Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to identify new product ideas. They discuss some of the different stages you will encounter while researching a new business idea and some techniques to get the most out of it.
Items mentioned in this episode:
Transcript
Mike [00:23]: In this episode of Startups For the Rest of Us, Rob and I are going to be talking about how to identify new product ideas. This is Startups For the Rest of Us, episode 264.
Welcome to Startups For the Rest of Us. The podcast 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.
Rob [00:24]: And I’m Rob.
Mike [00:24]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?
Rob [00:28]: Man, feeling a bit chaotic. If you listened to last weeks episode of ZenFounder you’ll have more details. But basically me and both my professional life and the personal life with the family just have a lot going on right now. Unusually large amount of chaos in terms of we’re selling our house, we’ve moved in with some friends temporarily while that’s going on. And trying to find a new place to live here in Fresno. Moving to a different part of town. And then have a bunch of transitional stuff going on. So, just trying to keep my feet under me at this point in time and just feeling overwhelmed and trying to maintain my sanity. So hopefully there’s some things that are starting to get checked off the list over the next few weeks. Somethings that close. And in fact, I don’t know if I mentioned on the show here, there was basically a patent troll that had sued me like a month or two ago. And that resolved itself pretty quickly. But there’s just been a bunch of bizarre stuff like that that’s come out of the woodwork right in the midst of this. And luckily, things are starting to take care of themselves here.
Mike [01:20]: Yeah, it’s always hard when you have several major things going on. And moving is one of those things that’s, I think, on the higher end of the major stressors in like. I think the other one is getting married and having kids. Those are two of the other ones. I forget what else. Oh, changing jobs is another one. But I imagine getting sued by a patent troll would be up there.
Rob [01:38]: Yeah, indeed. It definitely came as shock and it was for an old product done at invoice that I don’t actually even own anymore. But these things take time and then you have to do research and you have to not freak and then figure out how to handle them. So it’s always a learning experience, I guess.
Mike [01:52]: Cool.
Rob [01:53]: How about you?
Mike [01:54]: Well, I’m finally almost caught up with all the podcast episodes I’ve missed while my phone was gallivanting around Barcelona. So I’m down to under five behind at this point. Hopefully, from now on I’ll be caught up on a weekly basis as opposed to several weeks behind everything.
Rob [02:07]: So what are we talking about today?
Mike [02:09]: Well today we’re going to be talking about how to identify new product ideas. And we had a question that came into us from Twitter from Jason [Sweat?]. And he was essentially asking how to perform research to find a new business idea. So what we’re going to do is we’re going to go through a couple of different various stages of what that looks like. I mean the basic process is you do some idea generation, idea filtering, validation, and then execution. I think we talk a lot about execution on the show so we’ll kind of leave that off the list here. But essentially what we’ll do is we’ll walk through the idea generation, idea filtering, and then the validation phases. And walk through what each of those things look like and how to go about them in order to identify a new product idea.
Rob [02:48]: Sounds cool. Let’s dive in.
Mike [02:50]: So the first step is to look at idea generation. And you just have to keep in mind that when you’re generating ideas, this is an iterative process. You’re really looking for quality over quantity, essentially. Because the way that this is set up, you do the generation and then you start filtering things based on different criteria. So really what you’re just doing here is brainstorming. And you don’t want to prematurely eliminate things that might be viable ideas. And the main reason for that is because if you have an idea and you immediately cross it off the list, then essentially what you’re doing is you’re not only crossing that idea off the list, but you’re crossing every potential variation of that idea off the list as well. So when you’re brainstorming you really want to start looking at some of the past problems you’ve experienced. The current problems that you’re having, any interests that you have, and products or solutions that you use that you don’t like for one reason or another or you wish did things a little bit differently. Anything where there’s a spreadsheet handoff for a signature or approval or workflow needed, those are places that are good places to start for trying to generate some of these ideas because they lend themselves easily to building a software product.
But the other thing to keep in mind is that when you’re generating these ideas, you don’t necessarily have to restrict your ideas just to software. So you could, for example, go down the training route, or education route where you’re building training videos or tutorials and things like that, you’re going to sell to a perspective buyer.
Rob [04:09]: All right. So talk about the process.
Mike [04:11]: So when you start taking a look at this process, one of the things that you want to do is you want to start considering specific market verticals or people to serve. And that’s just one place where you can start. And there’s obviously several different places you can start. I talked about some of them before when you’re brainstorming. But essentially you just want to pull out something like a Word document or a spreadsheet and start hammering out these ideas. And then any variations that you can think of. And you want to push these out as quickly as possible. So if you write faster than you type, then feel free to write them. If you type faster than you write, like I do, feel free to type them out. But the idea is to not only come up with those ideas, but come up with the variations of them as fast as possible. So they might be based on a specific market that you want to serve. If you are already into the real estate market, for example, you might want to start there. Or if you don’t like the real estate market, for example, you might want to look at another one that you’re interested it. Whether that’s something that you’ve had any experience with in the past or just something that you want to learn more about.
You can also start taking a look at products that are out there that you like or admire. Or dislike, or don’t like for whatever reason, and you want to create a new version of it that performs in a different way. So you start taking those ideas and as you’re putting them down, typically you can think of variations of those ideas. So for example, if you start thinking about, let’s say, accounting software for example. Accounting software is a very broad idea, but how can you slice up that idea into smaller pieces of it. You can think about it in terms of sending invoices, sending receipts for things that people are purchasing. You can also think of it in terms of just capturing payment information, for example. There’s a lot of different ways to slice up that invoicing thing.
In addition, you could also go down the route of saying oh, well I just want to make it easy for people to issue purchase orders or to send purchase orders back to the company. As I said, there’s a lot of different variations of this and as you start iterating through that list, you’re going to find that as you come up with an idea you can probably come up with three, four, five, maybe even ten different variations of that idea for a specific business. So some of these are going to be based off of core business functions But other might be based off of just functions that somebody in the business might be performing. So whether that’s an administrative assistant, a software developer or marketer, etc. Each of them has a different job and a different set of tasks that they do. And if you can identify some of the problems that those people are facing, then down the road, you’ll be able to easily come up with a customer avatar for them. But those are places where you can concentrate to just start getting ideas down on paper.
Rob [06:42]: Yeah, and when I talk to people about idea generation, I find that some people say they just have too many ideas and that business ideas are always flooding their mind. And others say it’s just so hard to come up with ideas. I think that the folks who say they have tons of ideas always flooding their mind, my guess and in short conversations with the few of them, my sense of it is that they have a lot of business ideas but most of them are not very good. And so, what I tell people across the board is whether you think of a lot or not a lot, put them in a notebook, put them in a text file, put them somewhere and save them because these things are fleeting and they go away really quickly and you’ll forget some of the good ideas you have. And it’s also pretty easy to come up with a new idea and think that it’s great and hang on to it and not allow yourself to see the other ideas you’re coming up with at that time. But later on you may invalidate it and then you kind of have lost all those other ideas. I think being able to make a list of ideas over time that you kind of maintain and nurture, and then being able to hit it when you’re ready and actually look then with fresh eyes on this list of things that maybe you’ve collected over the course of months or years, I think is a pretty powerful way to- you kind of get some context around it. You’re not blinded by the passion or the madness of this idea that you’ve just come up with.
Mike [07:55]: So once you have this cache of business ideas that you want to start taking a look at, the next step is to start filtering those ideas. And the way that I like to go about filtering these ideas, as Rob just kind of pointed out, if you have a lot of ideas, it doesn’t necessarily mean that many of them are good. I mean you can have plenty of ideas and maybe only two or three of them, if any of them, are good ideas. So the basis for idea filtering is to walk through each of those ideas and develop a list of pros, cons, and disqualifiers for each of those ideas.
Something constitutes a pro for an idea if you have domain expertise or you have personal contacts or the engineering effort for something like that is going to be low or if you have passion for the idea or the problem space. Or if there is existing products out there, the product or the problem that it’s trying to solve are easy to explain. These are all considered pros for an idea. Now most of your pros are going to be able to be applied across all of your ideas. All of the ones that I just gave are examples of that kind of thing. So for domain expertise, let’s say that you’re going to come out with invoicing software that just sends out invoices, kind of like FreshBooks or something along those lines. If you have a lot of expertise with something like that, then you might give that a domain expertise of eight or nine, because maybe you’ve built three or four of them before for previous customers or clients when you were doing consultant work. But that exact same pro could also be applied to something where you’re, for example, developing a product around selling real estate, which maybe you don’t have any experience there, so you might only rate that as a one. And the idea here with filtering is to apply the pros, cons, and disqualifiers to all of your different ideas. And essentially, what that allows you to do is it allows you to rank your ideas against one another.
Now ranking the ideas against one another, the intent is to help make this more objective. It’s not because you want to rank them and say this is the best idea. Rather, you want to give yourself a quantitative approach to being able to rank them and how close they are to one another. So if you score your ideas and something comes out to, let’s say, 30, versus another one that only comes out with a score of five. Well clearly you want to go after the one that’s 30. But if something only comes up with a score between 25 or 26, and the next one is a 23, for example, it becomes very difficult for you to say, well this one is clearly better than that one. So again, you want to create these pros and cons in such a way that they are much more objective.
So in terms of cons, some of the things that I’ve used in the past are looking at the number of competitors for different products. Or if the concept or the difference from existing solutions is very difficult to explain, it’s a huge amount of engineering effort or it’s going to take a long time to bring the product to market. Those are the types of things that you can generically apply as cons across every product idea. But there are also ones where you might look at that and say, well this is a con but it only applies to this particular idea. So, for example, you might decide that in terms of the cons, there might be an advertising component. And that’s the [monetization?] strategy for a particular idea. That’s probably not a good idea to use an advertising strategy for most bootstrapped products. But, again, that’s not something that’s going to be generally applicable across most of your other ideas. You could try to apply in most of them. Or you’re going to say I’ll give it a score of ten because there’s no advertising component. You can do that as well. But sometimes those things just come out and say, yeah this doesn’t necessarily apply to this particular idea.
Rob [11:22]: Yeah, I’ve actually done kind of a matrix like this before. I struggled with it because when I did the zero to tens for all the categories, the pros and cons, I even had multiple categories of like my level of interest versus how big I thought the market was, versus how easy I thought it was to reach. And then when I got to the end I had two or three that were almost exactly tied and I realized that since I wasn’t able to weight different factors, that it like, I don’t know, it didn’t work for me, I guess. I shouldn’t say it didn’t work. What I should say is that it didn’t help me make the decision altogether. What it did help me do was rule out the ones that were overall just had low results or low scores. So it did help me narrow down to a few. And then from there I really looked at did I want to be working on this thing for the next two to five, to ten years. And that started narrowing some others out as well.
