond that, to include other people to in team efforts. And essentially, you become more of a lone wolf. You do a lot of things alone and you know, you tend to constantly complain that, “I’m really good at all the stuff and there’s all these people who aren’t and I can’t rely in them for anything. So, why should I even bother? I’ll just do it myself.”
[13:07] Rob: Yeah, in all of the interviewing I did because I was a hiring manager at or you know, like hiring developer where I interview incoming developers, I only remember there are being a couple out of probably maybe 200 interviews I did where they…they’d get the question of you know, “Tell us about yourself or whatever,” and it would lead in to…it will go beyond just them being great, right? They really would express that they had a great team, that they built a great team, that they got along with people and stuff. So, I remember actually being, you know, impressed with that. It was – and obviously, it’s more of stage four attitude but that is a unique attribute in an employee and it’s something that I…I don’t know that I ever had while I was an employee.
[13:46] I think if I was going to go on an interview even, you know, later in my salaried career, that’s kind of what I was – what you’re trained to do, right? So, that’s, you know, that’s a good tip of…if you have an interview schedule or you know, you’re thinking about interviewing for jobs to think more about less about “I’m great” and more about stage four which is “We are great”.
[14:05] Mike: Right and people in stage four tend to build relationships between others based on a common value and as I said this is an exemplified by the feeling of “We’re great” and in the background it says, “And they’re not.” And they is essentially another tribe according to the terminology used by this book and that tribe can be either in the same company or in some other company or it can be in an entire other company. So, if you’re competing in your company against another company, the other tribe tends to be that other company. And when you’re trying to build your product, you’re trying to compete against them, you’re trying to win market share. Obviously, you have to have a competitor in the stage and that’s really the differentiator between stage four and stage five is that stage four has a competitor whereas the stage five that you are collaborating for a greater purpose but you don’t necessarily point out to a competitor.
[14:55] Rob: How interesting, yeah. So, this reminds me of a stage four of we’re great and we kind of have this…this competitor, could be the bootstrappers versus the venture capitalists because every bootstrapper we know winds up, you know, whether it’s 37signals or us or Patrick McKenzie or Amy Hoy or something. I mean we always wind up talking about the venture “they”, right, the competitors to our bootstrapped companies. And so, I think…I think that’s an interesting way to think about it. And I’m wondering do you know of any stage five movements? Do they give examples of any of those?
[15:28] Mike: They do but as I said before, the stage four is considered more of the stable stage than stage five and the reason for that is because with stage four, you’ve got a competitor. So, think Apple versus Microsoft where they’re trying to win market share against each other and you know, operating systems and the tablet technology and things like that. Whereas if you start going back and you look at like the early days of Apple’s development, they were trying to just build something great. They didn’t necessarily look directly at a competitor and say they are competitor. Steve Jobs looked at the world and said, “I want to change the world.” So, his competitor he didn’t really have one. He didn’t have in mind, “Oh, Microsoft is my competitor,” it was, “I want to change the world.”
[16:09] And that’s kind of where there’s no direct competitor where there’s another tribe on the other end of it and you can point to those things where if you’re in like a hospital, you know, or a medical organization where the people in there instead of saying, “Oh, our competition is this other hospital over there,” or, “These doctors,” or “That neurosurgeon or whatever,” instead what they say is, “Our enemy is cancer,” “Our enemy is declining health,” or “Our enemy is…” all of these things that aren’t necessarily people. It’s a disease that they’re just, you know, obviously there’s no person behind it but they’re trying to serve a greater purpose by eliminating that disease.
[16:47] Rob: Got it. So, we’ve talked to these stages and you know, I think we have an idea now of where a lot of people we know might fit or we can think of examples of folks we know who had been in 2, 3, 4 and 5. What are we going to talk about today?
[16:59] Mike: So, I think the primary thing we’re going to focus on today is how to move people who are from stage three in to stage four? And you know part of the purpose to that is for most of the people in the professional world tend to be in stage three. I think that the statistic is kind of sided less than 10% of people who are employed professionally are anywhere between stage four and stage five. But you really want to try and take those people who are in stage three especially once that you’re hiring or bringing on to your team whether it’s full time or part-time or is contractors. You want to make them part of your team. You don’t want them to necessarily be a lone wolf and it’s not to say that they’re not confident or talented, it’s just that you want them to start taking on larger projects. You want them to be able to contribute more and you want them to be able to do it without your…a lot of your interventions.
[17:47] You want them to kind of be able to think on their own, make decisions, do things that are appropriate and correct for the business without having to sit there and micromanage them because the more you micromanage them, the less time that you have to do other things and that and that just kind of eliminates productivity. And by doing the opposite, by encouraging them to kind of move in to stage four, what you’re doing is you’re increasing their productivity which decreases the amount of time that you have to micromanage them which increases your time to do other things.
[18:13] Rob: All right, so let’s dive in. It looks like we have eight tactics for encouraging someone to move from stage three to stage four.
[18:21] Mike: So, the first thing that you can do to help move a stage three person in to a stage four is to encourage them to form triads and what a triad is essentially a 3-person relationship. And in particular, if you convince them to introduce their own contacts to one another by pointing to share values or overlapping self-interest or specific opportunities to work together, what you’re essentially doing as you’re encouraging that person to exhibit the stage four behaviors. And the more of these things that you can do that to encourage the person in to more stage four behaviors as opposed to stage three which is do everything themselves and act more as a lone wolf to not include people, then by moving them more in to stage four behaviors, you’re going to change the way that they interact with people and as a result, change their…and change the way that they interact with your business.
[19:09] Rob: And the second tactic is to encourage someone to work on projects that are too large to accomplish by themselves. You’re essentially setting up limitations and in a way forcing them to interact and to form those…those triads or those 3-person relationships. You know, if someone starts working with another and they get along and they start doing good work, it’s almost inevitable that they are going to…they’re going to have to strike up a good personal relationship. Therefore, you know, starting to move them to the “We are great” rather than “I’m great” mode which is from three to four.
[19:39] Mike: The third tactic is to point out that their success has come through his or her own efforts but the next level of success is really going to require a different style because there’s only so far you can take, you know, yourself. Everybody has limits and some people’s limits are higher than others but that doesn’t mean that those limits don’t exist or that you can’t ignore them. You really need to be able to point out to them, “Hey, you’ve been …you’ve been successful to this point but what would it take for you to get to the next level and to be much more successful than you currently are?” And typically that’s just going to take a frank discussion to say, “Look, you’ve been doing great so far but in order to take this to the next level, you have to do something different,” and you know, you can make suggestions about what they might do and specifically point some of the things in stage four that are possible.
[20:24] Rob: And the fourth tactic is to find at least one role model that this person may potentially look up to and point out how they’re exhibiting stage four behavior. So, point out how that…that role model is, you know, essentially of the thinking that “We are great” instead of “I am great”. Hopefully, encourage them to implement those same…the same behaviors.
[20:46] Mike: The fifth tactic you can use is that when someone complains that they don’t have time and the other people aren’t nearly as good which are the two chief gripes that people have when they’re in stage three is that you have to show that they’ve crafted their work life such that no one can really contribute to their…to whatever it is that they’re doing. And a lot of times this means things like not sharing repositories or doing work on their own and then kind of merging in to the code late or just not involved in other people in the task that they’re doing or making it easy to follow documentation or processes or anything like that. So, all of those things, you know, are just examples of things that people may do to make it difficult for other people to contribute to whatever it is that they’re working on.
[21:27] Rob: Mike, when I was a salaried employee, I was totally the stage three guy because I would say all of these things. I don’t have time, you know, I can’t work with other people on this team. I want to hand pick my people and when I did work with people who I consider really good, I totally enjoyed it. So, I think for those projects I was stage four, but other than that, man, I was definitely a stage threer– and I feel like my attitude has changed now that I, you know, have folks working for me in different capacities in terms of designing, developing and handling support. I’m definitely much more about the team being great because I can’t…I know I can’t do everything myself. But for me, I think that moving from salaried employment to kind of breaking out of my own to realize that that I need the help of other people.
[22:09] Mike: Yeah, and I completely understand where you’re coming from. I was definitely a stage three as well and the problem is that until I kind of saw a lot of these things laid out this way, it didn’t…you know, I probably thought a lot of these things to some extent but that kind of relates to tactic number six which is telling the stories of your own transition from stage three to stage four. But there were so many times where I’m like, “Oh well, I can do this,” and you know, it’ll take me a lot less time to do it than it would to explain it to you how to do it.
[22:36] So, there were just so many times where I would have gone off and done my own thing and not bothered to explain it or document it or anything like that. And you know, I’ve really gotten past that and it’s definitely helped my business. It’s definitely helped me to free up a lot of my time because I can hand these things off to other people and they do them granted they don’t necessarily always do them as well as I do but there are definitely times where they’ve come back with something and I’m like, “Wow, that is awesome,” you know, and it comes back better than I would have done it.
[23:01] Rob: Right, the two objections we hear most often when we talk about outsourcing in any capacity whether it’s outsourcing development or outsourcing e-mail support or handing off any tasks to anyone, the number one objection that I’ve heard is always, “Well, how do you get over that they’re not as good as you,” and “How do you trust them to do good work,” “Just how do you deal with that,” and so I think that’s a common place for developers to be in especially if they’re good developers and they’re talented and they have worked at salary gigs where they’re…people who are much less talented.
[23:29] I think it’s…it’s almost like you might be pigeonholed or forced in to stage three. If you really are the best developer at the company and you have been at several companies, I mean it’s kind of been taught that you can’t rely on other people. And so, it’s definitely a mentality to try to break out if you are going to make that leap. If you do in fact want to make the leap to stage four and you want to work with others and you want to, you know, become an entrepreneur like we’ve talked about, ultimately, you will have to relate to other people to get your goals achieved.
[23:57] Mike: The unstated part of that is that just because you’re great at something that you do, doesn’t mean that you can’t rely on somebody to contribute in a meaningful way. Do they have to do it as good as you? No. That’s not the point and in fact, that’s not the point of stage four at all. The point is to collectively do something great. It’s not about like all of the individual pieces and yeah, it’s great to have everything all at this topnotch level but not everything has to be like that and you don’t necessarily have to have that attitude in order to be successful. I would much rather have people who are gung ho about the business and being successful than having a couple of people who are really good at things but not paying attention or listening or focus on the whole product.
[24:40] Rob: The seventh tactic for encouraging someone to move from stage three to stage four is to instill in them the knowledge that real power comes not from understanding a specific technical thing or from being able to just implement but it comes from having a good network and that there’s much more leverage in wisdom and having other people to partner with than in just purely in information. This was actually a major revelation for me. Maybe it was three years ago when I first started outsourcing and that was kind of the first level up for my business that allowed it to grow faster.
[25:15] The next thing that happened was when I decided that I was going to form better relationships with…with other podcasters, with other startup founders, with other speakers at the startup events I went to and right away, things started generating for me. And it was, I don’t know, I was never a big – I’m a terrible networker. I’m not an extrovert. I don’t…I’m not in to that world at all but building a real relationship, a genuine relationships with people who have stuff in common with you and who you can move along with and progress with is invaluable and that’s something, I think I actually said it is as one of the biggest things I learned in 2011 perhaps was that you can’t do the stuff on your own no matter how much you want to because I definitely I wanted to do everything on my own but that’s just hasn’t been a reality for the past several years.
[26:02] Mike: And the eight tactic you can use to help somebody move from stage three to stage four is to encourage them to manage using transparency. And essentially this involves coaching them to not follow the stage three tendency to tell people only what they need to know. And this is about encouraging the person to over communicate if that’s even possible. I found over the years that telling people a lot more than they need to know to do a job helps because it gives them a lot of background about why they’re doing something.
[26:28] Throughout high school, I hated being told what to do not because I didn’t want to do it, because I didn’t know why I was being told to do that. And there were just so many times where they’re like, “Well, you know, here’s the homework assignment. You just do it.” And you know, you never really got an explanation. I found that even in the business world there were a lot of times where there were people who would say, “Hey, can you go do this for me?” And unless you understand why is that they’re asking you to do that, the problem is that you come up with the solution for them and you do the work but then they’re not happy with it and the reason they’re not happy with it is because they didn’t tell you why it was that you were doing it.
[26:59] So, they didn’t communicate effectively enough to tell you that there were certain things that were important because on Thursday as this thing has to run because if it doesn’t run and the CIO gets…gets to come down and scream at them. And then after that then, you know, the payroll person goes and cries and the payroll doesn’t get fund. So, because of all that extra information, you didn’t do the work and…or didn’t do it right and you know, all that stuff happens, then payroll doesn’t run one week. And then it gets blamed on you because you didn’t do it right and it’s not because you didn’t do it right, it’s just you didn’t know about all these other things and all these other dependencies. So, you couldn’t take them in to account when you were doing your job. So, this is really about over communicating, at least communicating enough information to people that they can make good decisions when they’re going through and doing the work.
[27:40] Rob: That idea of over communication ties in to this thing called commanders intent and it’s a concept on the battlefield of if your commander tells you and a group of men to go do something, they should…if they’re doing it right, they should spell out not only what you should do but the intent of that maneuver because if they tell you to go do something and then a bunch of stuff changes on the battlefield, you need to basically carry out their intent rather than the specific take a hundred steps in that direction and march towards the enemy that the actual specific steps that they told you to do.
[28:13] And I think this is very powerful. This is something that I’ve started doing with my screencast that I created for virtual assistant is I do tell them the steps when they’re doing something but I also take a step back and I say, “Look, here’s my philosophy. If anyone is unhappy, they always get a refund. Unless someone gets way out of line, we offer them this, this, that and this.” I mean it’s much more about the intent that we’re trying to achieve and the goals of the company, you know, rather than the…maybe specific policies that you might see if you worked at a…at a very rigid environment.
[28:44] Mike: So, I think the next question that comes up is how do you know if you have succeeded in going down this path? How did you know that you’ve succeeded in transitioning someone form stage three in to stage four? And the first sign of that is that the person is going to start substituting “I” language for “We”. So, when people ask about the secret of their success, they’re going to point to their team instead of themselves.
[29:05] Rob: And the second way you know you’ve succeeded is that the person will start actively forming triads and his or her network will expand from a few dozen to several hundred.
[29:12] Mike: And the third way is that the person is going to work less but at the same time get more work done.
[29:16] Rob: The fourth way is that his or her complaints about there are not being enough time and that no one is as good will slowly die away.
[29:24] Mike: The fifth way is that he’s going to communicate with a lot more transparency and explain why things are being done, not just what needs to be done.
[29:32] Rob: And the sixth and final way is that this person will communicate more information and they will communicate it more often for them just to have more open roads of communication.
[29:42] Mike: So, to recap a little bit the five stages are stage one is that the person believes that life sucks in general. Stage two, they believe that “My life sucks”. Stage three person believes “I’m great”. Stage four people say, “We’re great.” And stage five people say, “Life is great.” And to help move people from stage three to stage four, you encourage them to form triads. You encourage them to work on projects that are too large to accomplish alone. You point out that current successes come through their efforts but the next level of success is going to require a different style. You describe additional role models who are exhibiting the stage four behavior that you would like them to exemplify. You show them that they have crafted their work life so that nobody can really contribute to them.
[30:19] The sixth thing you can do is to tell stories of your own transition from stage three to stage four. You can also coach them that real power comes not from knowledge but from their networks and there’s more leverage and wisdom than in information. And the last thing you can do to help move them from stage three to stage four is to encourage them to manage using transparency.
[30:35] Music
[30:39] Rob: If you have a question for us, you can call it in to our voicemail number at 888-801-9690 or 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. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 115 | The Pros and Cons of “Proposition HN”
Show Notes
“Proposition HN”: http://news.ycombinator.com/item?id=5037694
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be running through the pros and cons of Proposition HN. This is Startups for the Rest of Us: Episode 115.
[00:12] Music
[00:19] Rob: 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 Rob.
[00:28] Mike: And I’m Mike.
[00:28] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. I think the word this week is AuditShark launch.
[00:35] Mike: Yes, it is.
[00:36] Rob: So, we’re recording this one day after the 14th which was your planned launch for AuditShark. How did things go?
[00:42] Mike: So, everything is out there and people who have been given the access code to get in can go in and download it, you know, the early access people that I have been working with. So, everything is available to them right now. There’s a few minor glitches that I have to work out still which will hopefully be resolved by tomorrow. But everything is in place right now and functional and usable. So, we’ll see how things start to shake out the rest of this week. But I’m going to be touching base with people and walking them through things and getting any feedback from them about what makes sense, what doesn’t make sense and any usability, flaws that need to be flushed out or people looking for different reports or don’t understand how something works, I definitely want to get to the root of those issues pretty quickly so that I can start working on other things.
[01:26] Rob: Very good and in terms of marketing, when do you see yourself hitting that and kind of driving new…new customers to the site?