Mike [12:18]: Yeah, and that’s exactly the point of scoring these different ideas is not to necessarily point you and say this is the idea that you should look at. But it’s really to start eliminating some of those lower tier ideas that aren’t anywhere remotely close. And then the last step of the idea filtering process essentially apply and any disqualifiers. So if something is a two-sided market or it’s B to C or there’s customers with a lengthy sales cycle or they’re going to be difficult customers to deal with, maybe you’ve dealt with them before and you know that they are just very demanding and not necessarily willing to pay for things. Those are the kind of things that you might look at and say well, this is a property that I’m going to apply of a disqualifier to this particular idea. And it may not even matter how much you work or how hard you work on a particular idea, some of these disqualifiers are essentially blanket statements to say, not that it’s impossible, but it’s much more difficult than it probably should be and there are most likely easier ways to make money.
Rob [13:12]: There is some other disqualifiers. We’ve talked about these in the past. But things that require virality or a network effect in order to work. If you’re going to bootstrap it, I mean, you’re really looking at a long shot if you are requiring virality and a network effect. Unless you know how to do this. If you’re Matt Inman or you’re Sean Ellis or you’re someone who knows how to do this, then that’s another story. But if this is your first time, I’d say don’t start with that type of app. Another one is having indirect revenue streams. We’ve talked about having a two-sided marketplace where you’re taking three percent, five percent off the top. Really hard to make even a funded business at that level. So that’d be something that I’d instantly kick off the list. Or having no revenue stream apparent. Again, if you’re bootstrapping, self-funding, since you don’t have a bucket of funding that you’re going to be able to live on and hire employees on, that’s not going to be a good way to go. And then having a bunch of revenue streams also, I don’t know if it’s a disqualifier as much as it’s a really tough way to go because it’s just too complicated. Because you’re just trying to get your legs under you at this point. You’re trying to figure out what people want, can you build it, trying to draw in new customers. And if you’re trying to then sell through multiple avenues, it gets really complicated really fast. So these are all things that I would push those ideas down on the list unless they don’t have these attributes.
Mike [14:25]: One of the things that I briefly mentioned earlier was the process of scoring these. And as Rob pointed out, this essentially becomes a matrix for you to help make a decision about what to do. So to help you visualize kind of what this would look like, if you were to create a spreadsheet, along the left side of the spreadsheet you’d have a list of what all of your ideas are. And then across the top of it you’d have all of your pros set up and then followed by all of the cons. And within the cells that meet up where the pros and cons cross with the ideas, you’d essentially put a number that says how well you could execute on that particular idea for that pro or how much it helps you versus over on the cons side, how difficult it is. So essentially what you have is there are a set of pros and let’s say, there’s four of them, they all have eight, and then there’s a set of cons and they all have five associated with them. Well obviously the numbers are going to come out in such a way that that’s going to be a positive number, assuming that the pros and cons are equal. But it could very well be the other way as well. And what you want to do is you simply want to add up the scores across the board. And ideally, what’s going to happen is the number of pros that you have is going to equal the number of cons. But there’s a lot of cases where this simply isn’t going to happen. In those cases you can either just let it be or you can say, okay, well add or subtract the difference between the number the pros and cons and then multiply by five, either plus five or minus five depending on whether you’ve got more pros or more cons to essentially establish a baseline for you that helps you level set these things against zero. So if you have ten pros and ten cons, you’re best score would be a 100. You’re worst score would be minus a 100. And then it would be right in the middle for kind of an average idea. And what you want to do is you want to order these once you’re done by their final score. You want to validate from the best score down. And as I said, some of these scores could come up very, very close to one another. At that point, you can kind of just make a judgment call or figure out which one interests you a little bit more. So if the difference between the scores is very small, you can say, hey I’m going to try that one first.
And what you want to do is you want to be consistent about your optimism or your pessimism for each pro or con that you put into this matrix because otherwise, what can happen is you are essentially artificially leaning your scoring mechanism towards an idea or against it.
Rob [16:36]: Yeah, and the idea here, it’s to rank these in a way that starts to bring some clarity to it. This is not an absolute list where the top one on the list is the one you should do and the bottom one you should absolutely not. But I would say that if you have ten and there’s kind of a spread between them, typically there’s going to be two or three that are a lot further ahead than the others, then that’s your cluster and that’s what you should really think about doing. I also think depending on what stage you’re at it depends on how much you really want to do the idea. So let’s say you’re at a step two or a step three where you’re really diving all in and you’re going to be building an app for many, many years, then I think you really need to want to enjoy the domain that it’s in and want to hire employees in that space and you want to hire customers in that space. I think if you’re really early on and you’re just looking for your first thing and you want to make a few hundred bucks a month or thousand, two thousand bucks a month, then I think that your interest in that space does not have to be as high because this is just a stepping stone to something greater.
Now there’s also the thought that long-term, if you do launch four or five products as you step up, it would be nice if they all focused on the same niche or the same market, same customers. I think there’s value to that. That’s something to consider as well. However, don’t let that paralyze you and don’t let it make you think oh, this is a good idea but do I really want to work with construction companies for the rest of my life, because that’s maybe not a decision that you have to make now. Any excuse that you find to be paralyzed or to stop and think too long or to basically procrastinate on this stuff is an excuse that will keep you from launching. And so you have to figure out which of these things you’re putting in place just as mental barriers on your own and get rid of those so you can charge forward.
Mike [18:11]: So once you’ve scored and essentially filtered your ideas, what you want to do is move on to the idea validation stage. And this involves making a list of your assumptions about the idea and making a determination as to whether or not you need to validate each of those assumptions. So some of the assumptions that you might come up with are how much time somebody spends on this particular problem. And it’s very easy to validate some of these things and others it’s going to take you a lot longer to validate. But for something like how much time somebody spends on the problem, you might assume that it’s an hour or two, but at the same time, just a quick 15 minute conversation could reveal to you that oh, they only spend ten or 15 minutes on it and that’s only once a week or once every two weeks. So it essentially helps to level set what your assumptions are about the problem space with what the reality of the situation is so that you can make good decisions moving forward.
Another thing that you can start asking people about it whether or not they use existing solutions, are they paying for those solutions. If they are how much are they paying for them, does it work for them, what do they like about it, what do they dislike. And once you start getting further into those conversations, you start asking questions about who makes the decisions about paying for those types of solutions, what schedule do they make those payments on? Do they pay a one time fee for them, do they pay monthly, do they pay an annual fee for it? And as you start going through this conversation, you can start asking more direct questions about what it is that you’re bringing to the table and whether or not they’re willing to switch away from what it is they’re currently using to a different solution. And that’s, I think, and important thing that some people don’t necessarily consider is what is somebody doing now versus are they willing to switch. And one of the things that I’ve heard in the past in talking to people from Fog Creek Software, for example, one of their biggest competitors is people using spreadsheets. Spreadsheets tend to be free for the most part. So competing against free can be somewhat difficult for an organization, especially for a bootstrap company. If you’re competing against Notepad, for example, it ships on every Windows PC and Macs have a text pad editor. So it’s hard to compete with something like that. But if you have a definitive list of benefits that essentially help justify somebody moving from that to your product, then it might help push things in the right direction. But you have to have those conversations. You can’t just assume that somebody’s going to switch from whatever they’re currently using unless you ask them directly.
Rob [20:30]: Yeah, I think Pen and Paper or Excel spreadsheets are the competitor of the majority of our apps. You have a proposal app, you have invoicing software, you have accounting software. Any of those apps, I mean unless it really is something maybe like email marketing software where you actually need something to manage that, can maybe not be competed with [via?] paper. But I think that this is always something to keep in mind that you’re going to have people who are kind of at the forefront. It’s your Geoffrey Moore Crossing the Chasm idea, right? Where you’re going to have early adopters who really want to move into a nice tool. And then you can have the laggards, all the way at the other end, that are really still doing it on pen and paper. And then you have the massive middle. I forget what it’s called, but it’s the folks who might be using spreadsheets right now. And you got to figure out where your technology is in the adoption life cycle in order to figure out maybe how much viability there is an how big- the market ultimately may be huge, but where is that market in this space, right? It’s like where are people already at the middle of the curve and they’re really adopting it en masse. Or is it something more like wow, there’s really a big market but only the early adopters are in it right now and it’s going to be another year or two until this niche or this market really starts attacking it.
So think about, let’s say, lawyers for example. The market for lawyers and maybe for software for lawyers is very large. But from what I’ve seen and I’ve had a couple people launch that I’ve known, that have launched apps into the legal space, lawyers tend to be laggards. So they’re still not really keen on doing a lot of SaaS apps. There certainly are some that use SaaS apps. There’s some that do SEO. There’s some that do email marketing. But the bulk of them do not. And so when will that happen? It’s going to tip eventually, but you don’t know if that’s going to happen now or later. Whereas if you look at web designers, web developers, online marketers, just to name a few examples of people who tend to, just as a group be early adopters, a lot more of them are paying for SaaS already. So that’s why those markets tend to be a little easier to get to use a SaaS app. Now it’s also a lot more competitive to market to them. But these are the types of things that you have to weigh and look at. The existing solutions they’re using versus their willingness to use a new solution.
Mike [22:32]: Now once you’ve started validating some of the base assumptions about the problem space itself and whether or not people will pay for that, then you have to start asking the questions about whether or not they will pay you for that. And I think that is a very important distinction because you can build something and just because you’ve built it doesn’t mean that they’re going to be willing to switch away from whatever they’re currently using. So even though you may have identified some problems with a competing product, there could still be some pretty big deal breakers in terms of what you plan on offering that are going to prevent them from switching. Because there’s always going to be some sort of switching cost, especially if they’re using a current tool that’s in the market. How much of the functionality of that tool that you’re going to need to duplicate or build before they’re going to be able to switch over. And every single one of those pieces that you need to build before they will switch is essentially a dealbreaker to them and it’s going to extend your timeline to getting them up and running on it. So there’s this minimum feature set that you’re going to need to implement and the only way that you’re going to find out which pieces are important to then, without assuming those things, is to ask those people upfront. You need to ask them what are the dealbreakers, what’s the minimum things that you absolutely need in order to start using this and have it provide value to you.
Another important piece to ask is how the tools currently integrate into their workflow, how are they using it today and how does it affect their work to use it in a different way. Especially if you’re planning on implementing something in a different way. So, for example, if you are hosting a solution versus something that they are installing on their desktop, that to them is going to be a fairly different paradigm. Both in terms of purchasing and in terms of usage because they may be disconnected from the internet for parts of the day. Maybe they’re on their phone for most of the day. Those types of things can prevent them from using a new product that is in a slightly different paradigm than what they’re used to.
Rob [24:25]: And the point to remember is that what we’ve just talked through is a list of assumptions about the idea or a list of questions that you have and you’re trying to find the answers. Perhaps for multiple ideas at once. Now, I’m personally not very good at trying to sell multiple ideas at once. So I would pick one, focus on it, really hit it hard for as long as it takes. And it should be a matter of weeks because this should be something that’s at the forefront of what your doing, right? This is not something that you kind of put on the back burner or you put on the side with other things. If you’re going to be serious about this and you’re really going to try and validate an idea this way, rather than doing it- let’s say you find a tiny niche and you find some organic traffic and you’re going to put up a landing page and start building a small site and validating it, that’s kind of a different way. You’re not really talking to end customers and you’re kind of seeing can I get in front of a channel of traffic. And that’s a different way to validate ideas. What we’re talking about here is more traditional customer development, where you’re talking to people. This is a big time investment and it’s something that you need to be serious about and you probably want to move it along quickly because if you lose momentum on something like this, it just has a tendency to take forever.
Mike [25:31]: I think the last key piece of this is to not assume that the idea that you’re thinking of or the thing that you have in mind is actually what people want. In going through the conversations with the customers, you may find that the idea that you have or the product that you want to develop is not something that they need. But they need something related. Or they just don’t need anything in that area at all. So keep in mind that just because you have the idea doesn’t necessarily mean that that’s the end goal. It’s not the place that you’re going to eventually go. It could be something related. It could be in a completely different direction and you need to, essentially, cut your loses and move on before you’ve gone in and invested a huge chunk of time in developing the product.
Rob [26:08]: Remember that validation is hard and it’s not an exact science. And that there’s a certain element of gut feeling to it, but you don’t want that gut feeling or especially your optimism to overpower warning signs. Or you also, if you’re normally a pessimistic person, you don’t want to throw every idea away at the first sign that something’s not going to work out. It really is this balancing act and you get better at it the more data that you see and the more of these you do. Like anything else, it’s a learned skill. So that wraps us up for today. This whole episode was outlined based on a question sent to us. And if you have a question for us call our voicemail number at 888.801.9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Out of Control by MoOt. Used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 263 | Per User Pricing for SaaS, Drip Email Sequences for Freemium, and SaaS Subscription vs. Commission Pricing
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike take a group of listener questions including Per User Pricing for SaaS, Drip Email Sequences for Freemium, and SaaS Subscription vs. Commission Pricing.
Items mentioned in this episode:
Transcript
Rob [00:00:00]: In this episode of “Startups for the Rest of Us,” Mike and I discuss per-user pricing for SaaS apps, Drip email sequences for Freemium and SaaS subscription versus commission pricing. This is “Startups for the Rest of Us,” episode 263.
[Theme Music]
Rob [00:00:21]: “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.
Mike [00:00:30]: And I’m Mike.
Rob [00:00:30]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, where you this week, sir?
Mike [00:00:35]: Well, I’ve been spending the past couple of weeks working on getting the Founder Café data migrated over into Discourse and been working with a DBA who’s been extremely helpful on that front. I think you kind of referred him over to me, and his name is Creston. He runs Ruby Tree Software, so you can go to rubytreesoftware.com if you’re looking for a DBA. He’s done a really fantastic job of getting a lot of the data converted over into a format that we can use inside of Discourse using the [postgreSQL?] back end. I’m really happy with how things stand right now, and right now it’s just a matter of working on a lot of the mundane stuff like onboarding instructions, the terms of service, privacy policy, CSS and things like that. So, things are looking good.
Rob [00:01:13]: Yeah, and so far, so good with Discourse, huh? I mean it seems to be a pretty good platform. We had looked at it – was it two and-a-half years ago when we moved from basically WordPress forms over to our current platform, which is Communifire? I think it was –
Mike [00:01:25]: Yeah, it was about that.
Rob [00:01:26]: – a while ago.
Mike [00:01:26]: Yeah, it was –
Rob [00:01:27]: At the time, Discourse was, like – I don’t know – an alpha or something, because it was pretty early-stage. But we had our eye on it, and we actually looked at it at that point, and our experience with Communifire has been mixed, and it isn’t exactly meeting the needs of what we want to do. So, we feel like moving over to Discourse is a good choice. A lot of people are familiar with it, and the usability is really good, right? Jeff Howard has done a good job making really usable forms.
Mike [00:01:50]: Yeah, so definitely looking forward to that. Hopefully, we’ll be done by the end of the month.
Rob [00:01:53]: Awesome.
Mike [00:01:54]: What about you?
Rob [00:01:54]: Well, we have two job openings right now with Drip. If you’re a content marketer and you want to help us with the blog and help crank out content – it’s not just about writing, but it’s about promotion and all that stuff – definitely get in touch with me. I’m hiring in the next couple weeks, soon as I find someone. It’s pretty much, I would say, anywhere in the world. Ideally, it’s within three hours of Pacific time zone either way, but we’re looking for someone with experience. You can email me directly, or hit the Start Ups for the Rest of Us site and contact me through there. The other thing we’re looking for is someone with a lot of UX experience, like a mid-level to senior UX person. Some Rails experience would be ideal, but we can work. If you know Python or know some type of service ad language, even if you’re not an expert, what we really need is heavy UX experience.
[00:02:39] So, things are growing and moving, and I think we’re going to probably have some more job openings here in the next few months as well.
Mike [00:02:45]: Very cool. So, what are we talking about this week?
Rob [00:02:47]: Well, we’re going to answer a group of listener questions. They continue to stack up, and we have some pretty good ones related to SaaS – pricing and development platforms and stuff like that. So, let’s dive into our first one. This first question is from Vincent Pruyer [phonetic], and he’s from wearewizards.io. He says, “Hey, guys. Thanks for the podcast. Lots of interesting stuff every week. We currently have a side project. It’s a password manager called ‘Passopolis.com.’ It was originally from another company, and then they open-sourced it when they shut down, and we’re currently running it for free and thinking about how we can monetize it. Our main competitor is LastPass, and it’s around $24 per user per year, and this kind of pricing only seems sustainable once you get to 100,000 users because the pricing is so low. If we decide to monetize it, we’d need to invest in design and do some other stuff.”
[00:03:34] To summarize Vincent’s question, he’s wondering if they should do this low per-user pricing, if they could compete at that – looking at, like, 10 to 12 British pounds per user per year – or, doing tiers, where it’s like one to five users is 30 pounds a year and six to ten is 100 pounds. But, really, his question is, “Should we just keep running it for free and not try to actually monetize this? Or, do you see a way to make this work?”
Mike [00:03:57]: Well, I think this is a pretty hard question to answer. One of the things that I see here is that it’s definitely aimed at the consumer market, or at least it feels that way; because in order to monetize it, especially if you’re going to try and compete against LastPass, the pricing on LastPass is just so low that you’re going to need a ton of users in order to be able to make ends meet. You could run it as a side project, but that’s probably all it’s ever going to be; and your number of users still has to be very, very high in order for it to just work, in general, for you.
[00:04:26] I think that it’d probably make a little bit more sense to look at other ways that you can solve similar, but related, problems using the same type of technology and possibly target businesses instead. So, if you’re looking, for example, at – your main competitor’s LastPass at this point. I think I might try and compete against something like Passpack, where you are instead selling it to teams of people and specifically at teams of, let’s say, five people or more and then charge those people on a monthly basis and give them team management of accounts. You could use that in situations where you have a bunch of people who are working together, and they need shared credentials to different machines, for example; or, to different websites for a variety of different reasons. But I think that competing head-to-head against LastPass is probably not the wisest choice in this situation.
Rob [00:05:12]: Because you’re not just competing against LastPass. There’s one password and a bazillion other of these password managers; and trying to make money, if you’re bootstrapping, charging $10 or, I guess in this case, 10 pounds sterling per year is insane. I mean the price points just aren’t there, and as Vincent pointed out, you need 10,000 paying users to make $100,000 a year; and just trying to find 10,000 users, unless you have just this enormous funnel and enormous channel of people using it now, there’s just no way you’re going to get there. You don’t have the team. You don’t have the traffic sources to get that many people.
[00:05:48] The worst thing I think you could do is to try out that pricing and get 100 or 500 paying customers. The problem with that is once you’ve done that, now you kind of owe them something. They’ve paid for a year, and you’re stuck to supporting them, and you really haven’t made much money. If you got 10,000 customers, that’d be great. If you have zero paying customers, then you’re home free; but once you make this leap into this really cheap pricing and you have to support these people for a year, and you’ve only made hundreds or a few thousand bucks, it’s not going to be worth it.
[00:06:15] I agree with Mike. There’s no way I would try to compete directly with LastPass on this. They’re just so far ahead. Unless you have a major differentiator, that’s where I would look for – is the competitive advantage you have is that, since it’s open source, I imagine you have some type of user base. Well, what is that user base contributing or asking to be built that’s different than LastPass that would allow you, in one sentence or one headline, to describe how we are the opposite of LastPass, how we’re way better, or way different.
[00:06:40]: You look at how Gabriel Weinberg is competing with Google. He has DuckDuckGo as a search engine, and he’s been on the podcast a couple times, I think, now. He didn’t do it by trying to compete head-to-head with Google. He figured out “how can I be different than Google in a way that I can sum up in one sentence?” And, typically, he uses the phrase, “Google tracks you. We don’t.” Right? It’s about privacy and tracking. Now, there’s also some other points: where they’re only going to have one ad at the top. They do some other stuff, but that’s been his big focus, and that’s the only way he’s competing with Google. It’s not by trying to be better than Google, or cheaper than Google, or faster than Google; because you can’t out-Google them.
[00:07:13] I think the same goes with LastPass. They’re just too big. You can’t out-LastPass LastPass. Figure out a major differentiator, whether it’s what Mike said, where you’re actually pivoting into another space; or, that you just pick a niche and you are the best password manager for web designers, or whatever. Maybe you add something that allows them to share with their clients, that no one else does, then you have a real differentiator. Then you don’t charge 10 pounds per year. That’s when you charge 50 or 100, or you charge monthly because you are so much better for that small group of people, that it’s warranted and they’re willing to pay for it. I hope that helps, Vincent.
[00:07:46] Our next question is from Chris Sciora [phonetic]. He’s from gomobileiq.com. and he says, “Hey, guys. It sounds like both of you started with a handful of different languages in the past. Maybe C# for Mike, and Rob has also definitely used .NET. Rob recently using Rails for developing the last, two web applications; and he’s indicated he doesn’t have much experience with it, certainly not enough to actually write the apps. Without arguing about the merits of the different frameworks, I’m curious what benefits you saw by making that change. It effectively removes you permanently from the development review process, while adding another layer of complexity. What were the reasons for dropping a familiar platform and effectively starting from scratch?”
Mike [00:08:24]: Well, I think this is mainly aimed at you. My take on the different languages is, in most cases, you’re going to use the best tool for the job; and I think that if you’re going to go in a direction for using something where you don’t know the technology at all, then it would probably be an intentional choice to help keep you out of the technology. That would probably be the main reason that I would go in that direction; but, Rob, obviously you have your own reasons for having chosen Rails. Was it based on pricing? Just finding people who knew that technology? What was it?
Rob [00:08:53]: Your first point of intentionally keeping yourself out of the development is actually a good one. That was part of the reason, is that I found with all the products I had – from Dot Invoice to HitTail to WeddingToolbox and the other ones that I was managing – that I kept getting pulled into these little fixes and these little issues and these little bugs, and I would kill half a day troubleshooting something in PHP or, heaven forbid, in ColdFusion with WeddingToolbox. Not being able to do it is actually a benefit to me, because it means that I just can’t these days. That’s giving something up. You have to get over the fact that you can’t go in and do it.