[01:33] Mike: Well, I put together a list of things that I wanted to do for the AuditShark launch and let’s see here, I used to have forty different things on here. I’m down to 31. The problem is that the number fluctuates up and down as I think of new things and as I knock things off. That process is currently in place and I’m working…just working through everything but obviously, some things take a lot longer than others to do.
[01:55] Rob: Got it, so you’ve already started marketing is what you’re saying?
[01:57] Mike: Yeah.
[01:58] Rob: And in terms of timeframe working with early access customers, you said you’re probably going to iterate on the product pretty quickly and do some minor usability and report stuff. How long do you perceive that taking?
[02:08] Mike: Well, assuming that I don’t run in to any show stoppers then I would anticipate that it’ll probably be three or four weeks. I have tentatively in the development schedule. I think it’s February 26th or something like that for kind of a full-blown go live but we’ll see how that works out.
[02:24] Rob: I see. So, full-blown go live at end of February and so now, would you say you’re like at soft launch? Or would you say this is early access? What would you define where you are right now?
[02:33] Mike: I would say this is more early access. I think a soft launch to me is more you’ve got it out there publicly available. You just haven’t told people about it. Whereas what I’ve got, I feel like it’s more of an early access where it’s by invite only where I’m working with very specific people and trying to figure out what things work for them, which ones don’t and making sure that any issues that they have are resolved so that when I do go live with it to the public, then hopefully, all those issues are taking care of or at least as well as I can at that time.
[03:02] Rob: For my end, I’ve been running a couple of HitTail marketing approaches that I had mentioned in last week’s podcast. And one of them was very inexpensive and it worked out shockingly well. Just a lot of people coming in and then the other one was quite expensive and so far, not worked out very well. So, it’s one of those times when, you know, things would work out the opposite way you think it’s going to. But in the end if 1 out of 2 of my marketing experiments works, then things could be worse so I’ll put it that way.
[03:30] Mike: How did your info graphic goes so far?
[03:32] Rob: Info graphic is okay. Yeah, it’s not like a homerun but it’s, you know, it’s probably a single. We just launched it this morning. So, I’m 5 to 6 hours in. So, you don’t really know what it’s going to do yet but it’s decent to…it’s nice to get a good bit of content out there. I mean it’s definitely driving some users who are signing up for the e-mail list. We’ll see if that ultimately drives some trials down the line.
[03:52] Mike: Very cool. So, I’ve moved my blog to WP Engine and I’ve had my WP Engine account for, I don’t know, probably almost a year at this point but I haven’t move my blog over because up until now I just did not make it to the top of the list but it’s early on the year. So, I’m like, okay, I’ll move it and in about a quarter, my RSS subscribers dropped off in moving. So, I’m trying to figure out where the RSS feed is that they’re actually subscribed to and it’s just kind of a pain because I —
[04:19] Rob: Right.
[04:19] Mike: …obviously don’t see any of the 404 Error messages. [Laughter]
[04:22] Rob: Yeah. Oh, so did you had multiple URLs where people could subscribe then one of them —
[04:27] Mike: I think so. I’m not…I’m not absolutely sure because I don’t – like I said if I had access to the 404 messages on the server, then I’d be able to see that but I just…I don’t see that right now. So —
[04:38] Rob: Got it —
[04:38] Mike: I should…I should have looked at it before I moved everything over but I didn’t think about it.
[04:42] Rob: Yeah, that’s a bummer.
[04:43] Mike: Oh well.
[04:44] Rob: Well, I received my final videos today from that video training course I’d been talking about where I have my product manager interview me about how to hire a VA for startup. It’s about 50 minutes of video. And it looks good. I also have audio. I’m going to get it transcribed and I’m looking at a February launch for that. So, if folks are interested, softwarebyrob.com and sign up for the newsletter there in the upper right.
[05:04] Mike: That’s cool.
[05:04] Rob: Yeah, it’s exciting. So, it’s fun to do new things like the process itself stretch me because I’m not used to doing that type of the in-person set up with, you know, with the videographer and the whole set up in my living room. There’s a lot of fun and now watching the videos, you know, I can really see…I can see room for improvement but I also see a lot of value in the information that we put down.
[05:22] Mike: That’s awesome. So hey, did you…did you notice that Amazon’s kind of did a way with some of the things that they’re selling through Amazon Prime where now if you buy certain things they’ll tell you that it’s eligible for free shipping but only if you have it shipped with other things.
[05:37] Rob: Yes.
[05:38] Mike: But I definitely have noticed an up taken the number of things where next to it, there’s a little bit of text that says, “This is eligible for free shipping with X,” or you know, with something else.
[05:48] Rob: I think I went to buy a toothbrush and it said that and they have a little word for it. I can’t remember what that word is. There’s a little label on it that says, “You know, ships with others,” or “Ship free with the…” I mean it’s kind of a little tag so that you can see it pretty easily and identify it.
[06:00] Mike: Yeah, I think that’s what it is. It’s “Ships free with something else.”
[06:04] Rob: I can’t believe. I mean I’ve ordered things that are a couple of dollars that they’ll ship with Prime and I kept thinking to myself there’s no way they can be breaking…even breaking even on that. So, this is probably their way of trying to reduce that and for me, it’s worked out fine because I just…I order enough from Amazon that I can always just throw it in my next order.
[06:21] Mike: The interesting thing to me about this whole thing is that if were it another company that I didn’t necessarily care for or care about, I’d probably be more than a little bit upset about this but because it’s Amazon and I’ve had such great experiences with them over the years that it doesn’t bother me at all. I look at this particular move and I understand not only the business reasons behind it but I don’t be grudge to them for doing it, you know. If it was like the post office that did something like this, I’d be screaming bloody murder. But because it’s Amazon and you know, I’ve had stuff come to me where I’m like, “Oh, this hard drive is bad,” or you know, I plugged it in and it just doesn’t work and I’ll just send them an e-mail or use there support page and it’s like boom, you got an instant RMA, free shipping both ways. They’ll just take care of it. And because their customer service is so good, they’ve kind of established that great relationship with me such that I’m willing to cut them the slack whereas like I said if it was like the post office or certain other companies, I probably wouldn’t.
[07:14] Rob: There’s definitely something to be said for not only keeping your customers happy but building…building that relationship with them so that they give you the benefit of the doubt if you screw up. We saw this happen. It was last year when we were still have the Academy on DreamHost and we were having outages interment here and there and people really kind of slack, you know. I mean we…we notified people. We posted it in the forums. We apologized but we didn’t get a single angry e-mail about it and I know that there are people who can log in and that was a bummer and obviously, we eventually moved up to WP Engine but it was…it was a testament of people giving us the benefit of the doubt knowing that we are doing everything we could to try to improve the process.
[07:50] Mike: Yeah, the other interesting thing that I found was that LinkedIn has been starting to send highly-customized e-mails to people. And I got one yesterday that showed enlarged photos of 20 different people that I’m connected to and they showed a statistic that related to all of them. And I think this…I think the statistic was something like 16% of your network has changed jobs in the past year and I thought it was really interesting that they are mining the data to that extent such that they’re giving you personalized e-mails like that.
[08:19] Rob: Yeah, I can only imagine that it benefits them because you’re now talking about it. It was a surprise to you or it was shockingly revealing or just shockingly insightful about your own personal information. They told you something you didn’t know about your own professional relationships. So, that means the next time you get a LinkedIn e-mail and probably the next time I get a LinkedIn e-mail, I’m going to open it now because I’m curious to see what they pull out of to my network as well. You know, obviously this raises the…always raises the privacy concerns or whatever. But it’s like if you’ve give them information and you’ve linked up with people, it’s just data to them. They can mine it most ways that they see fit.
[08:52] Mike: yeah, I think I looked at it more from an interesting marketing standpoint where if you’ve got such a wealth of data about a specific item or specific person or a network of people, then you can do different things with it and it was just an interesting way of taking that information, aggregating it and then showing it to an individual and that individual being me, then it was personalized to me based on the other people. And I’m sure the other people got a similar e-mail. So, it’s not like I was the only person out of…sign up they have that got that e-mail but the fact that they went to that level and calculated it for me, it appeared that it was just kind of a personalized bit of information about my network.
[09:30] Rob: I think it’s actually an interesting idea that, you know, even a small software or service operator could do to send out kind of a year-end summary of your customers either activity or just some interesting…it’s almost vanity metrics, right? It almost doesn’t have to be that interesting. It could be kind of a little info graphic or just a little HTML e-mail containing, “Hey, you had these many keywords last year and you know, these many clicks,” or whatever. I mean that’s the HitTail example or you can look at anything if you have proposal software. You could say you sent these many proposals and you know, just too like a big…big recap of it. I’ve never done that but I would certainly would…I certainly received some from I think InDinero sent one and I think like when I used to have Mint.com, they would send out monthly and annual recaps. Definitely get you to open one of their e-mails.
[10:15] Mike: Very cool.
[10:16] Music
[10:19] Rob: So today, we’re talking about Proposition HN which is an anonymous post on HackerNews where someone with the username HMEXX. He says, “I will pay $8,000 for you to build your side-project or MVP.” And this post got 1,000 uploads. It had one of the most active discussion thread that I’ve seen in a long time. And there are people on both sides of it about the pros of doing it, the cons of doing it, whether it’ll work, all that stuff. So today, you know, you and I kind of batted around the e-mail a little bit and realized that this could be a good discussion topic just to talk about it from both founder perspective and also from his perspective. So, you know, I think we just…we dive in. I’m going to read a little bit about his initial proposition and then we’ll run through the pros and cons and bat those around. When he posted it, it’s…it’s only about four or five sentences long and we’ll post a link to this obviously in the show notes.
[11:13] He says, “I will pay $8,000 for you to build your side-project or MVP.
Premise 1: Investors and Incubators over-estimate their ability to pick good ideas and startups. Premise 2: An MVP built by a lone, but talented techie is almost as likely to turn into something ‘successful’ as a startup on AngelList that has: 4 founders, 9 advisors, 13 press releases, 600 followers, etc.
Premise 3: Most freelancers will not build and or follow-through with their ideas, because they perceive their opportunity cost to be too high.
Premise 4: HackerNews has a decent number of talented freelancers with good ideas.” Now, I don’t think either you or I agree with all these premises but that…this is what he’s laying out. And he says, “Based on these premises, I present The Proposition [Version 1.0]: I’ll pay you $5,000 to build the MVP of that idea you’ve been kicking around in your head for the last year. Once you’ve done it, ideally within 2 months, you can go back to earning your full potential. At this point, I’ll take over. I’ll spend an additional $3,000 to acquire enough users or customers for us to evaluate the project’s likelihood of success. We split the resulting company 50-50, as equal co-founders.”
[12:18] So to begin, I want to give a hat tip to Scott Underwood who contacted me about this and we also e-mailed about this and it wouldn’t be on my radar without his e-mail. But now, you know, we’ve broken up some talking points in the pros and cons. I think it’s easy and natural to want to immediately jump to why this won’t work. So, we’re actually going to dive in to the pros first. So you want to kick this off? You know, talk through a couple of pros of, you know, why this might actually be a good and innovative idea?
[12:44] Mike: Yeah, so two that come to mind off the top of my head is that if you’re a developer and you don’t know anything about marketing or you don’t know how to market and find your customers, this is like an instant marketing co-founder. And in addition to that, it gives you an instant accountability partner. So, if you’ve ever had problems getting started or following through with the stuff, this is a great opportunity for you to essentially get it carried in front of you where someone is going to pay you to work on your own idea and then as you follow through with it, obviously, you get paid for it and then in addition to that, you get this 50-50 split of the company afterwards where you’re an equal co-founder and the whole thing.
[13:20] Rob: Right and I think that that segment of developers who don’t want a marketer, don’t know how to market is massive. I mean you and I know it from just in our dealings with people who are trying to do startups and trying to, you know, become micropreneurs. It is probably been number one hurdle that I’ve seen developers have to get over is to get that desire and build the skills of marketing. I think that might be the number one pro of this whole thing if you really are a developer who doesn’t want to get in to that side of it.
[13:49] Mike: One of the things he’s doing is he’s essentially hiring you as a programmer and somebody on the comments had mentioned that he’s hiring you as a programmer for $25 an hour and paying you with the equity to stay on as technical co-founder. In his initial post he says $5,000 for ideally completing this within two months and if you do the math on that 320 hours over the course of two months, that actually works out to more like $15 an hour. But still the fact of the matter is you’re still getting paid to do it at a rate that is in some ways manageable especially depending on where you live because if you live in a place where you don’t have a lot of bills or a lot of expenses, you could definitely make $15 an hour work. And being able to keep the equity afterwards as a technical co-founder is just awesome because chances are good that if you’re a developer, you probably want to concentrate on the code anyway and handing off the marketing side to him is kind of a bonus.
[14:39] Rob: Right. If you have a crummy job and you’re making minimum wage or a little more, even if you’re making decent money but you can live on, you know, a tiny sliver of money on this 5 grand for a couple of months, but you’re smart and capable, then this is the kind of opportunity that it seems reasonable that you would want to think about, right? I mean if you look at what Y Combinator pays, they do is it $6,000 per co-founder? I think.
[15:04] Mike: It is —
[15:05] Rob: Yeah.
[15:05] Mike: …but it’s also, I think they also add on another $6,000. So, if you have two founders, then it’s $18,000.
[15:11] Rob: 18 grand, right and it is three months. In essence, it’s 3,000 bucks a month per founder if you had two co-founders and from what I hear, they’re just basically coding like 15-hour a day is that whole time. So, if we break it down to hourly rate, this guy may actually be paying you more per hour. Now, there’s the…the con of that is that he’s not Paul Graham and they don’t have, you know, he doesn’t have all the investors on the other end of it. But when you really break it down like that, it’s at least an interesting thing to evaluate. I also think it’s just a gutsy idea, you know. It’s a nice experiment. I’m impressed that the guy is willing to put his money where his mouth is. I’ve thought of doing this on my own. You and I have thought of doing a similar kind of a micropreneur Y Combinator thing and it’s a lot of time. There’s a lot of money involved. I mean for him to come out and just do it is a bold move.
[15:57] Mike: Yeah, it’s funny you bring that up. It’s been a while since we even discussed that but you’re right. We did have that idea a while back where we’re like, oh, you know, what if we came up with the Micropreneur Academy funded endeavor where we fund the people to do something like that kind of a scholarship or something along those lines. But you’re right, I mean to actually come out and do it is just…I’ve never seen anyone else to actually do it.
[16:17] Rob: I think the last pro I can think of is that although this could be seen as like kind of an accelerator, you know, Y Combinator is called an accelerator now and TechStars and 500 Startups I think. I mean there’s a bunch of them around the country. His is different because you don’t have to move anywhere. So, it could actually apply to people all over the world. It could apply to you if you aren’t able to move and you live maybe in a middle of nowhere and don’t want to move to a major city where there are accelerators. So, I think that has one advantage. One thing he did say later on in the thread, he says, “If you can get in to Y Combinator, I can’t compete with that.” So and that does makes sense, right? He’s an unknown. He’s only giving you a few thousand bucks. He doesn’t have the…the clout that Y Combinator could bring or an accelerator like that could bring. But what he’s saying is there are also some pros to do it this way because then you don’t have to move to a new place. You don’t have to uproot your family. You really can kind of just if you have the flexibility to take these two months off of your freelance work, it could actually be a reasonable thing to think about.
[17:18] Mike: Two other things that I also came up with this is the first one is he’s specifically looking for single founders. So, if you are the lone wolf type of person, I mean he’s exactly who you’re looking for. The second thing is that he’s the only person that you’re actually going to be working with. I mean it’s not like you have to pass a committee or anything like that. It’s his decision upon, you know, accepting your idea and going forward with the funding, you don’t need to worry about this team people thinking you got ideas, good or bad, you can just go with his. And as long as you’re just incorporating feedback from one person, it tends to be a lot easier to work with one person that it is with multiple people.
[17:54] Music
[17:57] Rob: So, let’s dive in to the cons now. And I have to be honest, the cons list was very easy to come up with and it got long quickly. And so we actually edited a few of them out of this list.
[18:09] Mike: I think the number one is that who is this guy? [Laughter] Does he have any credibility or is he just some guy with $8,000 laying around? I mean the fact is that he’s only giving you $5,000 of it and don’t get me wrong. I think that it’s good on his part or at least, you know, it’s good in my eyes that he’s saying, “I’ll give you 5,000 and then I’m going to take $3,000 and I’m going to set that aside in order to market it.” But the fact is you have no idea who this person is. Does he have any kind of experience? Or is he just some guy with 8,000 bucks laying around that says, “Hey, I want to give this a shot.”