[00:09:33] At the same time, though, I was able to find a trusted resource who I knew could help support it, and that was Derek, right? He was contracting for me at the time. He’s now cofounder of Drip, and early on, we discussed what language should we build Drip in. He knows Rails like the back of his hand. He’s very knowledgeable and just a senior, senior dev in it; knows about architecture and how it works. So, that was kind of a no-brainer, right – the fact that he knew it so well. Then, you can find Rails developers. Rails developers have heavy UX emphasis, typically, and wanted to make it very UX-friendly.
[00:10:04] Finally, I had run into real issues. I got an acquisition offer on HitTail several years ago, and since it was written in ASP.net stuff, the person didn’t want it. They really wanted something in PHP, Python, or Rails. If you’re going to build line-of-business enterprise apps, then, yeah, Java.net – those are great. But if you’re going to build startups, essentially; or web applications, and you want to be able to find developers that aren’t really expensive, find developers that have the startup mentality in general and maybe someday be able to sell it, or transition it to another company – whether that’s your plan from the start, or not – building in an enterprise language like a .NET or a Java will be to your detriment. That’s where I’d say Python and Rails would be my top two choices. I think PHP would be another one that’s perfectly reasonable. We can go into the merits of doing everything in node and using bits and that, but it probably isn’t worth the time of it.
[00:10:56] The bottom line is the reason that I dropped the platform is: 1) so that I wouldn’t get sucked into development; 2) because Derek knew the language really well; and 3) because it makes it easier to find people to work on; and if someday there was some exit event, or someone merged, or there was ever that need to transition it to another team, it’s just an easier transition when you’re using a language like this.
Mike [00:11:17]: I’ll just interject here to point out that I’ve heard that as well in terms of using something like Rails, or Python, or anything like that. Those types of languages, it’s easier to find the developers, especially the ones who are motivated to self-teach and are in the startup space. The pricing for apps that are built with those tends to be a little bit higher, so if you’re looking longer-term, I’ve heard that as well. It’s just the types of technologies that people tend to be more interested in acquiring then the C#s and Javas of the world.
Rob 00:11:50]: All right. Our next question is from Nathan Rimmer. His subject line was “20 percent of IT spending creates no value. I need your advice on how to fix that.” He says, “I’m a requirements analyst and a startup fanatic. I’m a huge fan of the podcast. Studies show that about 20 percent of IT spending creates no value. It’s like throwing a fifth of your IT budget out the window. This is a huge problem for startups who have limited funding, which is pretty much everyone. Reclaiming the lost value would allow startups to employ more people,” et cetera, et cetera.
[00:12:18] As you know, there are frameworks for coding and product development, like Bootstrap [?] startup, but there’s no framework for creating, communicating and managing business requirements. I see there’s a fundamental need in reclaiming the lost 20 percent. I’d love to hear any thoughts you have on what a business requirements framework should contain or take into account. I’d even be interested to hear if you think it isn’t needed.” So, what do you think?
Mike [00:12:37]: I think the first mistake here is assuming that startups and enterprise companies that have a full-blown IT department are the same, and that’s just a blatant falsehood. I don’t think that those two things are even remotely close to each other, so when you start looking at studies like this that come back and say 20 percent of IT spending creates no value, my inclination would be to believe that something like that comes from Gartner or Forester. Those are wildly different environments than a startup that’s got less than ten employees, for example. So, to try and equate them is just a nonstarter. There’s just no equivalence there.
[00:13:12] The other inclination I have is that when you’re looking at this type of spending, that 20 percent of IT spending is probably on technologies that are purchased because they are – either this person was sold on a dream of – some sales rep came in and said, “Hey, buy this software, and these particular problems will go away.” Or, they purchased a bunch of consulting, and the project was mismanaged, so all that money basically went out the window. Those are very, very common things that I’ve seen when I’ve been doing consulting, so those are the types of things that would factor into studies like this. I think that, honestly, this is just probably bad data. Maybe that’s a gross assumption on my part; but my guess is that, because it’s not applicable to startups, you can’t really draw a line of equivalency between them.
Rob [00:13:56]: Yeah, I would second that. I also think that, since the environments are so different, that this requirements framework that Nathan was asking about is much, much less applicable, if not totally inapplicable. It depends on what you mean by “startup,” but let’s just say it’s someone that’s less than 20 employees or a company that’s less than 30 employees. At that level, basically just a kanban process, where you’re writing stuff down on notecards and you’re sticking them up on a wall, or you’re using a Trello board, is a really good way to get requirements across; or, simply using an issue tracker. We use Codetree, which is over GitHub issues, and there has not been a single feature that we have released in Drip that has required more than a few paragraphs of discussion and description in our issue tracker.
[00:14:40] We don’t spec out these massive, waterfall projects like you do in IT, where you have these requirements that you have to manage, and you have this – you know, you used to have the 300-page spec doc. None of that is done in the startups that I know that are moving quickly. We release multiple features per week, sometimes multiple per day, and so each is individually specked out and is its own, little, tiny micro issue. So, for startups, honestly, I just don’t see the need. Maybe for enterprise IT there needs to be some framework, but I wouldn’t even be able to speak to that now. I’ve been out of that so long.
I hope that helps, Nathan. Thanks for sending in your question.
[00:15:12] Our next question is from Christopher Gimmer, and he says, “Hi, Mike and Rob. Huge fan of the show. I had a question about auto responders for freemium SaaS products. With a typical SaaS trial, you’re hoping to help users find value and convert to paid before the trial runs out. With a freemium product, there’s no time limit and not everyone will be interested in a paid version. Just wondering what kind of advice you would give on how to set up an auto responder for a freemium product. Would it be any different than a normal trial sequence?”
Mike [00:15:39] Yeah, I think that there’s a couple of different things that you can do – different approaches, I’ll say. The first approach is when you have somebody come into a funnel like that, are you trying to sell them directly on the higher-level version of the product, or are you just trying to get them in the door to start using it? I think the answer to that depends a little bit on how complicated your product is to get up and running for people and how valuable it becomes to them over time. Obviously, in a SaaS scenario, you want to be charging people on a recurring basis if the value of your product goes up over time. So, something like – to throw to an example here, bug tracking software, or anything where you’re aggregating data over a time period. Over time, hopefully, the users are sending more data into that system so that as they use it more and more, it becomes more valuable to them.
[00:16:27] Now, if you’re trying to get them to just use the product, then you probably want to get them onto a paid version, assuming that they’re a big enough customer that they’re going to be using it extensively. Or, if they’re on the smaller side, you just want to encourage them to use it in case they end up larger companies later on and be able to bring it in the door. In each of those situations, you’re going to do one of two things. You’re going to try to get them onto a paid plan first and then essentially back off if they end up going into the freemium plan for the product and then over time, try and pitch them on the benefits.
[00:17:00] I think that when you start seeing their usage of the product over time, you can check to see whether or not they’re going to run up against any of your internal barriers for that freemium product. So, let’s say that you’ve got BugTracker. You only allow them to track 100 bugs, for example; or, only manage two or three projects at a time; or, only have a certain number of users. When they get close to that user limit, you hit them with an email that says, “Hey, you’re getting close to this limit. Would you like to upgrade?” That’s a trick that came from Patrick McKinsey at one of the previous MicroConfs, but there’s lots of ways that you can monitor what their usage is and then perform specific, targeted emails to identify those people and try and get them to upgrade; but I don’t think that you want to beat them over the head with it every, single week. Then just on a rolling basis, maybe every three or six months, try and pitch them on the benefits of upgrading to a paid plan.
[00:17:49] What about you, Rob? What do you think?
Rob [00:17:50] Yeah, the sequence is worlds different than free trial. When you have a free trial that runs out, you have a time pressure there, and you are trying to get them on board before the end of that free trial. With a freemium product, like you said, you’re trying to get them to activate. That’s the first thing I’d focus on – is just hitting them up once, twice a week and saying, “Hey, you haven’t done this yet.” “Hey, you haven’t set that up,” because if they never do that, then they’re never going to use the product, and they’re never going to upgrade to free. So, you really want to get them to use the product, or get them to say, “Stop emailing me.” It’s kind of like that follow-up thing from Steli. If you’re getting this big traffic of freemium and no one’s activating, that’s a real problem, so the email should gently nudge them to do that. Then as their usage increases, touch base with them via these point-in-time emails based on actions or based on levels in their account. Then let them know that, “Hey, we do have these extra features,” or, “We have more that you can get by using our paid plan.”
[00:18:40] Just like you said, I’d probably pitch it more often than every three to six months. I would think about, say, every six weeks to three months. If you do have this free user base and you really do have something that’s much more valuable to them, I feel like it’s worth mentioning. And you don’t do it directly. Maybe every six weeks you don’t pitch them with this direct hard sales pitch. Maybe that is every three to six months, but in between there you want to touch base with them about new stuff you’re releasing and then have just a little pitch. You know, if you’re using marketing automation and you have tags, then you’ll know that they’re freemium, and you can actually put something different in there than if they’re an actual paying customer. In even a feature announcement email, you can basically include a paragraph only if they’re on the free plan and say, “Hey, this stuff’s only available to paying customers.”
Rob [00:19:20] Yeah, I definitely think this trial sequence is quite a bit different than freemium. You really just need to think through what their journey is and how different it is from a typical paid trial. I hope that helps, Christopher.
[00:19:33] Our next question is from Caesar, and he asks about when to show pricing. He says, “I’m struggling a bit about when should I show pricing on my marketing website. Should I do this right from the beta? Should I do it after the beta? Should I show the cheapest tier first and for the rest have people contact us? Should I start inviting testers even if they don’t know about pricing? I realize most of the answers will be ‘it depends,’ but it’d probably be interesting to hear your experience about it.”
Mike [00:19:59]: I think when you’re early on and you’re still trying to figure out what the value of the product that you’re billing is worth to people, it’s a lot harder to figure out what to charge people. One thing that you might want to try is essentially just asking those people who are early on, “What is this worth to your business?” “Is it going to cost you to not use this particular software?” That will help give you an idea of what the value proposition is going to be to them in terms of dollars for the product.
[00:20:27] Once you’ve done that, you can start showing that information, but I think that you need to start taking orders from people. It can just be maybe your first 20, or 30, or even 50 customers. Maybe every, single one of them pays something different; but if you don’t post the pricing, then you can have each one of them pay something completely different, and nobody’s going to know anyone – not unless they start talking to each other and say, “Hey, I’m only paying this,” or, “I’m paying that.” You want to figure out what it is that people are willing to pay for it, and why; because your feelings of what the value are of the product are probably going to be different than what your customers feel it’s worth. That’s a common theme among people in the startup world – is that they’re essentially undercharging for their products because they don’t understand the value that it provides to their customers.
[00:21:12] Then there’s also – the flipside of it is maybe you think that it’s worth a lot more than it is, and the only people who are going to be able to tell you that is the people who are cutting you a check. So, charging them different amounts for the first 50 or 100 people is probably fine. Maybe it’s only the first ten or 15 people, but if you can get an idea of what those prices are and talk through why those beta customers think that those prices are justified, then it gives you a better idea of what to put on your home page.
Rob [00:21:37]: Yeah. If you’re pre-launch and you’re still hand-holding folks into your app – at that point with Drip, we didn’t even have a marketing website. I don’t even think we had placeholder text. We were literally just getting people in. I had told them in an early email, “I think our pricing for this long-term is going to be between 49 and 99 a month for our lowest plan.” That was kind of the first thing we said, but I did let them know up front that we were going to be charging. This was not going to be some free-forever plan. So, if you’re still handholding, you have the luxury of being able to do that one on one.
[00:22:11] If you’re not and you’re starting to let larger groups in, I would be charging by that point. If you’re starting to let 100, 200, 500 people in, that’s the point where I know my pricing; or, at least I have an idea of it, and I’ve picked a price. Then I’m going to test it with that first group. I don’t believe betas should be free. I think beta testing is you’re building it. You’re doing unit testing. Then you do integration testing with everything together. Then you test the crap out of it with your own stuff, and then you get maybe ten people who you one-on-one handhold through the app, and you get them all set up. You’re going to have worked out a ton of stuff by that point, and from then on you’re done. Beta’s done. This is not something where you let 100 people use it for free until you decide on pricing.
[00:22:52] Maybe you give them a really long trial, if that’s what it takes. We were doing – if I recall, with our early beta testers, I didn’t know how long the trial would be at all, and some people got months and months to try it out; because we just didn’t know. We were trying to build features to make it valuable enough for them. Once we got out of that, it’s pretty much been a 21-day trial since day one. A few people have asked for extensions based on extenuating circumstances, but that’s it.
[00:23:15] Then in terms of the other part of this question, he asked if you should show pricing on the marketing site, or just show the cheapest tier and have “Contact Us.” If you’re selling to enterprise and you’re going to do the whole figure out how much people can spend and negotiate pricing, then, yeah, everything should be “Contact Us.” But if you are just selling a typical SaaS app or a downloadable app, I think you should have all your tiers up there and then a big enterprise tier that says, “Contact Us” for people who do want to spend a lot of money and get more. There’s always a need for someone who wants to spend $10,000 on your software, but aside from that, I don’t see a ton of value in trying to obfuscate your tiers or hide pricing from people.
So, thanks for the question, Caesar. I hope that was helpful.
[00:23:53] Our next question is from Jeff, and he asks about SaaS subscriptions versus commission pricing. He says, “Hi, guys. I’ve listened to a couple shows where you discuss SaaS pricing models, and I haven’t heard you mention commission-based pricing at all. We recently launched our SaaS offering, which is a marketplace platform around the wedding industry.”
[00:24:11] So, stepping in here, I think what he’s saying is they have kind of a two-sided marketplace where they have brides and grooms who are about to get married, and then they have providers. I would guess it’s like people who sell wedding cakes and flowers and maybe wedding planning services and venues and that kind of stuff. So, I wouldn’t actually call this really a SaaS offering as much as it’s just a wedding marketplace. Now back to his email.
[00:24:32] He says, “We’ve had great traffic to the site, but our conversion rates have been pretty low. Our packages include a percentage commission on sales, and I’m wondering if that is turning people off to the product. We’ve tried emailing our customers along with everyone that’s expressed interest, but we didn’t get much of a response. I’m curious to hear your thoughts on commission-based pricing for a marketplace site like this. My gut is telling me that it must not work in most instances since there doesn’t appear to be many SaaS offerings out there that are using this pricing model.”
Mike [00:24:59] If I understand this correctly, what he’s essentially saying is they have a marketplace platform for the wedding industry, and they have brides and grooms who’re getting married on one side of it and then the vendors on the other side. One of the two complaints, or issues, that they have is they’ve got a lot of traffic, but their conversion rates have been really low.
If you’re charging the vendors, but not the brides and grooms, then that would almost be expected; because the brides and grooms that are visiting the website are probably going to outnumber the vendors by a pretty wide margin. That’s going to drive your apparent conversion rate pretty far lower than it probably otherwise should be counted. You might have, let’s say, 10,000 brides and grooms who visit, but you only have 200 vendors that visit. Well –
Rob [00:25:43]: Right.
Mike [00:25:43]: – how do you know which 200 vendors there are versus the 10,000 people? And what number are you going to count it against?
Rob [00:25:48]: I would agree –
Mike [00:25:49]: So, I think that –
Rob [00:25:49]: – and I think we should clarify here he says, “We’ve had great traffic, but our conversion rate has been pretty low.” We’re making the assumption that he means that it’s the vendor conversion rate.
Mike [00:26:01]: Yeah, so that’s –
Rob [00:26:01]: And I’m not 100 percent sure.
Mike [00:26:03]: Yeah, I’m not either, so – that’s just a point for him to take home, though, is that might be an issue if that’s what he’s looking at and he’s just not thinking about that piece of that – that division between the two – as one issue.
[00:26:15] The other thing is that if you are charging the vendors and you’re charging them on a commission basis, essentially what you’re doing is – let’s say that somebody buys a $50,000 wedding package and you’re charging the vendor, let’s say, 5 percent, something like that. Well, that becomes a $2500 fee that that vendor has to pay versus if you have a static pricing tier for each of these things, then it would be, let’s say, $500 for them.
[00:26:42] Since you and I run MicroConf, one of the things that we really don’t like is having to deal with any sort of variable costs. It is a lot easier to run an event when you know exactly how many people are going to show up, because you know exactly what your budget is, and you can plan and anticipate things in advance. You can make decisions about what you’re going to spend and what you’re not going to spend. But if you’re a vendor, and you’re on this marketplace, and your costs are going to be variable, it makes it much more difficult to get a handle on some of that stuff. Quite frankly, there’s a lot to be said for just avoiding the hassle of even bothering.
[00:27:19] I would wonder whether or not a commission-based pricing structure is even the way to go here. Maybe it’s a flat fee on a per-event basis. That would be my thought; but, again, if you’re having a hard time seeking feedback from people and getting responses from them, then it seems to me like there’s a completely different problem that you actually have to tackle, which is why are you even not getting feedback from these people?
Rob [00:27:43]: Yeah. Let’s just be clear here. In no circumstance should you charge the consumers here, because they’re going to be super price-sensitive. It’s the vendors that you should be charging, so I think we’re just making the assumption that that’s going on. If not, then you should definitely do that. I can’t imagine at this stage charging a subscription fee to the vendors, because I can’t imagine a vendor that’s going to want to pay for a completely unproven solution. Maybe if you have millions of people coming and you have tons of money going through your system, you can move to subscription fees; but at this point, you’re probably going to need either a flat fee per event like Mike said, or a flat commission.
[00:28:18] I think a flat commission is fine. I probably wouldn’t call it a “commission,” though. I typically call it, like, a “transaction fee.” If you look at Gumroad, or another platform like this, that’s what they add on. If you’re going to pick 5 percent or 10 percent, that’s fine. Mike’s objection to it being variable, I think, is a valid one; and I think the way you could get around that is have a maximum. You could say it’s 5 or 10 percent, and it’s capped at 250 bucks, or 500 bucks – just a maximum somewhere. Maybe for different vendor types, it’s different amounts because, obviously, flowers might only be a few thousand and a venue might be more than that.
[00:28:51] To be honest, it doesn’t sound to me like this is the major issue, if you have all this in place. I would guess that there’s something else at play here, and that people aren’t engaged – or, that none of the people who visited were actually vendors and that everybody who came in was a consumer, and that’s why you got a lot of traffic and no one converted. So, this is a tricky one. There’s a lot to dig in here.
[00:29:11] I think, in general, my advice would be don’t try to bootstrap a marketplace; because they’re really, really hard. Even if you make this work and you start getting people signed up, making 5 or 10 percent on a fraction of these transactions, you have to be at scale to make any money at it. We just saw last week Gumroad laid off 90 percent of their employees. If you go to Tech [?] and search for it, you can see that even them, who – everybody in our space knows who they are, but they’re trying to take these tiny, tiny, little snippets of fees from these transactions; and it seems to me that they just couldn’t get enough volume, because unless you’re doing Uber-level, or Stripe-level volumes of transactions, then you’re not making any real money. You’re making thousands or tens of thousands a month, and that’s not enough to justify all the employees and all the support you need to handle a set like this.
[00:29:59] So, that’s our two cents. Hope that’s helpful, Jeff.
[00:30:01] Our last question for the day is from Ely Gescheit [phonetic], and he says, “I’m a big fan of the show. I’ve listened to you for the past couple years. My startup is focused on helping the building industry, such as town planners, architects, et cetera. However, the app could also be applied to the legal profession, because it essentially converts boring legislation into a more user-friendly format. There are around 600 town planners listed in Sydney, Australia, on Yellow Pages and around 10,000 lawyers. My initial idea was to focus the app on the building industry and later pivot to the legal profession. The idea behind this was to test the waters with a smaller target market. Given the app will be more scalable in the legal profession, I’m thinking of switching my strategy and focusing on legal first and then moving into building.”
[00:30:43] To me, the risk trying to target a smaller market is really high, and I’m not sure whether it will even be worth all the effort for just a small market. What are your thoughts?
Mike [00:30:51]: I think I’d be very hesitant to target either town planners or lawyers, regardless of the numbers. Essentially, when you start weighing these against each other – the numbers he throws out are 600 town planners versus 10,000 lawyers that he’s identified. With town planners, you’re going to be dealing with government paperwork and government budgets, and they’re going to be on strict timelines. They’re going to have to plan it in advance, and your sales cycle is probably going to be longer for most of them. That’s a blatant assumption, but you could just make some phone calls to five or ten town planners and ask what their purchasing process looks like and find out pretty quickly how long it’s going to take to onboard them as a customer based on however much it is that you’re going to be charging them.
[00:31:31] For the lawyers, I know people who have startups in the legal space, and it’s not always easy to get customers. Sometimes it is. Sometimes you can get to the right people very quickly and they are willing to talk to you as long as you are going to be providing a service to them that you can essentially pitch very quickly and that they can see a justifiable ROI on it; but you’re still probably going to do a lot of handholding, because those types of customers are probably not searching online for stuff. The legal profession is – in a way, they’re stuck in the ‘80s. They use fax machines for everything. They’re somewhat technology-averse, and you’re probably going to have to find a way to gather them as customers, and it’s not going to be through a lot of the things that we talk about on this podcast, like SEO and online marketing and things like that. You’re going to have to really go after them.