[18:40] Rob: I agree. The anonymity is really a big deal for me because if he can mark it, why is he concerned about people knowing who he is? And during this thread, a lot of people point this out and he says, “Well, you know, you’ll see who I am on our first Skype call.” I just don’t understand why he would do that. What the advantages for him to do that? Someone in the thread joked that it might be Jason Calacanis behind this whole thing. I don’t think that’s the case but it sure will be funny if it was a big name founder that we know and that’s why he’s being anonymous. But again, why would you do that? If you’re a big name founder, this would attract so many more people of higher quality because they’d be going after not just the money but they’d be going after you for your name and your guidance and your involvement in their startup. So, I can’t imagine he’s, you know, “famous” or a really well-known startup founder.
[19:29] Mike: But at the other side of that is that it could be and that could be exactly why he’s being anonymous because he wants to prove a point. Maybe he’s got some side that was with somebody or he’s just trying to prove a point to somebody else that, “Hey, I can go out and I can do something similar in a fraction of the cost.” And you can almost think of it like basically lean startup mode for angel investors. I mean maybe that’s who the guy is. Maybe he’s an angel investor and this is the kind of thing that he is doing or interested in doing and he wants to prove to another angel investor that it’s possible. So, they don’t have to shell out tons of money and putting, you know, tens of thousands of dollars. They can put it some ten thousand dollars work on at something that’s got a reasonable chance of working. And they get more equity as part of it because with the angles and stuff, you’re not going to get 50% and you’re…you’re going to be shelling out tens of thousands of dollars more. So, it could be that somebody is trying to test an idea and, you know, and use in more lean startup methodologies to try and figure out that stuff earlier rather than later.
[20:28] Rob: He does that more detailed about who he is in…in a FAQ later and he says, “I’m also a techie. I’ve had one moderately successful venture so far which has given me a comfortable life but not quite retirement amount. I want to reduce my coding time and instead help people get their ideas to market using my resources. Hopefully, we can build a few success stories along the way. You can find out more during our first Skype chat.” So, another con is that 8,000 bucks like we’ve already said and with only 5,000 of it going to you is not a lot of money for 50% of an idea especially if it’s a reasonably sized product or something that actually has, you know, a market that means the startup is going to grow. If you have confidence in your idea and you think it could be something that could grow beyond just a few thousand bucks a month, it’s just 8 grand…isn’t that much.
[21:18] Mike: You’re right, I mean as you said to top it off, you’re not getting 8 grand. You’re getting 5. So basically if somebody is paying you $5,000 for your idea and it’s not like you just give them your idea and you walk away, you’re still expected to work on it for the next 2 months. So, being able to use that $5,000 in, in many ways can be very difficult to make that money stretch especially if you have a fulltime job. And this is I think the other thing that really gets me about this is that if you have a fulltime job, how are you going to take two months off to work on this idea?
[21:50] Rob: Yeah, he specifically said that he kind of addressed that because someone raised it and he said you probably need to be a freelancer if you’re doing this and you need to take time off client work and that’s what the $5,000 is supposed to try to offset is some money, maybe not all, but some of the money that you would otherwise have made from freelancing. And I think that’s a tough sell for a couple of reasons. One, I mean most freelancers I know make more than 2500 bucks a month, a lot more. And so if they can just save up 5 grand over a few months, you know, why…why wouldn’t they take that approach instead of going this route. I mean I guess that he’s the marketing guy and if it’s his money, then all the better. I think the other demographic this could appeal to is if you’re a college student or like just out of college. You don’t have a job yet. This could be a great summer project and that’s what Y Combinator really started out as was originally going after undergrads.
[22:37] So, 5 grand is actually a decent chunk of change if you’re, you know, living with your parents or living with roommates and you do have two or three months off from school, it totally makes sense why you would…why this would potentially be a better deal. This deal is obviously not for…it’s not just not for everyone, it’s actually only for a pretty tight demographic and that’s probably college students or someone who’s out of work or someone who has kind of a low freelancing rate or someone who lives in the part of the world where $5,000 is several month’s salary.
[23:07] Mike: I wonder if in some ways that isn’t a self selecting group specifically design or intended to get those people who haven’t run in to issues with launching products because they don’t know what they’re up against. So, they’re going to basically beat their heads against that wall even harder in order to get through it because they don’t know any better.
[23:24] Rob: So yeah, you’re saying he’s basically self selecting a group that is more likely to persevere because of their lack of experience with this kind of thing.
[23:30] Mike: Right.
[23:31] Rob: I think another thing is if he really going to market it forever for just 50% of the company? I mean how much attention is he going to be able to give 10, 20, 30 of these ideas because he doesn’t talk about how many he’s going to accept? And I question if he…if he does even if he can fund…let’s say he funds 10 or 20 of them and you know, a good chunk of them come through, how is he going to have a time to market them and is he really going to be able to justify it himself to basically have you step away maybe just do minor maintenance but you walk away with 50% of the company. There’s no vesting, right? It doesn’t mean you have to stick around for three or four years. You keep 50% of that ongoing. So, that’s actually I feel like he could kind of get hosed on that long term.
[24:13] Mike: Yeah and the other thing that isn’t really mentioned here is that what constitutes done? What is considered done in this scenario or that could, you know, do you get your 5,000 upfront? Do you get your 5,000 after it’s done? You know, how many bugs are there? And those kinds of things because obviously, I think if you’re the type of person to go in to this, you want to launch the product and he obviously has an interest in launching the product. I mean he’s got at least $5,000 worth of effort invested in to it plus the other 3,000 so he wants to get it out there and get people using whatever that product ends up being. But in terms of done, I mean what…at what point do you say, “Well, I’m completely done with this and I’m not going to do anymore code on it.” Is it something that you’re going to continue working on? And maybe that’s part of why the equity is 50% split because if you only give somebody a 10% equity on it, then chances are good that they’re not really going to go want to come back and do bug fixes and respond to customer request and things like that.
[25:07] Rob: Yeah, someone mentioned that mobile apps would be a really good way to go with this and that actually makes sense, right? Because then there’s…doesn’t tend to be as much maintenance ongoing with them over that and you really could build a decent mobile app in a couple of months like this.
[25:20] Mike: Yeah, that does makes a lot of sense.
[25:22] Rob: One of the other cons that someone brought up is that is it possible this guy he’s staying anonymous because he’s trying to collect the best startup ideas to steal them. What do you think about that?
[25:32] Mike: I seriously doubt it. [Laughter]
[25:33] Rob: Yeah, I know. I saw that and I was like, oh grown —
[25:36] Mike: Yeah, here we go with…we’re trying to put evaluations on ideas because how do we know ideas are worth virtually zero. Implementing ideas can be really expensive and even if you steal an idea, you generally tend to lose a lot of the vision behind that idea. I mean you can look at any software product that’s out there or you could try and rip it off and you will do a reasonably decent job of making a clone of it but there are certain things that are going to be lost in translation when you’re trying to copy it. And some of those are going to be company related, some of them are going to be product related. You’re going to do things a little bit differently and a lot of times there are some very good reasons why software is designed in a specific way. The one thing that I had was a…I had a conspiracy theory about this. Maybe this entire post was just a hoax and an attempt to get HackerNews karma.
[26:21] Rob: Isn’t every post a hoax in to an attempt to get HackerNews karma?
[26:25] Mike: [Laughter] I don’t…I don’t know. I don’t read enough —
[26:27] Rob: Kind of. I’m interested to see if we’ll see a follow up from this guy.
[26:30] Mike: Yeah.
[26:30] Rob: You know, he said he got such an overwhelming responds from this that he…the e-mail account was overwhelming that he couldn’t even go through all ideas. I’m curious to see if there’d be, you know, he’d following with either the best ideas or just letting us know if this thing ever comes to fruition.
[26:47] Mike: You know, I just had a great thought. I could send him the idea for AuditShark and I could get $5,000 right away.
[26:53] Rob: Do it, do it. He specifically says, “I can’t compete with you if you’re earning a 150K a year or if you’ve already been working on your side project for a year. This may not be for you.”
[27:03] Mike: Oh.
[27:03] Rob: So, you know, he kind of specifically says that. I think the last reason that this may not fly very well is at 3,000 bucks is not a heck of a lot of money to test an idea unless it’s really designed, unless he picks them exactly to work with things that work well with paid acquisition, it’s hard to know in $3,000. I mean I have blown through that in a few days doing test marketing. The fact is your messaging could be wrong. I mean there are so many things that could go wrong with it. The product may actually be able to fly and you may just need to invest a little more time in to it. So, I think you could get a lot of false negatives if you caped your investment at, “Oh, I’m only going to spend $3,000 in, you know, one month or something to try to test this thing.”
[27:41] Mike: think that related to that my biggest issue is that that $3,000 to test the market is not necessarily being done before you start building this because —
[27:50] Rob: Right.
[27:50] Mike: …I would think that you’re better…much better off testing that market first for the $3,000 and then deciding at that point whether or not to go through with the $5,000 investment to actually build it. At that point, why would you bother hiring somebody to give them 50% equity? Why wouldn’t you just go outsource the entire thing and hire somebody as an hour by hour basis and have them just build everything that you want.
[28:14] Rob: If you’ve listened to this, my guess is you stay in pretty firm on one side of the fence or the other. My guess is more people lean to the ‘no way you’d ever sign up for this’. So, if you think this is actually an interesting idea or it’s something that fits you and that you are going to apply for or consider applying for, I’d be interested to hear from you either in the comments for this episode or calling it in to our voicemail number or e-mailing it to us and that info is at the end of the episode.
[28:38] Music
[28:42] Mike: We do have a listener question to go through. This one is from Joe Rolenson [Phonetic] and he says, “Since you guys have already published a book or have been talking about it, how do you forecast a healthy sales volume? You could base it on conversion rates of those that buy on your own site but that doesn’t account for customers that find your book on Amazon.com or third party marketplaces. How do you know when your sales had plateaued or if there’s still more potential? Thanks. Joe.”
[29:02] Rob: With my book, I didn’t forecast recurring sales volume. I only looked at what is the minimum number of copies that I need to sell to justify me taking the time to write this book. And for me it was building a landing page and seeing how many e-mail addresses I could get and that showed me how people are interested in it. And once I hit a certain number and I think it was 600. It was somewhere between 6 and 700 e-mails, I figured I could close at least a third of them. I figured that they would, you know, be interested enough in the topic and as it turned out, 50% of them bought. And so I made…I think my goal is if I made 6,000 bucks, you know, with the initial launch that that would justify the hundreds of hours [Laughter] that you write the book because I really…I did want to write the book and I was just looking to kind of justify the time and be able to cover it with some type of evaluation.
[29:53] Now, I think in the first 72 hours, it actually made 9,000 but that was top line revenue and then there were printing cost. So, it was somewhere in the 7,000 and change was…was the net profit on that. And at that point, I was happy that the book had basically in my opinion covered the cost. From there, I had no clue what it would do and as it turns out, it did really well. It sold, you know, over the past two and a half years, it sold 10,000 copies. And I did not forecast that and I wouldn’t have counted on that. From what I have seen though, the volume from your own website and Amazon are the only two that really matter. The other third party marketplaces I have submitted to have…haven’t done much for me. But if you’re in a specific niche and there was a niche marketplace, I could imagine that that sales from that could be a little higher.
[30:40] Mike: I think on my end, I don’t really have any good advice to give on forecasting a healthy sales volume. I mean I like Rob’s approach where he just kind of decided, you know, what was the minimum number that he needed to sell and didn’t concentrate on any sort of recurring sales from that. The book that I’m looking at writing would be done through a publisher. So, they already have numbers on what similar books sell. So, for them, it’s more a matter of is this going to make it worth it for them and if it’s going to make it worth it for them, then it would probably make it worth it for me.
[31:10] Rob: Right and for you, you’re writing it more for as a marketing tool for AuditShark and probably as a personal goal or professional goal of writing a book rather than as a source of income because the…going through a publisher, the income is not going to be anywhere near what you even make on, you know, as an hourly consultant or what you’d make self publishing it or from your software apps for that matter.
[31:30] Mike: Right and that’s…that’s exactly right. There’s two real goals that I have in mind. One is bringing knowledge to people who probably need this type of knowledge and the other one is bringing some publicity to AuditShark. So, you know, I do see it as definitely a marketing thing but at the same time there are things that people, I feel like need to know about this particular topic that they just don’t have any idea about and it’s because there aren’t any real books about this particular topic. So, you know, we’ll see what the publishers will have to say though.
[31:57] Music
[32:00] Mike: So I think that wraps us up. If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690 or 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 can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 114 | The 5 Stages of a Bootstrapped Startup
Show Notes
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 114.
[00:03] 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. How you doing this week, Rob?
[00:24] Rob: I’m doing good. I feel like the new year is really starting to ramp up and people are back signing up for apps again and it’s exciting.
[00:33] Mike: Yeah, I know what you mean. There’s a number of things that were on my list of things to get done last year that never did but they tended to be more of the clean up nature and I’ve starting to bang through those kind of get them off of my mind and off my plates so that I can work on other things.
[00:46] Rob: Yeah, I had several of those as well. I also finally did my 2-day retreat just to do some thinking. You know, I walked like miles and miles a day and thought and looked at my goals for 2013 and how I wanted to accomplish those and what was going to take. And I looked both at for personal and professional and I just thought through them in-depth. I did mapped them out in quite a bit of detail in a bulleted list and then I put them in to my idea notebook where I’ll be referencing them throughout the year. It was a really good way to start the year actually. I recommend if you can…can take even just 24 hours and get away from kind of the hectic nature of your life to really sit down and think about what you want to accomplish in the year. I found it to be pretty valuable.
[01:25] Mike: Cool.
[01:25] Rob: How about you, what’s going on?
[01:26] Mike: So, I’m in the middle of finalizing things for releasing AuditShark to someone of my early access customers next week and I plan on giving them to access to everything that’s been built so far. And I’ve touched based with the couple of them but not nearly as many as I would like to. So, that’s something I need to work on a little bit more but fortunately, the contractors that I have doing some of the development work, they’ve been just concentrating on the technical side of things which freeze up a lot of my time for all the marketing stuff and that’s going really well right now. I’m really happy with all that’s going on. Hopefully, the trend will continue and my previously stated goal, I was thinking about it last night of not doing code. I decided I have to retract that just because I enjoy doing code on occasion. I think kind of touching things on occasion as opposed to digging in and actually trying to solve some of the down or dirty problems.
[02:19] Rob: Yeah, there’s a big difference between coding on major projects and just hacking your script out because I’m like you. I can’t get away from the code because I enjoy it too much. I really do love writing good code. It gives your mind a rest if you’re busy thinking about, you know, a lot of other stuff. So you just sit there and code for an hour or two can be pretty enjoyable. So, I’m with you. I don’t think I’ll ever get away from it and I don’t really, really have the desire to. But getting away from having to do it 10, 20, 30 hours a week, that’s definitely I can see that as an admirable goal.
[02:50] Mike: Uh huh.
[02:50] Rob: So, other stuff…other stuff that’s new with me, is with HitTail I have three small launches plan for the next probably 14 days. We have an info graphic that was ready in December and it’s about long tail SEO, trying to get some Twitter buzz and you know, wherever else it is, you do with an info graphic to generate some interest. And then we integrated with HubSpot which is a pretty big one for us. So, we’ll be talking to them trying to get the yeses, that integration marketing thing I keep talking about or it’s like you integrate with folks and then you get them to promote you and it gives you reason to talk about what you’re doing. My product manager did a bang up job on the integration on the code and everything. So, it’s pretty cool. It’s something I’m pretty proud of. Yeah, we have a joint e-mail going out as well over the next week or so. So, that’s why I feel like, you know, when I said momentum starting to build for the year, I have like lot of anticipation about these three things because we’ve been sitting on them for almost a month now. They were done in early December and it was like not going to, you know, I’m not going to spend a time to promote now while everyone is offline. So, I’m very excited to kind of kickoff 2013 with three pretty good little marketing efforts.
[03:53] Mike: Now are you doing any technical things on the code-based itself for HitTail to enhance the product or they are just minimal things that you’re doing here and there? Is that mostly about marketing at this point?
[04:04] Rob: We are definitely still writing code. We’re adding…we’re doing integrations and when you…we’re also adding new stuff based on customer requests. So, there had been some request dealing with like the article work flow and or changing that code as well as some…there’s another piece of information called the Score that we have that is not in the UI and we’re going to be adding that soon. But it’s no…there’s no major features. I mean HitTail itself if you think about it is just one feature, right? It really just goes through the keywords and gives you the ones that you should be ranking for but aren’t…that’s all it does. And so we’re not adding another major section to HitTail at this point. We are still tweaking code and making things better. It’s not really a product-driven…or a product development-driven business because we’re not raising against another competitor who’s also building a bunch of features.
[04:50] At this point, there are still so many people who don’t know about HitTail who can use it features that having someone code on it 30, 40 hours a week is…is just a waste of time, right? It’s that building features for feature’s sake, we’ve already have…we already have brought a market in. So, there is…it’s more of a focus for sure on marketing for the time being. Although I do have, you know, I do have some…bigger features that we may look at later like in late 2013 that would actually change the nature of the product, make it a larger more complicated product. But I just don’t want to go there yet until we have more of a larger user base and just have more experience with it.