[00:32:19] With those things said, I don’t know if it actually makes a heck of a lot of difference which one you go after. What I would do is, if you’re still in this early stage, talk to ten, or 15, or 20 of them and test the waters a little bit and see which one of those two things is going to do better for you. Come up with a short list of identifying factors or traits that you would like to see and then ask those questions and find out if those are actually present in that particular market. If they’re not, maybe you kill the idea and move on to something else, or move over to the other market instead. Come up with a list of pros and cons for each of them, iterate through them and then see what the numbers come out; because it seems like you can get a lot of the information you need just by talking to ten or 15 people in each of those two industries.
Rob [00:33:03]: Yeah, I’m also pretty bearish on this idea, especially if it’s your first app. I would go for a smaller, easier win that you can market online. But if you really enjoy high-tech sales and you’re willing to do six-month sales cycles, and you’re building something that either of these niches would pay – let’s say $12,000 a year is probably the smallest annual contract value I would do when targeting these niches. I’m pulling that out of the air a little bit, but if you build something that’s 50 bucks a month or 99 bucks a month, you’re nuts to try to go after these markets. They’re just too hard to sell into when you’re getting started, especially if it’s your first time doing it. You don’t have any competitive advantage in these markets.
[00:33:42] So, all that to say I would think really hard if not all of those things are in place. If you’re thinking that you can set up a marketing side and drive SEO traffic and pay-per-click traffic and convert on an app that’s 20, 50, $100 a month, this does not sound like that idea.
Mike [00:33:59] Thanks for the question, Ely. Hope you found it helpful.
[00:34:01] If you have a question for us, you can call it in to our voicemail number at 1.888.801.9690, or you can email 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 on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
[00:38:18] Thanks for listening, and we’ll see you next time.
Episode 262 | 13 Signs You Should Kill an Idea You’re Validating
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike make a list of 13 signs you should kill an idea you’re validating. These are different signals that can be negative to the idea actually working.
Items mentioned in this episode:
Transcript
Mike [00:00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about 13 signs you should kill an idea you’re validating. This is “Startups for the Rest of Us,” episode 262.
[Theme Music]
Mike [00:00:16]: 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 you first product or you’re just thinking about it. I’m Mike.
Rob [00:00:24]: And I’m Rob.
Mike [00:00:25]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
Rob [00:00:29]: Well, I was just looking back at my 2015 goals, because it’s early November now, and so it’s kind of time for things to start winding down. I’m starting a new [?] what I would like my 2016 to look like. I’ll do a retreat around the end of the year, but so far, so good on the goals. There was a revenue goal for Drip that we passed a couple months ago. I hadn’t even realized it. I probably should’ve celebrated, and I definitely think I’m actually not great at is celebrating my victories. I tend to be happy for five minutes and then say, “All right. What’s next?” I actually think that one should celebrate them more, actually. I think it brings you – it just adds longevity to what you’re doing, because we all have a lot of downs. It’s like take the opportunity to have an up once in a while.
Mike [00:01:09]: Well, if you’re not celebrating those opportunities for where things are going well, then it can also be a long time between certain types of goals that you have, just because the nature of some of them is an extended time period. If the reward pattern is off a little bit, then it can be difficult for you to stay motivated to go after those goals.
Rob [00:01:27]: Yeah, that’s right. So, it was quite – I looked at a list. There were, like, four or five goals; and I think I achieved four of them. The fifth one was to write another book, or rewrite my last year’s book and within probably 60 days of saying that, I called that off. There’s no chance it was going to happen, so it’s kind of an honorable mention, I guess; and I feel okay about not hitting that one. We’ll talk more in depth about this probably in December, when we review our 2015 goals and set goals for 2016.
How about you? What’s going on?
Mike [00:01:53]: Not much. Just doing more design work for the app that I’m working on so that I can go back to people that said that they were interested in it.
One thing I saw that was completely unrelated to that was that Google has started selling domains. I think that they announced that they were going to be acquiring some top-level domains, but I hadn’t really heard anything about it. Ironically enough, I saw that they were advertising for these Google domains on Facebook.
Rob [00:02:15]: That is so cool. So, Google is running Facebook ads is what you’re saying?
Mike [00:02:19]: Yes, because –
Rob [00:02:19]: That’s great.
Mike [00:02:20]: – it was – yeah, and I looked at it, and I was like, “Oh. I feel like I have to click on this just to make them spend money.” [Laughs]
Rob [00:02:25]: Are you sure it wasn’t more of, like, an affiliate or something that maybe was getting a –
Mike [00:02:31]: I don’t –
Rob [00:02:30]: – commission?
Mike [00:02:31]: – no, I don’t think so. I don’t know. Maybe it was. Maybe it was. It was in the main activity area of Facebook, and it looked like a Google ad. It went directly to domains.google.com.
Rob [00:02:42]: Yeah. The other thing regarding Google domains is – did you hear someone registered google.com through the google domain engine, and they owned it –
Mike [00:02:48]: Oh, yes.
Rob [00:02:48]: – for, like, two minutes, 12 seconds?
Mike [00:02:50]: A minute. A minute.
Rob [00:02:51]: I don’t know.
Mike [00:02:51]: Two minutes.
Rob [00:02:51]: Yeah, or something like that, and Google caught it. They didn’t even get access to the DNS or anything, but I thought that was funny that they sold their own domain.
I want to give a shout-out and congratulations to the guys at Less Everything, Allan and Steve, for launching lesschurn.io. Lesschurn.io is a little software widget – it’s in JavaScript – that you put in place of a cancellation button in your SaaS app and, instead of just having a “cancel now,” it does some cool stuff. You can have it ask some questions, or you can have it offer them help, or you can just have it do some stuff that they’ve used in their own SaaS apps. They’re trying the product [?] to make it easier for folks to get the help they need instead of canceling, because a lot of people just go by default to that cancellation button; and they’re just using their best practices and baking them into the software product. I always like seeing approaches like that. So, again, that was lesschurn.io.
Mike [00:03:40]: Yeah. I think I saw a blog post from either Steven or Allan a while back that discussed their own approach within Less Accounting, and that’s how they were getting information back from their users, so it was to intercept those people and ask them questions about why they were cancelling so it’s interesting to see them turn this into a product other people can use.
Rob [00:03:58]: So, what are we talking about today?
Mike [00:03:59]: Well, we got an email from Jeff Madsen, who asked when is it time to call it quits on validating an idea? He says, “Hi, guys. Listen to all the shows. Have a question I’d really love to hear your input on. When do you call it quits on validating an idea? I know this feels like a ‘that depends’ type question, but I think there has to be some science behind it – or, at least some good ground rules. Appreciate your input. Keep up the great work.”
[00:04:18] So, what we did was we put together 13 signs that you should kill an idea that you’re validating. Essentially, these are things that you might be doing as part of the customer development process, or even before you started building. Quite frankly, some of them might come after you’ve started building, so it’s important to take a look at these things and keep in mind that, depending on where you’re at with your application, you may need to rethink where you’re at. The other thing to keep in mind is that not all of these things mean that you need to walk away from it. Some of them just mean that you need to rethink it, maybe take a couple of steps back, or re-validate certain parts of it. So, it doesn’t mean that outright it’s time to kill it, but it’s time to reevaluate where you’re at.
Rob [00:04:58]: Yeah, I think these are more signals than true deal breakers, show stoppers, red flags. That’s not what they are. They’re really signs or signals that are negative towards the outcome of this actually working, so the more of them that stack up, you really need to take notice and think twice about continuing with the validation.
Mike [00:05:17]: I think one of the things that’s worth pointing out here is that when you’re talking about validation, there are different stages to the product development process. There’s the part where you’re very, very early on and you’re just validating whether or not people are interested in something. Then you move on to say, “Are people not just interested in this, but interested enough to the point that they’re willing to pay for it?” Are you trying to validate that your idea is actually solving somebody’s problem? I think that there’s different angles that this validation comes up on and, depending on the specifics of what part of it you’re validating, then that’s going to play a role in some of these different signs.
Rob [00:05:54]: Yeah, you can certainly be pre-problem-solution fit, where you’re just saying, “Boy, is there a problem?” Right? You’re just trying to validate if there’s a problem. Then next you’re saying, “I now have a solution. Is that the solution to this problem?” Then the next thing is, “Is this product going to be that solution to the problem?” Then, “Will people pay for the product if I build it?” Then, “Can I reach people who will pay for the product if I build it?” Right? I just outlined five steps right in a row that I would want to validate each individually.
[00:06:23] Then there’s also validation like – let’s say you have a product, and you have 500 customers, and you’re wondering, “Should we build this major, new feature?” or, “Should we go in this major, new direction?” Oftentimes, you need to validate that. You don’t just want to go out and spend two months building something. You actually want to validate that by talking to your existing customers, talking to prospective customers. Validation should not just be something you do once at the very early stages of building a product. I believe it’s something that you want to do all the time, because it just saves you so much time in terms of not building features that no one wants.
Mike [00:06:54]: I think with that said, we’ll just dive right into the first one. The first one is that you’re avoiding talking to prospective customers. I think there’s a natural inclination to just start building because you have a good idea of what it’s going to take to solve a particular problem, but sometimes you really need to start talking to those prospective customers to figure out whether or not they’re actually interested in solving that particular problem. It’s very easy to say, “Oh, this is going to be a really cool technology,” or even just finding a cool technology that you want to work with and starting to build something and then saying, “Oh, I’ll figure out who I’m going to sell it to later.” I think it’s a different story if you’re just trying it out to learn something versus you’re going to try and figure out how to make it into a product later.
Rob [00:07:34]: I think especially for technicians and whether you’re a developer or a designer, just someone who likes to build and create things. Most of us – especially if you’re introverted, you don’t like talking to people. You don’t like going out of your comfort zone. You feel like that’s probably more for salespeople. This does get easier over time but, to be honest, early on I had a really time with it as well. You might have a vision that you want to launch a website and never have to talk to a single person and that they’re going to come and sign up for your SaaS app and then hang around, and maybe you can email with them and support a few times, but that’ll be it. That’s not impossible; but it’s very, very rare. You’re not going to build a long-term business.
[00:08:10] Even if you don’t want to build something huge, if you just want something to stick around over time and pass the test of time, you really are going to have to talk to your customers and get to know them. It’s just in every business that I see that’s successful and that’s been around for many years at this point. In SaaS, “many years” is – what – four? Five? Six? You really are going to get to know your customers, and I think the more that you get to know them and the more that you talk to people, the easier this gets later on. So, this is an acquired skill just like delegating, just like marketing, just like development. Just being able to speak one-on-one with customers and talk to prospective customers and not feel anxiety about that anymore – I think that is a learned skill. And it’s one that, if you’re not good at it already, that you should really focus on improving over the next six to 12 months if you are, in fact, trying to validate an idea.
Mike [00:08:55]: The second sign you should kill an idea you’re validating is that you’re having a difficult time finding people in your target market to talk about the idea. I think that there’s two, different pieces that come into play there. One of them is that you don’t even really know what your target market looks like, so you don’t know the type of people that are going to use it, whether it’s realtors or real estate developers. Obviously, those two are different things, but they’re related. So, you might have an idea of who you should talk to, but if you’re having a hard time getting them on the phone or getting them to give you any sort of attention, then that right there is a signal that you might need to just take a step back and reevaluate where you’re at.