[05:24] Mike: You’ve kind of got the product market fit at this point so you don’t necessarily need to invest a ton of time in to new features and you can instead use that time to work on the marketing, maintaining and then expanding the user base.
[05:37] Rob: No, that’s right and that’s actually, you know, something more…what we’ll be talking about today. We’re going to be talking about five stages of a bootstrapped startup and in these phases, HitTail has kind of made it to that phase where it’s not just about building the product anymore. We are still improving the product but there’s that product maturity cycle, you know. Eric Sink did a great presentation about this where he talks about the toddler product and then like the pre-teen and the teenager and just as it gets older, eventually, every product after it’s been around 10, 20 years like it just you really aren’t adding that many features anymore. You’re just…you’re kind of maintaining and you’re trying to launch new products to fill the new cycle. So, HitTail is certainly not there. It has really, you know, it’s been around for seven years now. So, it’s more mature than a lot of products out there.
[06:20] Mike: Cool. So one of the other things that I’ve mentioned a few weeks ago was the e- mail marketing campaigns that I was working on for another company and those campaigns are doing really well. The primary focus of them has been to get people registered for some webinars that they’re doing and we’re up to more than 250 people registered for this webinars. And for me that’s kind of shocking more because the sign up form to these webinars is nine required fields plus four optional fields just to sign up for the webinar. It’s just that crazy the amount of information that’s being asked. And you know, it’s information that this company wants and really kind of needs to be able to follow up effectively with these people because it is not just about getting them to a webinar and then sending them e-mails later on. I mean they want to be able to call these people and talk to them on the phone and figure out who it is that they’re talking out to. So, they’re definitely giving good information but the fact that they’ve had 250 people sign up for these webinars and give over all of this information and just knowing the size of the e-mail list that we’re sending it to, the e-mail lists are not very big. So we’ve actually gotten a really big response to them.
[07:20] Rob: That’s really good. Yeah, you had mentioned before that, you know, maybe the e- mail list hadn’t been e-mailed to in a while. Do you feel like the 250 registered attendees you received, are those people that already have a relationship with the company that they already know, like and trust them?
[07:35] Mike: No and I went back and I looked at some of the early signups from the list and it looked like not one single person who we had e-mailed had signed up. So, I started doing some digging and found that a lot of our traffic was actually coming from LinkedIn groups. So the links to the webinar had been posted on the LinkedIn user groups for the people who we are targeting and the vast majority of those signups came [0:08:00] from that location as opposed from these e-mails. So, I don’t feel like the e-mails themselves helped significantly but I’m just happy with the…I guess the overall results.
[08:10] Rob: Wow, yeah, that is surprising. I wouldn’t think that…I just would never think of LinkedIn marketing like that.
[08:15] Mike: I wouldn’t have either but, you know, just looking at the numbers and the stats and I haven’t checked them in several days. I mean it’s gone up dramatically over the past probably three or four days in terms of the number of signups. But definitely early on from the first round of e-mails that I sent out, there was not one that was from somebody that we e- mailed. Now, they were some from companies that we did e-mailed. So, I don’t know whether or not, in all the people we targeted were managers of these companies. So, my impression is that these managers turned around and forwarded their e-mails to people that that work for them and said, “Hey, this is probably relevant to you.” I would not have expected any of the managers to actually show up.
[08:53] Rob: Right, right. So, do you think that given the success of LinkedIn that their client might actually advertise on LinkedIn now?
[08:59] Mike: I’ll probably recommend that we use LinkedIn but the fact is we didn’t pay any money for it. So, it was just in the user groups and in the user groups, there is some, I don’t know, 3 to 5,000 people who have essentially opted in to being members of these groups. I mean because in order to be a member of a LinkedIn group, you have to actively go say, “I want to be a member of this group.” So, they’re getting e-mails…a lot of them are probably giving digest e-mails and says, “Oh, this is the activity that’s been on this list.” And in there, there’s a link that basically says, “You know, here’s this webinar that you might be interested in.” So, a lot of the traffic has been coming from those locations.
[09:36] And the only reason I actually found this out was because there were somebody that had signed up that I knew I worked with before and I remember looking at the numbers and like, “Why did none of these e-mails that I‘ve sent to match up with the people who have registered?” And I saw this e-mail who had registered and I said I know that I have not e-mailed him and I know who he is and I’ve got his contact information. So, I called him and asked and I said, “You know, just trying to track this down. Where did you get this?” And he’s like, “Oh, I got it from LinkedIn.” And then I tracked it down and just backtrack. It was obvious once I’ve found that and then, you know, because not all of us is just tracking that I would like to have has been set up but they were being sent to a different URL that I was not tracking.
[10:12] Rob: So last update for me Drip development is going well. I saw the first demo of the app and I also got the marketing design, this whole site’s design and it’s sliced now. Still, just have a landing page up at GetDrip.com and that’s…that’s actually doing well. I had a surprised…I went on a podcast, the Foolish Adventure with Tim Conley and talked about marketing software and that went viral. I think it went to the front page of Hacker News and in there I mentioned Drip. And so, I got a big boost of…of subscribers over the last couple of days. So, that’s kind of nice. I mean the conversion rate won’t…shouldn’t be fantastic, right, because Hacker News traffic in general doesn’t convert that well but it was kind of nice to see people hitting the side and I have a decent conversion rate to e-mails. So, it tells me the…the messaging is at least partially on and then finally decided on hosting. We’re going to go with EC2 which is Amazon, obviously, their Elastic Compute Cloud. And a lot of factors play in to that. There’s pluses and minuses to Rackspace and EC2 and Engine Yard and Linode and I looked at one other and we decided to go with it.
[11:16] Music
[11:19] Rob: Today, we’re going to be talking about the five stages of a bootstrapped startup. So, I was listening to an audio book called Brain Trust: 93 Top Scientists Reveal Lab-Tested Secrets to Surfing, Dating, Dieting, Gambling, Growing Man-Eating Plants, and More! The book is okay. It’s purely entertainment but one of the scientists does research in to the development of industries and how a technology evolves and he’s going to be writing a horribly academic book. I went and researched this. There’s no chance I’m ever going to read this book. It’s called From Art to Science in Manufacturing: The Evolution of Technical Knowledge but the cool part is he summarized the whole book in like this 5 to 10 minutes snippet and I thought it was fascinating and it actually applies really quite well to the model of a bootstrapped startup…and the phases that you go through as you’re…as you’re taking your startup from launch, you know, onto…on to being a successful venture. The stages that he outlines are for industries and so he basically says like take the healthcare industry or the firearm manufacturing industry or aeronautics. And industries evolve overtime and these evolutions take place due to market pressures.
[12:28] So, they might start off as a craft where early on to be, you know, in aeronautics to be a pilot, you really are an intrepid flier. You have a leather helmet and goggles. There is no processes. You’re building your own plane like no one build planes early on, right? Then from there to step two or stage two which is like rules and instruments and that’s where other people are doing it. You collaborate. You start actually having altimeters and instruments to do things and then there’s, you know, another stage where you get procedures and then one where you start automating things. And that’s where today just like autopilot in airplanes. And then the final stage is computer integration and that’s where like computer actually takes over the entire process and you really don’t need human intervention. So, those are the five stages of the outlines and he does a pretty cool walk-through of like how it’s…healthcare is just in stage two or stage three and firearm manufacturing is all the way, I think it’s in stage four but it took 200 years to get there. Whereas things these days like whether it’s like designing websites or you know, being some type of technical expert, they might mature…instead of 200 years, they might mature in 15 or 20 because of the pace…the pace of the world has changed so dramatically.
[13:39] But what we’re going to talk about is how the same five stages can be applied to a bootstrapped startup. Stage one is craft and that’s where you can only learn something by experience or preneurship. It’s where you’re a lone gunman. It’s basically the Wild West and you’re a pioneer of going out and doing something. And so if we apply this to a bootstrapped startup, this is where you are trying to find a problem to solve. There’s no rule book for this. There’s no guideline or no processes for how to do this. We do have frameworks and a vocabulary for speaking about it. A lot of that’s come from people like Steve Blank, Eric Ries, you know, the blog is fair who talks about these things. That’s where product market fit, problem solution fit and iteration and all these terms can help us talk about it. But really there is no predefined set of directions at this stage. And so this is where you’re trying to find a problem to solve, trying to find the market to solve it for and you’re trying to get to launch so that you can confirm that you are in fact solving a problem for that market. And if you aren’t, then you look back and you start again and you can actually iterate in this…this craft stage for quite some time until you, you know, until you figure out that you are solving a problem and can move on to stage two.
[14:51] Mike: So I think this is interesting. How do you know when you’re done with the craft stage?
[14:56] Rob: So the craft stage as I’m defining it is once you…you definitely have problem solution fit meaning you have found a problem that people have voiced and you are now solving that correctly. So, you have launched an MVP. People have tried it. You’ve definitely iterated on that and you’ve actually solved a real problem that they have.
[15:18] Mike: Oh cool, so what’s the second stage?
[15:20] Rob: The second stage is the rules and instruments stage. So, this is where…I’m putting a few goals in this stage. This is where you really are searching for that product market fit to confirm that you actually have it and then to just start scaling things up. But the goals for this stage are to try a lot of marketing approaches and figure out which one is working and which one is don’t. And it also helps you to define your positioning and how you’re going to talk about your product, how your customers, who eventually going to be trying to gather in groves, how they speak about your product. And you’re going to have to do a lot of things that don’t scale. So you’re going to have to do everything you can to spread the word even if you’re doing blog commenting and commenting on forums and things you would never do once you hit scale but right now, you’re just trying to find that group of people who really needs and wants your product and during this time as you’re moving forward, you’re looking hard at your funnel because that funnel, your conversion rates to trial, conversion rates to paid and you know, a little bit about your retention, that tells you when you’ve hit product market fit, right? That tells you when you’re going in the right direction and you’re starting to find a group of people who actually do need your app and are willing to pay for it.
[16:27] The last goal that I had that I’ve done many times and I really recommend people do before they get on stage two is to stop handling support e-mail and other admin tasks because at this point, you’re no longer that lone gunman, the intrepid flier you were in stage one and you need to get anything automatable in to the hands of another human being, right? It’s not time to start writing a code to automate everything yet but it is time to start giving yourself more time to build this business because you don’t have enough knowledge to start building some processes.
[16:58] Mike: And a lot of this relates to developing a product specifically versus building processes and stuff for your business because these five stages of bootstrapped startup, although it sounds like it maybe applicable to the company, you know, and the way that you’re defining it, it’s more applicable to building a product and building that product up and taking it through these five steps. And then if you want to repeat those steps, you can and you may apply some of these things to the business itself as you’re going through that process.
[17:25] Rob: Actually see as being for product development, for marketing and for support, all three of those pieces of your startup follow this process and typically at the same time. So, if you think about stage one which is craft, I’ll give you an example. When I first bought HitTail, I was building the product, did all the code. I was answering all the support e-mails and I was doing all the marketing.
[17:46] Mike: I think what I was thinking more along the lines of was accounting processes, how you’re handling legal agreements and things like that, business structure. Those types of things are not kind of covered in this because when you say five stages of a bootstrapped startup, and bootstrapped [0:18:00] startup implies the company not necessarily the product. That’s kind of what I’m getting at.
[18:06] Rob: Got it, yeah, that makes sense. I guess it depends on the type of startup you’re launching. If you have a SaaS app and you’re already have an accountant and a lawyer, I don’t think that your accounting and your legal stuff goes through five stages.
[18:16] Mike: Okay, cool.
[18:17] Rob: Can you…but can you think of a countered example where your accounting and legal and business like would go through these five stages?
[18:25] Mike: I think if you’re transitioning your business from a consulting business in to a product space business, you might go through this or if you have downloadable applications where you are selling them and then you transition in to like SaaS-based applications or you start transitioning in to the markets that are heavily financial or security-related where you need to start changing the terms of service and agreements and things like that you want to post on your website because those things, although they are related to the product, they definitely relay it back to the company as well. So, you have to make sure that all your bases were cover if you’re trying to gain revenue for those and you don’t want to be assuming additional liability for those types of things. So, I could see that those things that are business related would need to go through changes as you transition through different types of products.
[19:15] Rob: I see.
[19:16] Mike: So, I mean there’s…there’s all these things that I think are probably one offs for those types of situations that you probably wouldn’t necessarily have to go through nearly as many stages. I mean you sign an agreement with Apple to be able to distribute through their app store so there’s more to it than just signing an agreement. But my point is that there are much fewer stages that you have to go through for those types of things but they are required in order for you to be able to operate.
[19:38] Rob: Got it. So you’re right, five stages of a bootstrapped startup; marketing, product and support. That’s really what I’m talking about —
[19:45] Mike: Right.
[19:45] Rob: …because I’m not talking accounting and legal.
[19:47] Mike: Yup.
[19:47] Rob: Yeah. All right, so stage three is procedures and this is where you formalize how you use gadgets at least in terms of pilot and getting airplane. So, in 1935, the US Army Air Corp invented a pre-flight checklist. So, they already have instruments but they sat down and they said, “There is an absolute checklist that you must do everytime there’s a process that saves a lot of lives.” And they just started making thing more procedural and in the startup, this is where I see you have all of your support stuff completely documented. You know, you have it handed off to one or more people. So, as the founder, you’re now not touching that anymore. You maybe tier two or tier three but you are done with the supporting everything anymore. You’re not the craftsman. Another thing that you should have is you should have like your deployment and your development process is in place. This is where you need to start standardizing and this is actually the part where a lot of like true blue founders who really love to run from one startup to the next start getting a little bored, right? This is where a lot of processes get put in place and you have to standardize because it just makes it easier as you start to work with more people but it can also constrain maybe creativity especially of early stage founders.
[20:53] And this is where in terms of marketing you start doubling down, tripling down on a marketing approaches that work and you really are getting to scale with this and in order to get to scale, you have to have processes and procedures in place and then you have to have marketing approaches that do in fact work during this time or also working on reducing churn and increasing your lifetime value since when as a bootstrapped startup, you start thinking about hiring someone to help you with marketing, hiring someone to help you with development and you really don’t have the bandwidth to do everything anymore. And this is not necessarily a stage that you have to go to. There are micro ISVs that micropreneurs who stay in that stage two and that’s not a bad thing but if you do want to grow past it, these are the types of things, the procedures you need to put in place in order to get…get to stage three and really start scaling it up.
[21:38] Mike: I think the thing to point it out here is that it really seems like in order for you to progress to stages three, four and five, you really need to have a product and a business that
is going to support the type of income to be able to bring those additional people on because obviously you can’t start formalizing these things and hiring people if you don’t have the revenue to justify it.
[21:57] Rob: Absolutely. Yeah, you either need revenue or you need funding. You know, we’re just talking about bootstrapped here because it’s what we’re more familiar with and I just think it’s more relevant to the audience. But if you have funding, they tend to jump around. They tend to jump straight to stage two and then they’ll often skip the procedures and put…do premature scaling so they’ll kind of part of stage three. And it’s a gamble, right? You can move faster when you do that but it’s also the reason that a lot more funded startups fail is because they try to move too quickly and they prematurely scale. Did you see that report? It was the Startup Genome Project and they said…I think it was the number one reason that startup failed was premature scaling.
[22:36] Mike: Yeah, I definitely remember seeing some of…some stuff from them but I don’t remember the specifics of it but I think you’re right. That was definitely high in the list.
[22:43] Rob: Yeah, the other was like founder disagreements-
[22:46] Mike: Yup.
[22:47] Rob:…was a big one and then premature scaling which means in essence you have too much money and you’re try…you just start hiring people and trying to market and spending money growing the business before you really know anyone wants your product. You know, you kind of leap through the stages too quickly.
[23:01] Mike: So one of the things that I think that’s interesting about stage three is that what you’re really trying to do is you’re really trying to make sure that you’re putting yourself in a position where the things that you’re doing are the most valuable to the business. And that includes making sure that the processes behind the business and behind the product itself are going to scale or that you will be able to scale them out by farming out some of that work to people base on a process that you have developed and your value that you’re providing at that point and in that stage is to build the processes and then hand it over to somebody else to execute.
[23:36] Rob: Exactly, everything in stage three is about leveraging you and about getting high leverage out of your time.
[23:43] Mike: I think that both Patrick McKenzie and I had touched on this at MicroConf in 2012.
[23:48] Rob: And if you’re a member of the Micropreneur Academy, you can see both those talks right now inside Micropreneur.com. All right, stage four is automation and this is in terms of aeronautics, this is where they invented the autopilot where it’s autonomous but it’s with human supervision. The goals for a startup in this phase are basically start writing code to handle things that are currently being handled by humans. So they go past it the human automation point and actually make it truly code automated and weren’t just supervised by people. So, this is where basically all of your working, marketing and support tasks, they are heavily documented and or as automated as possible. So, the step is just about continuing, pretty much continuing the work that you begun in stage three.
[24:32] Mike: I think without stage three, you’ll be very hard pressed to be able to make stage four work because if you don’t have those procedures formalize, it’s hard to automate things when you don’t really truly understand everything that’s going on and it really seems like you have to have been in stage three for long enough in such that the automation is made easier because you don’t have to deal with all these exceptions. So when you’re writing an automation code, one of the big risks I’ll say with writing an automation code is that if something changes or something is unexpected that happens, then your automation basically goes completely out the window and you’ll spend 10 to 20 times as long fixing it and make again things right as it was if you knew about that in advance and you were able to write in those exceptions in to your automation code. So, it really seems like you have to been in stage three for long enough such that you will have identified those exceptional cases and then you can program them in for the automation side and stage four.
[25:29] Rob: Exactly, and then that brings us to stage five which is computer integration and that’s where humans are removed from the functioning system that humans become technicians maintaining the machines. And so obviously aeronautics is not there yet. There are certainly a lot of manufacturing industries that have made it that far. And I kind of just threw some goals out here partially and jazz but the goals here are to, you know, if you want to or to hire a product manager or a CEO and then to either retire to Tahiti or to your next startup [0:26:00]. Alternatively, you can stick around and you can continue to improve and grow the business but if you reached stage five, you really have built like an awesome once and…potentially once in a lifetime bootstrap business because most startups will never make it to this stage. This is one that it is functioning at scale and you found a product that people love.
[26:22] I think with startups maybe like Squarespace and that’s a massive example but that was a bootstrapped startup that really has made it to a place where it is operating at scale. And you know, you can even think of maybe some smaller examples that may not all the way be in stage five but they definitely have processes in place and they’re growing. They have employees, places like WooThemes, Clicky, Grasshopper, startups that are really hit their stride and while they may continue to grow, as the CEO or owner, you could, you know, literally hire someone to…to kind of run it.
[26:53] Mike: This whole idea of removing humans from the system and the humans become technicians maintaining the machines really reminds me of the Despair poster called adaptation and it reads “The bad news is robots can do your job now. The good news is we’re hiring robot repair technicians. But the worse news is we’re working on robot-fixing robots and we did not anticipate any further good news.”
[27:16] Rob: [Laughter] Very nice. So, I’m at despair.com. It says, “At Despair, we offer the cure for hope.”
[27:20] Music
[27:24] Rob: Well that wraps up our look at…the five stages of a bootstrapped startup. And review, stage one is craft. Stage two is rules and instruments. Stage three is procedure. Stage four is automation and stage five is computer integration. And we have a listener question today.
[27:39] Mike: So, this one comes in from Ashkin and he says, “Hi, Rob and Mike. First of all, thanks a lot for the best podcast for startups. Your work is simply amazing. I have a few focus areas these days that I run concurrently; monitoring or consulting products, blogging about startups in my country, developing my own product to help with contractors and learning new stuff and new technologies. So, my question is how do you recommend splitting my time? Should I dedicate a single day to working on things or should I do some things each day and essentially multitask?”
[28:08] Rob: Well, I think the first thing. So he have four different tasks he’s working on. He says his monitor consulting projects. He’s blogging about startups. He’s developing his own product with the help of contractors and he’s learning new stuff. And I would start by taking a look at that list and figuring out what you can eliminate or automate more. Let’s look at the blogging. What is the purpose of the blogging? If that’s for fun and entertainment, that’s great but that should not be as high a priority as these other three items on the list. So, that’s the first thing I would look at is elimination. Learning new stuff and even new technologies, we all love doing that. However, are you at the point where you maybe need to stop learning temporarily and that doesn’t mean that you never learn a new technology or a new marketing approach but that is valuable time that you could actually be applying to things. So, if you took a 6-month hiatus on blogging and going out and specifically seeking new things to learn that didn’t directly apply to what you’re doing, then now you’re really down to two things. You’re basically building a product and you’re monitoring and consulting projects and that’s probably where I start.
[29:16] Mike: Well, he also mentions that he is not just monitoring the consulting projects but marketing for new ones and I totally agree with everything that you just said and that was my first thought as well. You’ve got four different things going on. Blogging, unless it’s directly related to your products, I would probably cannot outright because it’s not going to contribute financially to you because it sounds to me like the intent here is to transition from consulting in to products and if that is the intent, then blogging does not sound to me like it gets you there in any way, shape or form. Learning new stuff does not get you there unless it’s directly related to building your own product and you know, I agree with Rob. I would definitely get rid of both of those and then just focus on two things and the reality is you’re really focusing on one which is to develop your product so that you can get out of consulting.
[30:02] Rob: And then his second part of his question is should he divide up day to day or should he kind of stripe his calendar and do two hours of consulting, monitoring and then two hours of building his own product. I personally would divide up each day and that, you know, gives you…because basically monitoring, consulting projects and marketing for the next one, there’s probably work to be done on those everyday and there is probably work to be done developing your own products everyday. And so sure you could, you know, go one day and then flip back and forth but if something urgent comes up, it would in my opinion be nice to kind of…already have that on your calendar I guess.
[30:38] Mike: I think part of the problem with doing marketing efforts is that there is really no end to them. You can do them for an hour or you could do them for 300 hours straight and you will still not be done. It just does not matter. So, I think that for my stand point, it will probably make a lot more sense to block off amounts of time that you’re going to work on each and your focus shouldn’t necessarily be on the end goal. It should be focused on making sure that you have a process in place such that you continue executing that process. And if you look at setting yearly goals, if you’re trying to achieve some massive goal, the best thing to do is not think about achieving that goal. The best thing to do is think about putting the process in place that will put you in a position to achieve that goal at some point down the road. So, if you want to lose weight, don’t focus on losing 50 pounds, focus on going to the gym everyday because that’s the part that is going to get you to losing 50 pounds. And similarly with landing new clients and developing a new product, what will get you to having a finished product is dedicating an hour everyday of your time to building that product or two hours or three hours or whatever it is that you can actually set aside.
[31:49] One of the things that I’ve been trying this week is blocking out my calendar with the exact timeframes that I am going to be doing different things. So, yesterday I had my calendar set up such that from 7 o’clock to 8 o’clock I was going to be getting up and getting ready and then from 8 to 8:30, I was going to be traveling and then from 8:30 to 5:30, I was going to be at work for a consulting customer and then 5:30 to 6, I’d be headed back. And I literally blocked out my entire day and I was off by about 15 minutes for one piece of it and I stayed up a little bit later. I even blocked out time for me to read at night before I went to bed and then I blocked out time for me to go workout. And it really helped me to maintain focus on the things that I had to do because looking at my schedule, I knew exactly when I would have to stop something so I was hyper focused on making sure that I got as much under in that time window as I possibly could because I knew that I didn’t have any extra time to spare because my entire calendar was blocked out from 7 a.m. to 11 p.m.
[32:47] Rob: I think that’s a good point actually. If you look at the tasks that we’re kind of have left, assuming he…he is able to eliminate the ones we’ve mentioned, he really has to monitor consulting projects market for new ones and develop his own product. If…left unchecked monitoring and consulting projects will turn in to a fulltime job. So, if you need to time box to crap out of that one and if you can time box that to 30 minutes a day and basically have, you know, once a day meeting or if you can 30-minute…if you can time box it to 30 minutes three times a week or just as tiny tiny as it can be and still keep the projects going, that is a, you know, a great way to do it and then as you said, if you also time box the marketing and you keep those to just an hour or two per day, then you can spend, you know, a big chunk of the rest of your time actually doing what it…it sounds like your number one priority is which is developing your own products because you want to…you want to get out of the consulting hamster wheel.
[33:40] Mike: Thanks, Ashkin. I hope that answers your question.
[33:42] Music
[33:45] Rob: And if you have a question for us, you can call it in to our voicemail number at 888-801-9690 or e-mail it to us like Ashkin did at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. You can subscribe to this podcast in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 113 | Choosing Conferences & Meetups, .NET vs. Open Source, Ideas for Low-Risk Businesses, and More Listener Questions…
Show Notes
Transcript
[00:00] Rob: In this week’s episode of Startups for the Rest of Us, Mike and I are going to be talking about how to choose conferences and other live events, .NET versus Open Source, ideas for low risk businesses and answering more listener questions. This is Startups for the Rest of Us: Episode 113.
[00:17] Music
[00:25] Rob: 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 Rob.
[00:34] Mike: And I’m Mike.
[00:34] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word for this, Mike?
[00:39] Mike: Well, I found out a short time ago that our good friend and popular MicroConf speaker Patrick McKenzie has an e-book that he published called Sell More Software: Website Conversion Optimization for Software Developers.
[00:51] Rob: Dude, yeah, I bought off of Hyperink.com the other day. I’m digging Hyperink. They turned a lot of blogs in to books.
[00:58] Mike: Uh huh.
[00:59] Rob: Did you see my tweet about it?
[01:00] Mike: Well, I definitely did see it on Amazon’s website.
[01:02] Rob: Oh, it’s on Amazon.
[01:04] Mike: Yup. That’s probably where I saw it. I don’t know exactly how I ended up there though. It might have been recommended to me through their Recommendation Engine. I’m not real sure. But it’s interesting. I mean he’s got…most of the content I think is primarily taken from his blog but there’s also some new articles that he’s written in there exclusively for the book about selling software and conversion optimization and SEO. So, I think for $10, you probably can’t go wrong.
[01:04] Rob: I’ve read most of the articles in the book as they were published in the blog but since I bought the book last week, I’ve only read a couple of them already. It’s like, yeah, no doubt. I am going to take enough ideas away from this that will be worth the ten bucks? Funny thing about Hyperink, did you know they’re YC funded?
[01:43] Mike: No, I didn’t.
[01:44] Rob: Which is weird because it’s such a non-scalable business in my opinion but they basically have done like two or three pivots from where they originally where they kind of just an online publisher and they have seemed to have some success doing this…this…in this niche of turning blogs in to books and they format them well and I think they do some copy editing and stuff. [0:02:00] There’s a number of blogs like startup and VC blogs that had been turned in to books and they’re all between maybe three bucks and ten bucks and they are all electronics. So, it’s a no-brainer if you need something read. I mean you can typically find a lot of the content for free but it’s like why not pay the money to have them in to an easy-to-read format.
[02:15] Mike: Uh huh, yeah.
[02:16] Rob: Yeah, one of my essays actually made in to one of them Dharmesh has his on startups Hyperink book. I wrote a blog post for that a while ago and it made it in to a book. So…
[02:25] Mike: Very cool. Well, what have you been doing this past week?
[02:28] Rob: Yeah, I have…basically, I had two weeks of kind of on again, off again downtime. I just…and I like to take these…these times to do that high-level thinking that I don’t get done much when I’m sitting in front of a computer. You find it when you’re in front of a computer, you always want to be niggling away like e-mail or Twitter or just, you know, kind of your monkey brain runs wild and it doesn’t let you sit there and like brainstorm and think about high-level things that you want to do over the next coming months or the coming year or whatever.
[02:57] Mike: Yeah, I find that being in front of the computer sometimes is distracting if I don’t have something specifically that I want to get done. You know, it’s kind of a time sink at that point I may as well be on Facebook or Hacker News or something like that because I’m not really being productive and I’m there to be there versus there to be productive.
[03:15] Rob: Right and that’s where I find this time where I’m kind of forced to be away from the computer, you know, because I’m typically with family or friends and often we’re, you know, eating, talking or watching movies and such or there’s even downtime where everybody is reading and just chatting. I mean that is like a good time to I think to relax and kind of center your mind and prepare it for, you know, for the deep thinking that’s required about high-level things about where the directions and the strategy that you’re going to take your…your business because again, I think sitting in front of a computer is not the right time to do that.
[03:46] Mike: Yeah, I think that just taking, you know, a couple of days even away from the computer, not touch the computer, not even check your e-mail, those time periods can be highly productible say for thinking about other things.
[03:58] Rob: So, you’re only two weeks away from launching AuditShark. How are things?
[04:02] Mike: Things are pretty good. I don’t have this nagging sense of something is wrong but I’m not sure what it is. So, I think I’m feeling pretty good about where things are at. There’s tons of things that I would love to have implemented. There’s tons of things that are sitting in FogBugz that are just not done and they will not be done and I’m okay with that.
[04:21] Rob: Right. So, the technical side seems to be…to be zipped up. Are you feeling good about the marketing and kind of what your launch about getting people to use it, early access users and stuff?
[04:31] Mike: I feel like I’m going to get people to use it whether it is exactly what they’re looking for or whether there’s going to be tweaks and stuff. I kind of expect that there’s going to be some things that they’re going to look at and say, “I’d really like it if it could do this or it could do that.” And that’s fine. I’m perfectly okay with that. It’s…but I really need to get start getting it in front of people and getting feedback from a general market sense of what people are looking for and what they are really interested in seeing.
[04:55] Music
[04:58] Rob: This week though we’re going to diving in and answering more listener questions. On our first question is about how to choose which meet-ups and conferences to attend. It’s from Felix Leong who is a long-time listener and Academy member and he sent us a number of questions but the one I really want to focus on today is he’s wondering what criteria we could recommend for which meet-ups and conferences to go to. And he said, “You know, do you use a selective approach like checking up the speakers, whether the topics suit in your interest or do you just go to every single free meet-up and kind of do a taster of buffet approach and see which ones do you like and stick with?” So, I think we kind of have two topics here, meet-ups versus conferences because meet-up is going to be more recurring either weekly or monthly things whereas conference is probably going to be a larger expense. We have to travel.
[05:45] Mike: I think with conferences you definitely have to think about “Are there going to be other people there who are in similar situations to me?” And if you are not thinking that question or you don’t have that question, you definitely needs to ask it and once you’ve asked it, the answer should be yes. And if the answer is not yes, then you’ll have to reevaluate why it is that you’re going. If you’re going with just because you want to hang out with those types of people, that’s fine. There’s nothing wrong with that. But if you’re looking to increase your business or figure out what source of things other people are doing that you’re not doing that you could be, then you know, you might want to start thinking about going to a different type of conference. That said, for meet-ups I think that with meet-ups, meet-ups tend to be…I think I tend to use the same type of criteria. There’s a lot of meet-ups here in the Boston area that I just don’t go to because I know that the types of people there tend to be the types of people who are focused on solving problems for which they will be using VC funding.
[06:42] And the approaches that they use are not the same approaches that I would use and they are generally not applicable because they have tons of money to throw around on all these different things to try and figure out what’s going to work and I can’t do that. And for me to even try to do those types of things, it’s just not feasible because I don’t have that money to throw around in my return on them just it wouldn’t be there. That’s not to say that I wouldn’t get something from them but it’s such that I feel like the value is just proportionate in terms of what I would get out of it versus what I would get out of going to some place where there are a lot of other people like me.
[07:17] Rob: Yeah, I definitely take different approaches for meet-ups versus conferences. Conferences, it’s fairly easy to just ask people within your networks. So, I would probably go in to the Micropreneur Academy as an example if I’d never heard of a conference and I would go in to the forums there and I’d say, “Who’s been here? What do you guys think?” Because since the conference tends to only happen once or maybe twice a year and they aren’t that many conferences in our space, you’re going to have someone who…who has gone and it’s going to be, you know, a longer process where you’re going to be able to really find out more details about it. And like you said, I think the big question that I ask myself is “Are there going to be other people there in my situation?” Because if you go to a conference and it’s a bunch of people, you know, even if it’s a startup conference, if it’s a bunch of people who are freelancers, client services people and they’re thinking about launching startups and they’re there to learn about it, well, if you’re further along then it’s…it’s going to be a drag because the content is going to fit and the people you meet you just aren’t going to have enough to talk about. You aren’t going to take much away from it. The hallway conversations are not going to be interesting. So, that’s the first approach I take with conferences.
[08:21] And then in terms of…of meet-ups, whenever I move to a new place, I pretty much try to survey all the meet-ups in the area. Now, that wouldn’t be possible if you move to San Francisco because I think there are several hundred startup meet-ups within the 60-mile radius. Most other places around the world, you’re going to be able to check out all of the startup and even remotely tech entrepreneur meet-ups over the course of a couple of months. And since they are free or relatively not expensive, I tend to take that that taster approach that Felix talked about and attend all of them just to start seeing overlaps, seeing who’s involve in the community. I think that’s a great way to…to learn who is there in, you know, in your local area, who’s interested in startups because in general, it tends to be a small tight knit community, starting to meet the people who are in your niche. Like Mike said, you know, bootstrappers may be a niche depending on where you live and so one by one, trying to find those people and potentially even putting together at meet-up of just as bootstrappers would be something that…that I would consider. So, I hope that helps, Felix. Our next question is a voicemail question about the pros and cons of a .NET and Open Source.