Rob [00:09:31]: It’s important to have at least an idea up front how you’re ultimately going to sell this product; because if the product requires you to do high-touch sales, then you’re going to need a very high price point, which means it’s going to be more of either enterprise pricing or at least several hundred dollars a month if you’re going to have to speak to everyone on the phone before you close them. And if you are selling to realtors, or lawyers, or more non-technical brick-and-mortar stuff, the odds are that you are going to need that several-hundred-dollar price point. It can scale really well, but you need to know that you’re going to be talking to folks. And like you said, if you’re having a difficult time, whether it’s through cold calling, or whether it’s doing some type of inbound lead gen and talking to them on the phone, and you’re not able to get them up front just to validate the idea, then imagine how hard it’s going to be once you’re actually trying to sell them something.
[00:10:18] The same thing goes if you’re going to sell online. If you want to set up a landing page, you do some SEO, or do some pay-per-click ads – whatever you’re going to do to drive traffic to that – you’re going to know pretty quickly whether that traffic’s converting, if you have a nice headline and you’re offering something in exchange for an email address, even if that thing is just a sneak peek at the product, or early access, or whatever it is. And, again, if you’re having trouble driving traffic to that or getting people to convert, then imagine how hard it’s going to be once you actually have a product. This kind of plays hand in hand with validation. It’s can you even get people interested.
[00:10:48] So, if you can’t get over the hurdle of just finding people who are willing to talk to you about the idea, then it’s probably not enough of a pain point either. There’s one of two things happening. It’s not enough of a pain point for them, or you’re just really bad at this, in which case you need to get better. And you need to identify which of those it is, but I agree that this one is definitely not a good sign.
Mike [00:11:08]: The third sign is that you find it difficult to describe the idea or the value proposition quickly and easily. I don’t think that this in and of itself is a deal breaker, because early on you’re not necessarily going to have the best handle on exactly what that is. Sometimes you fully understand what the value proposition is, but you make that pitch to people, and they don’t care. Unless you’re going back to number one, if you’re avoiding talking to people, even if you have a solid value proposition for it, if they’re not really that interested in it, it doesn’t really matter what you come up with because they’re not going to buy it anyway. So, you really have to be careful that you can describe that idea in a way that doesn’t confuse people; because if people find the idea confusing and you’re talking to them over the phone or in person, how confused are they going to be when they hit a landing page or a website? You really have to be able to target those things in, because you have much less time to explain it to people. When you’re talking to somebody one on one and you have them as a captive audience, it’s a lot easier to convince them to give you a little bit of extra time to explain it, but on a website you don’t really have that option. So, you have to be able to narrow it down exactly what it is that you’re offering and what problem you’re solving. And, again, this just takes time. It’s going to take some of those conversations to really narrow in exactly what it is that you’re talking about.
Rob [00:12:24]: Ninety-nine times out of a hundred, you will not get the value proposition right the first time. It’s just too ambiguous and amorphous until you’ve talked to dozens of prospective customers and really understood the language that you’re using and really understood where they’re at in terms of their understanding of this problem; because if you come in and you start talking right away about SEO, or email marketing and DNS, or marketing automation – I mean you throw these terms around – a lot of people have no idea what they mean. Suddenly, you’re going to realize, “Oh. Calling myself ‘Marketing Automation for Realtors’ has no meaning for them, because they don’t even understand what that term means.” Maybe you have to say, “Boy, I have to start asking realtors, ‘Do you know what email marketing is?’” Maybe they don’t know what that is, so then you say, “Boy, do you know what Constant Contact is? Or, MailChimp?” You just have to seek which terms they’re familiar with and then piggyback on those in order to describe your product; because most people, when they see or hear about a new product, they try to categorize it in their head, and they try to relate it to products that they already know exist. Right? They try to figure it out in relation to one of those, so that’s what you have to do here.
[00:13:25] You’re highly unlikely to get this right the first time; but you start with something, and then as you talk to these prospects, you’re going to hone that value proposition, and you’re going to arrive at something where you start saying it, and eight times out of ten, it really resonates with people. That’s when you know: a) you’ve made a bunch of progress, because you have a clearer idea of what people want. You’ve written the headline for your home page, probably, and that’s how I would look at it, and you’ve done a lot of learning. Even if you haven’t validated the idea fully, you at least know how to describe it now – which is a big step.
Mike [00:13:57]: The fourth sign you should kill an idea is that you’re having a difficult time identifying a specific group of people who will use it. By this, what I really mean is that if you can’t narrow down the type of person who would use this — you can’t put together a customer avatar for them, so you can’t say, “Oh, it’s somebody who works in a company from 10 to 50 employees, who works in the accounting department,” for example. That would be a good mechanism for identifying a specific type of person, or a specific group of people. As soon as you start out with, “Anyone who,” and you’re not able to really narrow down to being able to say, like, exactly what I just said about the person in the accounting department in a small company; if it’s just, “Anyone who works in an accounting department,” that is going to fall over on itself some point along the way.
[00:14:40] If you are having a hard time differentiating between multiple groups of people and you’ve got maybe three, or four, or five different categories of people who could use it, then you really need to start digging a little bit further and identify one of them, or the one that you think is the most likely to be a good candidate and then validate whether or not they are a good candidate or not. I don’t necessarily think I would worry too much about which one is the best candidate, over finding one that is a reasonably good candidate.
Rob [00:15:08]: And our fifth sign that you should kill an idea is really a list of general disqualifiers. So, this is not something that you’re doing during validation, but more of just some not-to-do’s, especially if you’re a bootstrapper trying to validate an idea. I’ve seen some of these. Jason Cohen talked about them in his MicroConf talk a couple years ago. We’ve mentioned several of these on the podcast. You had them in your book. I have them in my book. These are things that I think overall are just anti-patterns for trying to bootstrap a startup, so early on in validation, if you find yourself doing one of these, the sign is not good for you.
[00:15:41] The first one is that you’re not able to directly charge your customers, meaning that – now, again, this is for bootstrappers, right? If you’re going to raise 10 million bucks, then that’s fine. You can try to do an ad revenue model, or you’re going to take a tiny, 5 percent cut off of each transaction. You go do that. But if you’re trying to bootstrap off of revenue, you really need to think about directly charging your customers, because you just need so much more revenue. You need to provide so much more value to a smaller group of people rather than looking to make a dollar per month off of 10 million users.
[00:16:09] The second disqualifier, or negative signal, is to try to develop a two-sided market. It’s not impossible, but it’s really hard to do as a bootstrapper. There’s so much work involved, and you basically have two marketing efforts. You’re trying to bring in the supply side and the demand side. So, trying to bootstrap Uber, as an example, or bootstrap eBay – which I know they did for a very, very short amount of time – it would be nigh impossible at this point. That’s why these guys do raise buckets of capital, tens and hundreds of millions of dollars to develop both sides of a marketplace. So, for bootstrappers, something we definitely do not recommend. The other problem with two-sided markets is you’re typically just taking a little cut – let’s say 10 percent, 20 percent – of that revenue. Unless you’re at scale – meaning tens of millions of users – you can’t make enough money to keep the doors open.
[00:16:43] The third negative sign of these general disqualifiers is you’re dealing with difficult customers, really enterprise customers, government customers. Education tends to have very long sales cycles. Consumers often have a lot of support. Consumers it’s not a “never do that,” but it’s not a great sign. You typically want to be dealing with small and medium size businesses. It’s kind of the rule; and, hopefully, if they’re online, even better, if you have those skills.
[00:17:17] The fourth one is don’t try to build a social network. What’s funny is – you know, I’m on Cora pretty frequently kind of looking around, and there’re so many people that are posting like, “I have the idea for the next Facebook. What should I do?” And it’s crazy. I think in our circles, it’s just understood you should not do this, namely because it tends to be difficult consumers. See one above, that I just talked about. And you’re not able to directly charge customers, so it’s kind of a tiny, tiny ad percentage revenue model. Most importantly, you just need tens, if not hundreds, of millions of dollars to even have a shot at this; and the odds of it succeeding are infinitesimal. Just because something’s popular or hot today, and we see everybody – you know, the Instagrams and let’s say a Whatsapp – I know it’s a messaging app, but there’s a social aspect to it – and Facebook and Twitter and all that stuff – you don’t go there. Just don’t go there if you’re going to bootstrap. You’re going to need to raise funding.
[00:18:03] The last one is, frankly, if it doesn’t have a revenue model; or, more commonly, if you have multiple revenue models – and that’s the worst thing. I’ve talked to folks. See, I’m starting to do a little more angel investing these days, and I’ve talked to a few folks who have three or four different revenue models. It’s like, “Well, we’re going to do ads, and we’re going to have a premium marketplace, and we’re going to have a this and that.” For me, I like to keep it simple. Especially if you’re going to bootstrap, or just raise a really small amount of funding and do the fundstrapping route where you’re going to get to profitability, if you pick multiple revenue models, it’s not a good sign, in general – unless you really know what you’re doing; because just like having a two-sided marketplace, where you’re trying to market to two groups of people, having multiple revenue models means you have to manage and maintain all of these things. You have upsells all over the place. It becomes very, very complex to manage and to actually close some of those sales. The simpler you keep it, especially early on, when you’re low revenue numbers, the better off you’re going to be.
Mike [00:18:56] I think the important point to keep in mind about all those general disqualifiers is that you may try to avoid them up front, but you also may find out through your discovery process that the path of, quote-unquote, “least resistance” is actually through one of those disqualifiers. At that point, you really need to take a step back and say, “Okay, now what do I do?” And if you want to go the funded route, then that’s perfectly fine; but if you’re going to try to go the bootstrapped route, it’s probably not a good idea to keep going in that direction.
[00:19:24] The sixth sign you should kill an idea is that you’re having a difficult time identifying a common problem among the people that you’ve spoken to. So, for example, there’s a lot of heavily fragmented markets out there, including help desk software, bug tracking software – those types of things. If you start asking those people, “What do you really need from the software? What is it lacking?” chances are really good that you’re not going to find a lot of commonality between those people. There’s just a lot of different products on the market that do those types of things, and it can be very difficult to identify a small slice of the market that you’re going to be able to peel off and be successful in just because of the sheer number of competitors that are out there and the size of the people who run in your circles and the number of the people who you’re going to be able to talk to. So, if you can’t find a common problem among them, it’s going to be very difficult to get a product off the ground just because you can’t find enough of those types of people.
Rob [00:20:17]: The seventh sign is that people say it’s interesting, but nobody’s actually willing to pay for it. There’s different levels of “willing to pay for it.” Some people will just verbally commit, and you can trust that they’ll pay for it. Some will. Some won’t. You can take their credit card number, but not charge it. You can get a check from them, but not cash it. You can take their credit card number and charge for three months of service. Obviously, you let them know up front. So, there’s varying degrees, and I think we could probably do a whole episode on the merits of that. I think maybe we have done a whole episode on the merits of charging up front during validation versus not, but the idea here is that you really want to get someone to commit either by giving you money, or verbally committing to give you money. If no one is willing to do that, then it is definitely a bad sign for your product.