[09:27] Voicemail 1: Hey, guys. It’s Jack Colletti from Qula in Pittsburgh. And I love the show and finally got a chance to do a rating for you guys on iTunes. But my question is around .NET. I think it would be great for you guys…you have a pretty expensive .NET expertise. I’d love to hear or maybe a whole show on the topic or maybe .NET versus Open Source platforms, would love to hear more in depth. Thanks again and keep up the great work. Take care, bye-bye.
[09:53] Mike: So, I think that there’s a couple of different thoughts here. The first one is that when you start taking a look at the pros and cons of Open Source versus something like .NET, you know, there…there’s going to be things for both of them. There’s going to be pros for each, there’s going to be cons for each. I think for .NET the pros list for me is relatively short just like it is on the Open Source side. I think on .NET the pros are that it’s very easy to start getting in to the .NET stock. You can sign up for any of the spark, I’ll say the asterisk spark programs for Microsoft. There’s BizSpark, WebSpark. I think they’ve got YouthSpark now and you can sign up for these programs and you get a lot of software for free and after three years, you get to graduate from these programs. And then you get to keep all the software that you’ve been using. In addition to that, you get to keep the production licenses for some of that stuff.
[10:41] So, for example, when you finish with BizSpark, I know that recently I went through the graduation process for AuditShark and they basically give you a Visual Studio ultimate addition for every developer you have working on there who’s registered inside the program and they gave me, I think what was it, four Windows server licenses and two sequel server licenses to use for however long I want. And then in addition to that, they give you upgrade discounts for buying in to their MSDN Premium Subscriptions. On the Open Source side, you know, pretty much everything is free from day one. You don’t have to sign up for anything. You’ve just, you know, go and you download it and you can compile it or not. For me, I think the biggest downside on the Open Source side isn’t so much that everything is free, it’s that you have to kind of pick and choose which immunity stacks that you’re going to be using because not all of them are going to be supported and if you run in to any problems, you will probably have to fix them yourself. Not always, but there are going to be times where you have to get down and dirty in to the code and to some deep-rooted bug that you didn’t want to and you’re going to spend a lot of time doing that stuff.
[11:50] On the Microsoft side, I feel like Microsoft tends to take care of things for you. That said, if there are problems that are deep-rooted, you may not get them fixed in a timely fashion or you may not ever get them fixed. At the end of the day, it almost feels like a judgment call. It’s…it’s…to me it doesn’t necessarily make a lot of difference. When you start talking about cost, I think the one issue that a lot of people will bring up is that on the Open Source side, everything is cheaper and on Microsoft, it costs a lot more to run those things. At the end of the day though, you’re biggest cost of your business is employees and your salary and those are going to be exponentially greater than any of the software costs that are associated with it.
[12:31] And I think that that’s probably the biggest thing to keep in mind when you’re evaluating these things and what you’re comfortable with using isn’t so much the getting started cost, it’s the down the road cost. And that down the road cost should not…you shouldn’t be looking at your software for that because you’re going to start comparing, you know, Ruby to a Windows license and oh well, Ruby runs on Linux stack and you know, .NET runs on Windows. Windows is going to be more expensive. Yeah, probably a little bit but at the same time, the incremental cost between the Linux server and Windows server is not that much versus the cost between having no employees and one employee and that is a huge, huge step. So, I would look at those for the cost versus what the cost of the software is.
[13:16] Rob: Yeah, that’s it. That’s a good analysis of it. I think that most people do look at the free cost of Open Source and think to themselves, you know, why would I go with a more expensive platform like .NET and I think you’ve listed a few good reasons. These days if I’m looking at building a new project, I do tend to lean towards Open Source. There are just some really good communities out there that we’ve talked about before the Ruby community, PHP community. I think Python with Django is actually a really good stack to build on. Some of the draw backs I’ve heard of the folks building stuff on Python and then you can’t find developers for it or they’re really expensive and actually Ruby devs, really good startup Ruby devs are expensive. And they’re going to be potentially more expensive than .NET developers who…who tend to be…who tend to get paid well but but I think just Ruby devs are in more demand in the startup circles right now.
[14:04] In terms of finding employees, since you covered a lot of the other elements, I was thinking about finding developers, finding contractors and my…in my experience, finding PHP developers has been easier than finding a good .NET or a good Ruby or a Python developer and so that’s something to think about. PHP developers are going to tend to be less expensive as well. On the flip side, you know, in terms of finding a .NET developer, they’re going to think more like maybe an enterprise consultant. Most people who develop .NET are not working for small startups because most small startups don’t use Microsoft technologies. And so, you’re going to be much more likely to find that kind of like a PHP or Ruby hacker who has potentially, you know, built and launched stuff before whereas in the .NET world, it’s much less likely that people have worked on small startups are going to have a bit of a different mentality there in general. These are all generalities and these are all based on our experience.
[14:57] But I think these days when I look at a new project like what I’m working on now, I lean towards Open Source and as long as I can find people at a reasonable price and the technology is proven and I’m not doing anything that that’s crazy, you know, that specifically requires hitting some Windows system API’s or that it requires a lot of scheduled tasks or any specific technology that, you know, that Microsoft .NET stuff would be more well-designed to handle, then I link…I do link towards PHP and Ruby for…for web technologies.
[15:29] Mike: One of the things that comes to mind in terms of the difficulty of finding .NET developers versus PHP developers whereas the PHP is really meant for web-based products versus .NET which kind of covers both desktop and mobile and web and you kind of have to pick and choose a little bit more because those people who are doing .NET, they may have done mobile but they haven’t done web stuff or vice versa. They’ve done desktop stuff but not web stuff and they can fall in to a number of traps of saying, you know, they’re just trying to get a job and they’re saying, “Yeah, I can do that. I do .NET all the time,” and you run in to somebody’s issues about hiring them because they know .NET but they don’t necessarily know it in the context that you need them to know it.
[16:13] Rob: Right, so there’s added complexity and it’s a multi-used technology. Well, thanks for your question Jack. Our next question is actually a lightning round of questions about starting up and so it’s from Derek and he says, “I’m so glad I found your podcast. I’m going to go back and try to listen to most of them. I have so many business and technology questions on how to get my web app out of the gate. I like how you guys talk details. Many podcasts I listen to are good but I get frosted about the lack of detail. For example, here are some huge things to me that may be little to an existing startup.” And he sent over kind of a long bullet of list. I think we’re going to pick out a handful of this and just give some quick answers on our recommendations for doing these things. So, first thing he said is, “How do I find the right business name?”
[16:38] Mike: I think that the right business name is almost immaterial. The business that you have behind your company is it doesn’t matter to most people. I mean you don’t wanted to be offensive. You don’t wanted to conflict with other people who have trademarks on other names out there. But I don’t think to getting the right business name makes a whole heck of a lot of difference. There are certain things that you want to try and follow as generalities. So, for example, you don’t want to have too many consonants in a business name that’s going to make it hard to pronounce. You don’t want something that has a word in it that matches multiple ways to say in whatever language that you’re…you’re speaking for example. You want to have the domain name, the dot com available if possible. But again, most of these things are immaterial. The business name itself means almost nothing to your customers. It means something to you. So, I think at the end of the day, the business name doesn’t mean the heck of a lot. Now, your product name could mean quite a bit to you based on whether you’re trying to do things with SEO or you’re trying to make it memorable to people. That’s a little bit different but I think that the business name itself just does not matters much.
[18:03] Rob: I wholeheartedly agree and the people who I have talked with lately who are selling multiple software products that you don’t even know what their business name is. It’s very rare that matters to anyone. Terms of finding a good product name I tend to just do domain searches. I spent two or three hours just packing together different parts of words when I was trying to figure out the name for what is now Drip and then I look for all the domain, you know, all the dot coms for those and almost none of them are available. I mean it’s crazy how hard it is to find a good domain. And so I based mine almost solely on being able to find a decent domain and find one that…that suits your fancy.
[18:37] Mike: One that I…website I’ve mentioned a couple of times on this podcast before is leandomainsearch.com which is a good website to go to if you’re trying to find a website name because it will search through…you give it a couple of keywords and it will search and give you a number of different variations on those keywords for what is available.
[18:55] Rob: Yup and nameboy.com is another one that I’ve used. All right, so his next question is. “When should I become official and when should one incorporate or become LLC or something else?”
[19:07] Mike: “When to become official as a business and when to incorporate or become an LLC?” Those depend on your risk tolerance. If you’ve got nothing to protect then it doesn’t really make a whole heck of a lot of sense to incorporate and go through all the processes associated with getting it as corp or in LLC. In terms of your taxes, your CPA may feel completely differently about it but once you have kind of gone past the state of doing your taxes yourself, as soon as you get a business involved, you probably want to get a CPA involve because they’re going to know things that you don’t. They’ll be able to guide you in to what decisions to make for your business, what things can be written off, what things can’t and then an attorney will teach you about how to structure businesses such that they will protect you from being liable to your customers or from other entities who are out there. But if you don’t have anything to protect if you’re still just working on it , it’s probably not a big deal. I don’t even know as I would bother incorporating or filing a DBA or anything like that unless you want to start writing things off or you have something that you want to protect. So, if you already have a product or you’re acquiring a product, that’s probably a good time to start looking at it.
[20:16] Rob: Until you have someone willing to pay you money for something, it’s immaterial what form your business takes. Agreed that it’s a manner of risk tolerance, I also think that you can easily kill thousands of dollars and a lot of time and basically postpone the inevitable of actually asking people for their money. You can postpone the inevitable by worrying about this kind of thing. I just…it’s not nearly as important as the most people think. His next question is, “How and where should I open a merchant account for accepting e-commerce transactions. I got to be honest, these days, I just sent people to Stripe.
[20:52] Mike: I —
[20:52] Rob: I say unless you have a reason not to, go to stripe.com. It takes you 5 minutes to sign up. There you have the whole shebang.
[20:59] Mike: Yeah, my question would be why even bother opening up a merchant account? It just doesn’t seem to make sense to me to even try for a merchant account these days. I mean it’s a lot of paper work. It’s a lot of hassle and the amount of extra money that you’re going to get using a merchant account versus, you know, using Stripe or something like that, it just not worth it and in fact, many times until your volume gets above a certain point, having a merchant account does zero for you.
[21:25] Rob: He has a few others. I think the one other we’ll put out of here, he says, “I plan on releasing an MVP. I know my target market but how do I solicit them? How do I get them to know I exist?”
[21:36] Mike: I think finding people in your target market and soliciting to them and getting them to know that you exist is a massive topic that we probably covered quite a few times in previous podcasts and I know that you said you kind of new to this podcast. There’s a lot more information in the previous 112 episodes. So, definitely go back and listen to those. If you have follow up questions, definitely let us know but there’s…there’s a lot of other information there.
[21:59] Music
[22:03] Rob: Our next question is from Justin Schemer [Phonetic] who has sent in several questions before. His question is, “I’m looking to venture in to the startup world a recurring theme that I’ve gotten from your episode is ‘Knowledge is power’ especially when building a startup. Being a developer, I obviously lack necessary business skills to maybe start with something big. My question is do you have any suggestions on starting out with a business that’s low risk and low profit just so I can maybe learn and hone skills needed to do something more involved. It doesn’t need to make money either. I was just thinking something like a simple t-shirt or hat business which seems to have a low initial investment but maybe a good arena to practice marketing, managing, et cetera. Thanks, guys and keep up the good work.”
[22:43] Mike: I think my take on this is that activeness and affiliate for any sort of t-shirt or hat business would probably be a good way to get started if you have ideas about what source of things can go on to those types of things. You can set up like a CafePress account or there’s several other companies that had popped up over the years. They’re the ones that I remember using in a while back but you can essentially create your own store and you’ll get a commission on all those things and you can drive people to your own website. Another one that I can think of is building something along the lines of an info product. So, any sort of informational or tutorial-based product where you are conveying information to people that they are going to find valuable whether it’s based on hobby that you have or on something that you’re just interested in learning more about and you want to be able to take that information and relay it to other people.
[23:35] If it…if you’re finding it difficult to find information about a particular topic, it’s probably a good candidate for some sort of an e-book and you don’t have to put a huge amount of time and effort in to it but you can set up a landing page try and get people to that website, see if people are searching for it, do some basic SEO on it, try and evaluate the need for people to purchase that kind of thing. And if there is, then you can go out and actually build the info product. You don’t have to worry about whether or not you can build it or not. The real questions behind it are “Are people interested in buying that?”
[24:10] Rob: Yeah, I think starting a t-shirt or hat business is probably not a good idea. I don’t know what that’s going to teach you that you’re going to then takeaway and apply to as software startup especially if you’re trying to buy equipment and print t-shirts yourself. I have a friend who runs a t-shirt deal a-day site and it’s an enormous amount of time just to fulfill orders and that doesn’t teach you anything. I think you’re going to be much better off with some time of digital product and like Mike said whether that’s an online course of some kind, an e-book or building some type of small app that, you know, you can build in a couple of weeks or building an affiliate for someone else’s software product and that’s something that’s often overlooked. People feel like being an affiliate, it’s not going to actually teach them anything or like it’s not being a real entrepreneur. But learning how to find a channel of traffic and how to get yourself in a way of that whether that is via SEO or whether it’s some paid acquisition or whether it’s using social networks, I mean there’s a number of ways beyond that to do it.
[25:07] And learning how to navigate those and actually having something to make a little bit of money, it will teach you a lot about everything. I mean about the e-mail marketing and dealing with customer support and how to drive traffic and how to optimize and how to monetize it and all that stuff. The entrepreneurs that I see who are starting out and they are doing smaller products that are not code heavy because you already know how to code, right? So, learning to code is not the scary part, it’s all the other stuff. So, if you can build either a very small project and do like a show Hacker News and try to get people to actually sign up for a trial but then figure out a way to get some kind of money out of that, I think you’re way better off than just trying to either give something away for free which is really easy to do or, you know, sitting down for six months and writing a full software product. So, I hope that helps. Our next question is a voicemail question on outsourcing marketing.
[26:01] Voicemail 2: Hey, Mike and Rob. I wanted to call and say that I really enjoy your podcast and I had a question for you. You talked a lot on the show about outsourcing various tasks. One of the things that I thought would be really nice to outsource would be marketing but it seems like it’s such a core activity that I question whether it’s a good idea to outsource it. On the other hand, I read another book recently Masters of Doom and it talks about how much further beyond his peers, John Carmack’s able to progressed as a programmer and developing engines for Doom and Quake and so on by just focusing on programming and not worrying about marketing or some of the business concerns that they pushed off to their distributors. So, I’m just curious what your thoughts on that are and I look forward to hearing your next podcast.”
[26:49] Mike: So, I think my first thought on that is that John Carmack is an extreme outlier. [Laughter]
[26:54] Rob: Yup and so as the video game industry. It’s totally different than the software businesses we’re talking about.
[27:00] Mike: Right, that’s my first thing that I just want to throw out there right away. The second thing is that I don’t believe that you can outsource your entire marketing effort. I think that there are certain things that there are certain things that you can outsource associated with your marketing effort but I think that the core ideas behind it the high-level vision, setting up the processes to do it, I think that that’s something you probably shouldn’t outsource because you’re not going to know what to expect. So, if you’re a developer, outsourcing your marketing is probably a really bad idea because you don’t know what it takes. So, when somebody comes back and says, “Oh, it’s going to take me three weeks to put together this e-mail campaign,” you have zero basis for comparison to say, “No, it doesn’t take three weeks. It shouldn’t take three weeks. It should take you 30 minutes or three hours or something like that.” But if you don’t have any sort of basis for comparison, then you just kind of have to shrug your shoulders and say, “Okay,” versus if you sit down and put together the processes that somebody else needs to follow and…for example, sending out e-mails.
[27:59] If you need to do something within MailChimp or AWeber or whatever e-mail service provider you’re using to send out e-mails on a regular basis to get some of those things set up not necessarily to write all the content for them but to get those things set up, maybe you want to send out a specific e-mail for, you know, end of the year promotion that you’re trying to do. Something like that, you should have a good idea of how it should be done and if those types of promotions or things that you’re going to be doing on a fairly regular basis, then you’re going to want to document those things and you’re probably going to want to be able to outsource them because if it’s going to take you three hours to do it and you know what the process is going to be to have that done, you can outsource that but you have to put in the time and effort upfront to be able to set those processes in place to have somebody else do them. But once you’ve got them in place, that’s something that you can definitely automate. You could definitely outsource that but building that is not something I would advice.
[28:52] And when it comes to all of the strategic things behind your marketing efforts, you want to be able to track from initial customer contact all the way through to the complete life cycle of your customer, how many times your…you have to touch that customer in terms of your support cost, how many times they have to be contacted with your e-mails and you want to have all of that statistical information. And if you’re trying to outsource that to somebody else, I question how well that’s going to work out because they’re not going to be nearly as invested in the business as you are and they’re probably not going to be thinking of the high-level strategic things that you are because there are certain things that as a business owner you’re going to need know and you want to know versus somebody who you just hired to do that and they may know their stuff, they may know how to do that stuff very well but you’re probably better off hiring them on a consulting basis to help advice you about the different things that you can do and then you go off and do those things.
[29:49] Rob: I’d like to start by maybe defining terms because you can outsource tasks and you can outsource projects and it’s very, very different. You find someone on oDesk for 10 or $15 an hour and you write up a process, you can outsource the task to them and that’s one thing, right? So, you can either have them be doing support or just a basic step-by-step process. You can even create some content for an infographic and you can outsource the specific task of designing that to someone for a few hundred dollars. But to go to someone and say, “Here’s a project. I want you to do all the content marketing,” and that’s likely going to include infographics and blogs and articles and all that kind of stuff. That requires an entirely different level of competency on that person and they need initiative. They’re going to be astronomically more expensive. It can literally be the difference between paying someone $15 an hour and paying someone $3,000 a month to handle all of your content marketing. Those are actual numbers that I’ve received and you know, gotten quotes for them but the difference is that if you have enough money and you don’t have enough time, then you go with that project-base thing. I threw out $3,000. That was a cheap quote, by the way. There were many people who quoted 10 grand a month basically handle the whole, you know, content marketing aspect of…of like a startup business.
[31:05] So, you really need to think about the difference between those. I don’t think that outsourcing it to an agency, that’s what I’m saying is like the project-type, that’s actually can work for you and I know startups who’ve done it and I know that it works but those agencies are extremely expensive and I don’t think that’s what you’re talking about. Most bootstrap self-funded companies are not doing it that way and you can only afford to outsource tasks. Second thought is that marketing is absolutely core activity, that’s something I’ve talked about a lot and it’s very hard. In fact, I’ve never outsource my project-based marketing to anyone until I got…I found that product manager who’s now, you know, working with me on HitTail. It took a while for me to have confidence in him to do that kind of stuff but other than that, I only outsource task-based elements of it. If you have an infinite amount of money, then yes, you would hire experts in-house. You’d hire employees or you’d hire some kind of long-term contract and they would do both of your development and marketing, right? You’d hire employees to do it and that’s what big venture funded businesses do and that’s the ideal situation. But when you have $500 a month of revenue or $500 a month from your salary gig and you’re trying to fund this, you just can’t do that and you have to make a decision which of these things am I going to outsource and in that case, I really do think that that the development side is easier to spec out. It’s easier to find someone who can give a product, good enough that people can use until you can build this business up and if you do in fact have product market fit and can market this thing.
[32:30] And I also think that the marketing side is the one that takes the vision and the expertise and if you, the founder and entrepreneur, don’t have that going in to a bootstrap startup, I genuinely do not see a way that you can be successful. I think that has to be your number core competency. Even if you love development, even if you’re going to do all the development yourself, you have to love the marketing too because if you don’t, then the business goes nowhere because no one else is going to drive that engine and that’s the engine that’s going to basically drive your whole business. So, thanks, John for that question.
[32:59] Music
[33:03] Mike: If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690 or 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 can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 112 | Startup Metrics for Pirates
Show Notes
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 112.
[00:03] 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. How you doing this week, Rob?
[00:24] Rob: I’m doing good. We had a new addition to the Startups for the Rest of Us Drinking Game and it was submitted by Will Samuels and he said, “Drink whenever Mike says essentially. Toast a glass of eggnog and prepare to do some drinking in this episode.”
[00:38] Mike: Yeah, I’ve noticed I do that a lot.
[00:40] Rob: What’s going on? Did you get anything cool for Christmas?
[00:42] Mike: I got a Kindle Paperwhite.
[00:43] Rob: Very nice. How’s the screen? I’ve heard they’re nice, easy to read.
[00:47] Mike: It is very nice. I was actually reading it last night in bed. It was nice. It was not like the iPad where…and part of the reason I want it was because it was not an iPad because the iPad has got that LCD screen and the light is basically shining through it right in to your eye versus everything I’ve read about the Kindle and the Kindle Paperwhite was that it’s more or less backlit where the light shines down on the letters then reflects off of them as oppose to shining directly from the back. And it was a very nice experience. It’s very easy on the eyes. You can read it in little light and you can adjust the lighting levels. It’s just very nice pleasant reading experience. I feel like it’s a lot better to read in bed than an iPad.
[01:25] Rob: That’s what I’ve heard. Makes it easier to go to sleep and doesn’t mess with your realm. The Kindle Paperwhite is the next what is it like the fourth generation Kindle with the same price as the old one but you can read it in the dark without having an external light on it like the old Kindles.
[01:38] Mike: They still sell the ones that are not backlit and those are sold about 60 or $70. This one was about 110 or 120. It’s kind of in between the…like the baseline Kindle and then you have the Paperwhite then you’ve got the Kindle Fire and the LCD screen and everything else.
[01:53] Rob: Cool. I have to admit I have Kindle NV because I had an iPad one. It weighs I don’t know a pound and a half or something and you know, if you get in bed, it actually is just hard to hold up. You need two hands. I really have thought about getting a Kindle as well because they’re so light.
[02:07] Mike: Yeah and that’s part of why I wanted it. So far it’s working out. Probably give some sort of an update in three or four months after. I’ve actually use it for more than what, two days. [Laughter]
[02:16] Rob: Sure, sure. Well, hey, I’ve had more credit card failures than usual. HitTail normally it charges X people per night for…for their monthly membership and there’s just been a substantial rise in credit card failures and you know what I think is going on I have no way to prove this but I think that either people’s cards are maxed out or the velocity of charges has flagged just a few more of them with the…you know, like the risk department of the credit card has flagged them and kind of shut them down until they can get it cleared. You know, again can’t validate that but it’s the only reason I can think of that, you know, that the charges wouldn’t be working all of a sudden because it’s not like it’s at the beginning of the new month, often times, you know, I’ll see things that…that expired from one month to the next but it’s the middle of December and I would expect that maybe at the start of next year. But…
[03:01] Mike: It could be. I recently got a new American Express card and it’s not like my old one was expiring. I just got a brand new one in the mail. I have no idea why. I think it had to do with…they’ve got some like new chips that they’re putting in to the cards so I don’t know how many of those cards or American Express versus something else but that might be what the issue is where people are switching cards and then because of that their old cards are being denied because they’re no longer valid.
[03:01] Rob: Got it. Yeah, good to know. How about you? Have you been doing any work on AuditShark?
[03:33] Mike: Yeah, I’ve had a bunch of articles written recently. I think I had mentioned last week that I was going to get that started. I tried…tried out a few different things. I’ve got about ten different articles on various topics written at this point. Most of the qualities had been pretty good. There has been one that was…it was off topic. We asked for false positives or false negatives. It’s basically a definition of it and we forgot to specifically state that it related to compliance so they gave it to us based on e-mail false positives and false negative. So, it was more about spam filtering than about compliance and we try to go on back and forth with them but it was just going to be a nightmare. So, we’re just ordering a brand new one. And it was only I think 8 or $9 to have it written. So, it’s more cost-effective to have them rewrite it than it is to try and go back and forth with the original author.
[04:19] Rob: We’ve seen this happened from time to time with the articles that people order through HitTail and we’ve actually had to tweakour U.I. and add an extra required feel that forces our HitTail customers to add more detail to article request because they’ll just say, “Write an article about this keyword.”And often times, you know, I might say going to the Notre Dame but what they mean is going to Notre Dame the college in Indiana. You know, there are these things where people just get it totally wrong. There’s the same city names in like Canada and in the US, in England and they’ll say, you know, blank city name real estate. And so without an extra layer of specification of what you really want the article to be about, you’ll often get the incorrect subject matter. So, I can totally see what happened. You really can’t…can’t fault them because when I have false positives, I would…in technology, I would also think of e-mail false positives.
[05:13] Mike: We caught it before, well it wasn’t before I got to the person, apparently the writer had picked it up and we gotten in touch with the intermedia area. I’ll call them and say, “Hey, we just want to clarify and add some notes on here and it looks like we’re not going to be able to.” And they said, “Oh, yeah, once a writer picks it up, there’s nothing we can do. You can’t send them additional instructions or change anything, nothing.” I’m like, “You can’t even just forward this information to them,” and apparently not. So, whatever, what you do.
[05:39] Rob: Sure, I did want to cover some iTunes reviews we’ve gotten recently. I want thank Kyle MB [Phonetic] who said, “Real value and no fluff. I’ve listened to you guys for about 12 months. Rob and Mike share real life practical information that provides value.” And Scott Bartell said, “Great podcast. Awesome thought provoking content, offering some great advice that is typically actionable and applicable to my startup.” So, I encourage you, if you haven’t go in to iTunes even if you don’t write a full review like that, you can just click the 5-star rating and you don’t have to do anything else and we really appreciate it. It helps us rank well in iTunes, helps us grow our audience and we obviously, you know, appreciate you taking the time to do that.
[06:16] Mike: You know, I…I reviewed a very interesting book over the past couple of weeks for O’Reilly. They got in touched and asked if I’d be interested in taking a look at this book. It’s called Lean Analytics for Startups and it’s all about looking at data trying to figure out what it is that you should be doing, talking to people and trying to figure out what it is that they actually mean versus what they are telling you and being able to read between the lines and then some of it I’ll say softer skills because you’re interpreting what people are telling you versus a lot of it is very hard core math about these are some numbers that you should be looking at and this is exactly how you should track them and how you should follow them. And it doesn’t give you technology specific things in terms of what…of how you should track them, just these are the data points that you need and these are the actions that people need to undertake in order for you to track that information.
[07:05] Rob: Nice. Did you take away anything that you think you’ll be putting in to place with your businesses?
[07:10] Mike: I did. I took a bunch of notes and I have to say it was part of the review process I had to send them back, filled out questionnaire they had and it’s probably two or three pages worth of questions that they had but then in addition to that, I sent them probably 8 or 10 pages worth of supplemental notes and stuff on different things that were in the book, things that I thought either they need to be elaborated on or just didn’t make much sense in the contexts of where they stood in the book. But there’s a lot of really good information in there. So, yeah, I definitely took some notes and made sure that I’ll be integrating some of that. But the one interesting thing that I found was that it almost seemed like no matter what the stage of your business, the book was going to be applicable to you or at least certain parts of it. When you start your business, there are certain things that are going to be applicable to you and then as you progress in to your business and you start building it up, there are other parts of the books that are applicable to you. So, depending on what stage you’re in, it’s going to have something for you which just depends on, you know, where you’re at with your business.
[08:07] Rob: That sounds good, hope to check it out when it comes out. I just listened to episode 219 of TechZing and it’s called Confessions of an Overcommitter and Justin and Jason talked about overcommitting to doing too many projects and just their process…some projects they’ve had to abandon over the past couple of years. It’s really quite interesting. I recommend, you know, even the folks don’t typically…even if you don’t typically make it through the 90-minute TechZing Podcast every week, it’s an exceptional episode that I wanted to call out because I resonate a lot and I feel like the entrepreneurial ADD that a lot of people have will, you know, resonate with this episode. So, check it out if you have time over the holiday break.
[08:45] Mike: Speaking of those guys, are you taking funding from Jason? [Laughter]
[08:48] Rob: [Laughter] No, I’m not. Did you hear that episode?
[08:51] Mike: Yeah, he…he’s talked about it several times. He’s like —
[08:53] Rob: Yeah.
[08:53] Mike: “Oh, I’d love to just dump money in to whatever Rob’s way.” [Laughter]
[08:56] Rob: Yeah. No, I don’t think I’m going to take funding. Obviously, I told him, “You know, you’ll be first on the list if I decide to.” But there’s more…it’s more trouble than it’s worth to take a little bit of funding just with the structuring that needs to take place and all that. I don’t really need the funding. At this point, I have enough in the bank to fund this as fast as I can and I guess if I wanted to get, you know, Drip specifically, if I wanted to grow quicker, I would consider funding obviously if it was the right choice but I just don’t think. Without raising several hundred grand, it’s kind of not worth the effort to do so.
[09:25] Mike: Cool. So, I think in today’s episode we’re going to be talking about startup metrics for pirates. There’s an acronym that’s Dave McClure came up with. And Dave McClure if you’re not familiar with who is, he’s an entrepreneur and a prominent angel investor who’s based in San Francisco and he founded and runs a business incubator named 500 Startups. And he does public speaking engagements and works with a lot of different startups. And the acronym that he came up with is called Startup Metrics for Pirates because it’s AARRR kind of a play on aarrr for pirates.
[09:58] Rob: Yeah, folks who haven’t heard of Dave McClure, he’s more than just an angel investor. He founded a technology consulting company in ’94 and then he works as a consultant for Microsoft, Intel and other companies. He was a Director of Marketing at PayPal for some key years 2001 to 2004 then he launched and he ran marketing for Simply Hired which a lot of you probably heard of and he was also heavily involved in Mint.com. I think he chose to hire Noah Kagan to run the marketing. So, I think he was the marketing guy there before Noah. So, he definitely has experience, you know, with this kind of stuff and then as Mike said he started his seed accelerator in 2010 and he’s been doing…he’s been an outspoken and he, you know, large personality angel investor. So people…people either love him or hate him in general.
[10:40] Mike: So, the acronym that he came up with is there’s two As and three Rs. And the first A is acquisition. Second A is activation. The first R is retention. The second R is referral and the third R is revenue. And we’re going to talk through these five different things. There’s two different things that Dave points out about this and the first one is that these are explicitly for marketing. These things that you do apply specifically to the marketing not necessarily to the product itself because there are different things that you are going to do with the product versus the marketing behind it. The second thing is that these are not exactly sequential and one of the things that he would do is he would put an emphasis on activation and retention before acquisition referral because you want to make sure that people are actually using your product and you are retaining them as users before you go out and try to do a lot of acquisition and referral to try and scale things up. And there are certain things that are more important but it’s definitely important too that you make an attempt to go through these different stages in your startup and try to apply them to the marketing plans that you put in place.
[11:41] Rob: I see. So, when he says they’re not sequential and again, let’s run to the five. It’s acquisition, activation, retention, referral and revenue. So, they’re not sequential in terms of what your business should focus on and optimize but for the most part they would be sequential for a single customer coming through your business because first, you would acquire them through, you know, general means we’ve talked about different marketing approaches. Then hopefully, you get them to activate and then try to retain them and then he’s saying get them to refer others and then look at the revenue model.
[12:11] Mike: Right.
[12:11] Rob: It seems like for an individual customer, it’s probably going to be sequential but for your business in terms of what you should focus on, it’s…you may start with number three and four like you said.
[12:21] Mike: Right and again, because these are associated with marketing not necessarily the product, you have to remember that because number five comes in as revenue, that essentially ends the marketing pipeline because you’ve already marketed to them enough such that by the time they get to the revenue phase you are asking them for money or you have monetize them in some way, shape or form through either ads or lead gen or something else.
[12:44] Music
[12:47] Mike: So, the first one is acquisition and acquisition is essentially when users come to your website and they can come to your website for a number of different channels. They can come in through any SEO you’ve done, PR campaigns, social networks, direct telemarketing, TV, ads, et cetera. And this is essentially where you start measuring from and this is 100% all of the people who come to your website, all the people that you get in touch with, that’s where you start counting from and that is you’re hundred percent that you should start counting from.
[13:17] Rob: Right, so this is the top of the funnel, right? This is all of your marketing approaches, all the high level stuff and certainly, acquisition is probably talked about more than a lot of his other points than the other five points because the acquisition, the marketing approaches tend to be just the things where you can have little tips and tricks that work and can drive…it just sounds so cool to say, “Oh, I’m…I can drive 10,000 people to my website doing this.” So, 20,000 people by getting on Digg or Hacker News or some other, you know, social news thing.
[13:49] Mike: Right and that’s one of those things that if you look at that and you look at those raw numbers, “Oh, I got a million people to my website,” that’s great, you know, how many of them activate? How many come back? How many are going to follow through and do any of your calls to action? And getting a million people to your website is great but if you’re not doing these other things to essentially follow up with them, then it really doesn’t matter.
[14:13] Rob: He’s just saying it’s almost like visitor acquisition. It’s not actually acquiring the customer. It’s just getting someone to come to your website and step two then is activation.
[14:23] Mike: Correct. So, activation is when users enjoy their first visit. If they have some sort of a happy user experience, if they hit your home page or a landing page or they stay for more than a couple of seconds because a lot of people will come to your website and just at a glance, they’d said, “No, this isn’t what I want,” they hit the back button or if they start clicking around your website a little bit, if they view two or three pages or four, those are the people that you want to start tracking. Again, you’re moving from that, you know, hundred percent people who are in the acquisition stage down to maybe you’ll get 25% of them or 50% of them in to the activation stage. And as you start measuring these obviously that funnel is going to whittled people down but you want to get as many people down to the revenue stages you possibly can. But again, this is just your marketing funnel.
[15:10] Rob: Yeah, I think the way I would think about activation in terms of maybe a SaaS app or you know, WordPress plug-in or some type of software product, I would think that activation will either be someone who signs up for trial or better yet is someone who signs up to hear more about the knowledge that you’re spreading basically through a like an e-mail follow up sequence something…the similar thing that I’m trying to do with Drip that we do with HitTail and I do with all my products. I think that getting a certain percentage of people to engage give you permission to contact them again is likely a good indication of activation. Do you…can you think of other aside from them entering an e-mail in a box but it seems like it’s a trial or them giving an e-mail is activation? Do you see other options for that?
[15:54] Mike: Well, that’s not really what Dave is talking about when he’s talking about activation. In terms of just marketing because what you’re talking about with users activating a subscription or signing up for a newsletter or something like that that is more about users coming back. That’s about retention. What he’s talking about with the second page which is activation is that they actually enjoy coming to your site and they stay there. If they view a couple of pages, maybe they look at the newsletter sign up screen. That’s essentially still looking at them in terms of being in the activation stage in your marketing. If they sign up for it, then they’ve entered in the stage three which is the retention but if they sign up for a trial, they’ve…they’ve skipped all the way to the end and you know, you’re trying to get them in to that stage five which is revenue. I —
[16:39] Rob: But the trial is not revenue, right? A trial is more…I could see a trial being retention like you’re saying step three but a trial is not revenue yet because of whole chunk of those people will never give you a penny.
[16:49] Mike: Right but in terms of the retention that Dave is talking about, he’s talking about mind share more or less and it’s getting people to come to your site and to think about you in the future and in terms of retention, users come back to your site. It doesn’t matter if they’ve signed up for anything, if they come back to read your website again because if you…if you look at the number of people who just come to your website once and then leave and never come back, then it’s an awful number to look at. I mean people don’t want to see that number but it’s really, really high. If they come back to your website for anything whether it’s because they signed up for something or if they start viewing other pages on your website because there’s a blog or additional content that they want to read, that’s what he’s talking about in terms of retention. It’s not about retaining you as a potential customer for product, it’s about retaining some sort of a mind share for you to want to come back.
[17:41] Rob: I hear what you’re saying and I think that could be done using let’s say you have a free trial of a SaaS app or you have a free version of a WordPress plug-in that is what’s going to bring them back to your site, right? Or if they sign up for a 5-day e-mail course is that…that’s what I’m thinking of in terms of the step three, retention. Would you agree with that stuff or not?
[18:03] Mike: No, I do, I do.
[18:03] Rob: Okay.
[18:04] Mike: It’s just that I guess morph in what you were talking about in terms of activation because —
[18:07] Rob: Got it, okay.
[18:08] Mike: …you had said activation they sign up for a trial, I’m like well that’s true —
[18:10] Rob: Jumping and be gone. [Laughter]
[18:11] Mike: Yes, it’s jumping all the way to step five. It’s not what —
[18:14] Rob: I see.
[18:14] Mike: …the same thing.
[18:15] Rob: So, activation and which is step two is pre…you think it’s pre them giving you anything. It’s pre…it’s just them having a good experience on your site rather than them actually giving you an e-mail or taking any kind of action.
[18:28] Mike: Correct.
[18:28] Rob: Got it.
[18:29] Mike: And then step three as you said they sign up for a mailing list or they sign up for a newsletter. They start reading the blog. They come back to it and you know, they start actively looking for a little bit more information.
[18:42] Rob: You know, imagine, Mike, someone might be listening to us and thinking how can I improve step two, the activation stage because I think we talked a lot about acquisition and retention but how do you make someone have a better first visit, have a better happy user experience?
[18:56] Mike: Well, you have to kind of walk them through what you expect them to do or what you expect them to understand from your website. You want to strip it down. You want to make sure that there this little information there as possible that is distracting and that’s one of those things where you look at a landing page and a lot of landing pages these days, they only have one or two links on them. They look like the rest to your site but almost nothing is clickable and they may rip out some of the navigation. They may rip out a lot of the additional images that are on the page and all of that’s in an effort to…to minimize what the user has to pay attention to.
[19:33] So, if there’s only two buttons on the screen and obviously, those are your only two options to click on anything. If you have arrived there from either a Twitter campaign or from Google AdWords or something like that, if it’s a true landing page and those are you’re only two options, you really make it simple for the person. Either they use the back button and they leave entirely or they move forward on one of those two options. They don’t really get around to the rest of your site and you can help drive them to do exactly what it is that you want them to do such as signing up for a mailing list or watching a quick video or signing up for the newsletter and things like that.
[20:08] Rob: Yeah, I think there’s a couple of really common mistakes made at this point like with landing pages. The first one I see over and over is giving way too much information. You should give the minimum, minimum amount of information and you should and need to be able to communicate your products, value proposition through that specific audience and realize that the value proposition may be different for different audiences you’re marketing to but you should send each of those through different landing page then but you should be able to communicate your value prop to that audience in one sentence or even shorter than that like six words and in complete sentence. And if you can’t do that, then your product is…is too complicated and you need to figure out what the…the single most valuable value prop…someone is going to be coming through that click to find, you know, that’s what you’re trying to do. You can’t have ten value props on the page thinking that you’re going to capture everyone because you’re basically going to capture no one, right?
[21:01] The second error that I see is doing the opposite of what you said which is putting a lot of links, giving people, you know, all the paths through your website and I think that the natural inclination is to think “Oh, you know, if they don’t want to give me their e-mail, then I don’t want to chase them off. I don’t want to lose those people.” And the fact is that if they don’t want to give you their e-mail, then they aren’t a good prospect. They aren’t interested enough in your product to type in their e-mail and to trust your, you know, your website hasn’t build enough trust to convince them that you’re not going to spam them and that you’re actually going to provide them with something valuable. If they’re not going to do that, then either number one, your offer is bad and you need to fix it or number two, they’re just not a good fit for you and you’re wasting your time marketing to them anyways.
[21:44] Mike: So, stage three in this process is retention and like you said getting people to sign up for a newsletter or e-mail list, walking them through to a tutorial or things like that making sure that you have plans at enough mind share such that they will come back to your website. Those are the things that you’re really looking for when it comes to retention.
[22:01] Rob: Yeah and retention can happen in a number of ways. You know, if you think five or ten years ago, retention was just someone came to your website and then remember to come back to your website and that’s a really poor way to play it these days. There’s much better tools for it. You know, before social media and blogging and all the e-mail lists and all that stuff, that was what most people did. And if you actually go in to your Analytics and you look at the number of the percentage of people who purchase that are first time visitors versus returning visitors, it’s typically anywhere between two and ten times more returning visitors purchase from you. And I look at this in my Business of Software talk a couple of years ago and I actually…I talked to Hiten Shah about it for Crazy Egg. I think Patrick McKenzie, I had numbers from him. I had numbers from Dave Rodenbaugh, from a number of my apps and they…across the board it was a minimum of 200% improvement from returning visitors and like I said I think with Crazy Egg it was like 14 times more people purchase who are returning visitors.
[23:00] And so you can always rely on people remembering but that’s a really, really pathway to do it. You want to improve you’re odds of having them comeback by doing things we talk about a lot on the podcast and you know, offering a 5-day e-mail course or some type of rewards that they sign up for your e-mail list so you can ping every once in a while. It is maybe having Facebook and Twitter and having them follow you but there’s just such a weak ties these days that they…it’s not something I really go after. I always go after the…the higher commitment approach like an e-mail or a trial. I mean when someone is actually trying your app, then you’re having more of an excuse to get in touch with them and they answer their questions to the e-mail and I think those are probably the top ways these days that I’d recommend looking at retention. And this is actually I mean as a little plug like that’s why I’m building Drip. So get drip.com. It helps with this stuff. It helps you retain more and be able to contact them more and work them, you know, turn them in to trial users and or customers.
[23:54] Mike: Right and all that’s more focus on actively trying to retain them versus passively just hoping that they will come back to your website or that you’ve provided enough information on your website to begin with that they come back on their own. Something else that I think we haven’t really mentioned yet about retention that I think would fall in to this is if you’re using Google or AdRoll or any of these other services that will market to them after they have left your website and essentially follow them around with advertisements when they visit other websites.
[24:24] Rob: That’s exactly right. Retargeting or remarketing —
[24:26] Mike: Yup.
[24:26] Rob: …yes, it’s called. Yup and you can do it both on other websites they visit or even now Facebook has remarketing. So, if someone visits your website, you can remarket to them on Facebook and that definitely works well.
[24:39] Mike: The next two, number four and five are referral and revenue. And I think that this can be interchange a little bit. It depends on the type of company that you’re putting together the type of product that you’re marketing as to whether or not referral comes before revenue or vice versa. But with referral, users like your products enough to refer other people and you can get them to help refer other people either through e-mail campaigns or things that you do on your website, contest, having widgets on your website that they can either download on to their desktop or on to their website. There’s a number of different ways that you can allow people to refer other people to your product or service.
[25:17] Rob: There’s a whole world that goes on this viral marketing type of stuff where if you’ve ever heard the term viral coefficient, you’re shooting for as high viral coefficient as possible and that means that every new user you get refers X other users. There’s a certain number when you write one viral coefficient it means that every new user refers one other user as a certain number that you hit that I think like Sean Ellis talks about which is when you’ve really hit product market fit and your viral marketing is doing well because imagine, let’s say every new users you got referred three other users. That’s an incredible viral growth. So all you got to do it just stuff as many new visitors in to the top of the funnel and then business is going to multiply. That is only achievable, again, from what I’ve read because I’ve never built a viral business like but it’s only achievable if the virality is baked in to your business. It’s not something where you have them sign up for a trial of a SaaS app and then there’s a screen that says, “E-mail your friends,” or “Refer your friends to, you know, to…to get a discount or something.” It’s just your viral coefficient will never get above one or very unlikely to get above one if it’s not baked in to product in terms of something like LinkedIn or Facebook or Twitter where you’re actually actively encourage and the product actually gets better the more people you refer, right?
[26:32] In order to use the product well, you need to refer a bunch of people and so there…there’s a difference here and it’s something to keep in mind forcing virality on the product is not necessarily a bad thing but you can’t expect it to dramatically grow a SaaS app or a WordPress plug-in or just a standard software business like it would a social network or you know, even e-Bay that kind of thing because it…they’re different piece. And so, while virality can work in all the cases, it’s something to keep in mind as you’re building your business to know what kind of business you actually run and how you can use referrals and thus the virality…there’s a several companies that offer this now but if you are a software type of company or you’re selling something even if you’re selling information, there are services like ambassador. They’re at getambassador.com and I think Referly is another one but they basically help engineer with this so you don’t have to build all the engines to do this. It’s kind of like having an affiliate program, someone who handles your affiliate stuff. But they offer more abilities. They offer the…they e-mail your friend forms, the widgets and that kind of stuff. And I do actually use that with HitTail. That’s a good way to think about doing it instead of building it yourself.
[27:41] Mike: And the third R in Dave McClure’s list is revenue. And in this stage, users conduct some sort of monetization behavior and whether that is they’re clicking on ads or they’re filling out information that you’re going to follow up on with them for example lead generation. If they’re signing up for a subscription or doing anything that is essentially going to generate money for you, that’s the revenue stage.
[28:04] Rob: Like Mike said earlier the revenue stage can come before the referral stage but in the typical Silicon Valley startup and the stuff that Dave McClure is talking about, that referral stage they try to put it before any type of revenue because that’s how you get that viral coefficient as high as possible whereas building smaller businesses where, you know, you are mode dependent on the revenue in order to grow since you’re bootstrapping, I would tend to put the revenue before the referral. You also need someone to be using it and be happy with it and willing to pay for it in my opinion before they’re going to refer someone to “more boring” business like these businesses that we do talked about on this podcast.
[28:43] Mike: One of Dave’s points about the referral is that your customer satisfaction for them has to be greater than 8 for to work anyway. If they’re not particularly satisfied with the experience that they’ve had with your website or with your product, that just not going to work at least an 8 out of 10. Well, that kind of makes sense. I mean if people aren’t happy with it, they’re not going to refer others and if you’re depending on that referral piece of it to help drive your growth, it just not going to work.
[29:07] Rob: Yeah, I think in terms of the step, the revenue step, this is harder than it sounds. I actually run in to quite a few entrepreneurs who do build that application or build that software product and they do get visitors to the website, meaning they get past the acquisition stage and they do get some kind of activation because people at least mill around on their website and they do get them to sign up for a trial. So some type of retention but then they either have a free plan and the person never converts to revenue or the trial expires and no one is converting to revenue. So, getting to this fifth stage with at least one or two percent of your overall website visitors is harder than it sounds and it’s something that requires that you’re solving a problem have, problem solution fit and that you’re marketing to the right people so that you have product market fit.
[29:53] And once you hit this and you can push a lot of the folks who are in step one all the way down through the funnel and actually get some revenue from at least a small portion of them, that is when it’s time to scale the business and that’s where it actually does makes sense to sometimes to raise funding. I think a lot of folks take for granted and I think I did in early days as well take for granted that getting to revenue is just the natural next step. It’s like going to high school and then going to college and then, you know, taking the next step and that in that whole path, but it’s not. It’s actually a lot harder. The first three steps, acquisition, activation and retentions aren’t actually that hard. Getting someone to sign up for a freemium plan or getting them to sign up for a trial is really not that big of a deal. Getting someone to refer someone or getting someone to pay you money is a lot harder and turning that in to a repeatable process is even harder. But once you do, you basically meant taking money. I mean that’s where you just put money in one…you put a dollar in one side and you crank the handle and then $3 comes out the other side a month or two later.
[30:52] Mike: One of the other interesting things that I think Dave does with this is that he assigns an estimated value to people who are in each stage of this funnel. So, at the acquisition stage, you have a lot more people but their estimated value for each one is, you know, maybe 5 cents versus somebody who is down at the retention area because they’ve come back to your website a couple of times. They might be worth an estimated value of about a dollar and then if you get down to the part where they are entering the revenue stage, they may be worth $50. And again, these numbers can be wildly different based on what your revenue model is, how much your product cost, what’s your expected lifetime value is, those kinds of things. But from Dave’s point of view, the interesting things is trying to estimate the value of each of those people because then you can essentially extrapolate how much money you should be investing in to each of those phases.
[31:45] Rob: That’s a really good point. I actually wish I had brought that up. I have all of my funnels spelled out just like you’ve said. I have…I know the exact dollar amount and sometimes it’s the cents amount for all those change of the funnel and I know how much I can pay to acquire a trial, how much I can pay to acquire an e-mail address in to our 5-day e-mail sequence. I know how much we can pay to get someone on the 7-day long tail SEO crash course on HitTail. I know how much we can pay for in general for website visitors although that one tends to vary, right, because the source really matters a lot. But if you don’t know those numbers, then you have a couple of issues. First thing is you’ll never be able to do paid acquisition and while that’s not the end of the world, paid acquisition is such a large…it’s a large market that you could be reaching in to that you won’t be able to grow very fast, you know, without knowing these numbers. You can do things like content marketing and put out infographics and blog post and do a lot of, you know, viral videos and be on Twitter and Facebook and do all that and that’s okay. You can drive traffic fairly inexpensively but you still have to monetize your time and infographics, they are fairly expensive to get designed and they will often take a lot of your time to manage and to figure out the numbers.
[32:56] So, in my opinion, you have to monetize those as well. The entrepreneurs I know who are doing content marketing they won’t say an infographic is free. They will look and say, “All right, I’m paying a designer X hundred dollars and I’m spending X hours of my time that are valued at a hundred or $200 a piece and I add that up and unless this infographic or this blog post or this, you know, story that I’m trying to get placed on…on a guest post somewhere, unless that drives X number of trials or X number of e-mails, then I have a negative ROI even though I didn’t actually I’ll put that money I will put it in time.” And so I truly believe in…in basically monetizing and quantifying all elements even if you’re not cash out of your pocket, it’s really important that you know your numbers. That in my opinion is a way that you’re going to be able to monitor things and go after the things that work and double and triple down on and actually grow your business the fastest.
[33:49] Mike: So, just to recap that, the first stage is acquisition which is users come in to your website from various channels. The second one is activation and that’s where people enjoy their first visit. They have some sort of a happy user experience. The third one is retention, users come back to your site and visit it multiple times. The fourth one is referral and again, the fifth one is revenue which can be interchange with the referral but referral is people like your products enough to refer others. The fifth one is revenue in which users conduct some sort of monetization behavior.
[34:17] Music
[34:20] Rob: If you have a question for us, you can call it in to our voicemail number at 888-801-9690 or e-mail us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.