Mike [00:21:03]: The eighth sign is that you can’t see yourself working on this or being interested in this in the next four or five years because you’re doing it for the money. I think this one’s really hard to address directly just because of the fact that there are certain ideas out there that you look at, and you’re like, “Wow. I’m not particularly interested in this, but I think that there’s a lot of money here.” It can be very difficult to maintain the level of motivation that you need in order to be able to follow through with that and maintain it as long as you’re going to need to, because if it’s successful – and you want it to be successful – then you’re going to be working on it for probably a long time.
[00:21:37] Now, you could certainly get partially down the road and, assuming that it’s at least moderately successful, you could end up selling it off; but at the same time, you don’t necessarily want to sell something that is on a hockey-stick growth curve, for example. So, you do have to be a little bit careful about whether or not this is something that you’re interested in or not.
Rob [00:21:53]: The ninth sign is that you’ve spent more than a month doing customer development, and you still haven’t been able to answer basic, objective questions about the idea: who it’s for, the price range – the fundamental things you need to know to move to the next step. I think a month is a good, round timeframe. This is an arbitrary amount of time we’re choosing here, but a month is nice because even if you’re doing it on the side, it’s enough time to get something done and get some hard questions asked; but it’s not so much time that you’re going to do this perpetually.
Mike [00:22:24]: The tenth sign is that you can’t quantify how much the idea is worth to somebody. You can say that it either saves time, or it saves money, or it makes money; but unless you have a benchmark to measure that against, it can be very difficult to really understand what you should be charging for it. I think that there’s another side of it, too, which is what you believe it’s worth to people and what they believe it’s worth. Those two things, hopefully, will intersect; but there are occasions where those things are just wildly different from one another. If your expectations for it are much higher than that of your intended market, then you have to think about whether or not that’s a direction that you want to keep going, because that’s a bad signal. If you’re expecting to be able to charge $500 a month and people are only willing to pay $50 a month, you have to think about, “Well, is there additional value that I can add that will make it a $500-a-month product?” Or, is there just really nothing that you’re going to be able to do? You can either accept that it’s a $50-a-month product and go down in that direction, or you can walk away from it and go find something else that is going to be in that level.
Rob [00:23:24]: The exception to this is if you’re doing business-to-consumer stuff, because there can be a lot of entertainment, or other aspects that it doesn’t necessarily save time, make money or save money; but you’ll notice that, in sign five, we talked about “don’t do business-to-consumer stuff.” That’s why we’re focusing here on actually quantifying what the idea is worth.
Rob [00:23:42]: The eleventh sign is that you’re finding it hard to be objective. In other words, getting emotionally wrapped up in an idea, kind of like an “I’ll show you I can do it” attitude; or, instead of trying to disprove the hypothesis, pushing really hard to try to prove the hypothesis and really forcing it and looking for any way that you can find an affirmative answer to the theory that you’ve posed.
Mike [00:24:03]: I think that’s very difficult to do is to be able to look at that objectively enough to try and not prove yourself right, but to prove your theories wrong. I think it’s a different way of looking at it. I think it was – Heaton and Steli talked about this on the Startup chat about validating and kind of a popular misconception around Lean Startup, which is simply trying to prove different hypotheses wrong and not be emotionally attached to them. I think that in certain cases, especially if you are invested in an idea because you have this particular problem and you say, “Oh, I know exactly how to solve this, and this is how I’m going to do it,” it can be very difficult to separate yourself and your own ideas about how to solve that problem from those of the people who you are supposedly trying to serve; because it’s the people who you’re trying to serve that are going to be paying you – not you.
Mike [00:24:49]: The twelfth sign is what people want is something that you can’t deliver. There’s certainly going to be times where you’re doing customer development and you’re talking to people, and they say, “Hey, it’d be really great if you could do this.” For example, if you’re dealing with stacks and stacks of paperwork from the government, for example, and somebody needs to go get something notarized and there’s no electronic equivalent of a notary, for example, it could be very difficult – virtually impossible – to get that done if there’s no electronic equivalent. So, either you have to find a way to manually handle that particular process, or you have to just say, “Look, I can’t do this. Maybe there’s somebody else who could.” Or, if they had millions of dollars, maybe you’d go out and get some laws changed, for example; but it may be bordering on impossible to get certain things done.
[00:25:34] There are certain a lot of other examples as well. For example, if you’re building software that will integrate in with a platform and you don’t have direct access to that platform, that’s another place where it may be technically possible to do it; but for you it’s going to be almost impossible just because you can’t deliver something like that. Another one that I’ve heard a lot of people in different circles complain about is the fact that when they start building on certain platforms, those platforms can change underneath them. I think Twitter was kind of notorious several years ago for constantly changing the rules about how they operated and how people would integrate into their systems, and it just made it very difficult to build additional products that would hook into Twitter just because they would change the rules all the time.
[00:26:13] So, if those types of things are going to cause you an extensive number of problems and you’re not ultimately going to be able to deliver the experience that people are looking for, then that’s also a negative sign.
Rob [00:26:23]: Another good example of this recently in the bootstrapping community is Justin Vincent from Texting was validating an idea, and it had something to do with transcribing meetings for development teams. People seemed to really want it, and he described it, and they liked it; but the technology wasn’t there. He wasn’t going to himself write the transcription engine. He wanted to use an off-the-shelf one, because obviously you’d have to be an expert in voice transcription. He went and used several different APIs, and none of them could do it. So, frankly, what people wanted was something he could not deliver at this point.
[00:26:52] Maybe in the future, transcription software will catch up, and he’ll be able to launch the product, but for now he said he just had to shut it down, because he couldn’t get the results that he wanted in order to actually have people pay for it.
Mike [00:27:02]: The thirteenth sign you should kill an idea you’re validating is that you’re not learning anything new. If you have come to the conclusion that the people that you’ve talked to have essentially told you all the things that you could possibly learn, then it’s time to either move on to the next step of validation or walk away from it. I think that applies more to moving on to the next step than it does to walking away from the idea; because if you’re having, let’s say, 20, 30, 40 conversations with people and you start hearing the same things over and over again and you’re simply not learning anything new, then at that point you’ve got the information that you need in order to make a decision one way or the other.
Rob [00:27:38]: To recap our 13 signs you should kill an idea you’re validating. Number one was you’re avoiding talking to prospective customers. Number two, you’re having a difficult time finding people in your target market to talk to. Number three, it’s difficult to describe the idea or the value proposition. Number four, you’re having a difficult time identifying a specific group of people who will use it. Number five, we gave general disqualifiers about several factors that make an idea very hard to bootstrap. Number 6, you’re having a difficult time identifying a common problem among people you’ve spoken to.
Mike [00:28:06]: Number seven is that people say that it’s interesting, but nobody’s actually willing to pay for it. Number eight, you’re interested in it just for the money, and you can’t see yourself working on it for an extended period of time. Number nine, you’ve spent more than a month doing customer development and still haven’t been able to answer some basic, objective questions about it. Number ten, you can’t quantify how much the idea is worth. Number 11, you’re finding it hard to be objective. Number 12, what people want is something that you can’t deliver; and 13, you’re not learning anything new.
Rob [00:28:30]: If you have a question for us, call our voicemail number at (888) 801-9690; or, email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening, we’ll see you next time.
Episode 261 | Interview with Nathan Chan of Foundr Magazine
Show Notes
In this episode of Startups For The Rest Of Us, Rob interviews Nathan Chan of Foundr Magazine about his journey to success and what he has learned along the way.
Items mentioned in this episode:
Transcript
Rob [00:00]: In this episode of “Startups for the Rest of Us,” I interview Nathan Chan of “Foundr” magazine. “Foundr” magazine is an online magazine, and Nathan bootstrapped this completely on his own two years ago, starting in about 2013. He was sued by one of the biggest magazine publishers in the U.S. within the first four months of starting. He’s gotten interviews with folks like Richard Branson, Ariana Huffington, Tony Robbins and Seth Godin; and he’s really stair-stepped his way up from not knowing what he was doing or how to do it into building a really solid brand and a profitable online magazine. This is “Startups for the Rest of Us,” episode 261.
[Theme Music]
Rob [00:47]: “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 you first product or you’re just thinking about it. I’m Rob, and today with Nathan Chan, we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, today I’d like to welcome Nathan Chan of “Foundr” magazine. “Foundr” is a tablet-based magazine, so on your iPad, or your android; or, I’m assuming you probably get it on – can you get it on Kindle Fire as well?
Nathan [01:14]: No, you can’t.
Rob [01:15]: Okay.
Nathan [01:16]: You can’t, but you can get it on mobile, too.
Rob [01:18]: On mobile. Okay. You can download the Founder app. It’s spelled F-O-U-N-D-R, and Nathan has somehow been able to secure interviews with some pretty amazing people: Steve Blank, Richard Branson –
Nathan [01:31]: Ariana Huffington, Tony Robbins, Seth Godin –
Rob [01:34]: – very nice.
Nathan [01:35]: – various – many more.
Rob [01:36]: He’s a bootstrap startup founder, and that’s why I wanted to have him on the show, just to talk about his experiences. The magazine’s been out since 2013. He’s learned a ton on his journey, and so although listening to this podcast, you may be thinking, “Well, I’m not going to start a magazine,” there’re so many lessons that Nathan has experienced and learned through his time that we’re going to dive into over the next 30 minutes.
Thank you so much for joining me today, Nathan.
Nathan [02:00]: Thank you so much for having me, Rob. It’s an absolute pleasure. I’m a massive fan of the show.
Rob [02:04]: Very cool. Talk to us a little bit about “Foundr” magazine: why’d you start it, and maybe give us maybe a little background about what it is and what the goal is.
Nathan [02:12]: Yeah, sure thing. I started, actually, Foundr while I was working my full-time job. I bootstrapped it, as you mentioned, from the ground up. I actually didn’t even leave my day job until I fully replaced my income, and that’s something that a lot of people don’t do. They usually go cold and just leave their job and just make it work; but for me, I’m a very risk-averse person. It all started because – also, you mentioned that “Foundr” is my first business. I’ve never ran a business before, and it all started from just the curiosity of always wanting to become an entrepreneur and not really knowing where to start, what it takes; and also the fact that I identified that there wasn’t really a publication out there – an entrepreneurial, business publication – that myself, as an aspiring entrepreneur, could relate to. I think magazines like “Forbes,” “Entrepreneur,” “Fast Company” – these are great magazines, and they produce great content, but I found it difficult to relate to. I think they go on the assumption that you’ve already started a business; or, you already have a business; or, you’re an experienced, accomplished entrepreneur, and I found it quite intimidating. I knew that podcasts were really not, and I also realized that there wasn’t really a magazine targeting the younger demographic as well – nothing that was known. So, I just thought to myself, “Well, let’s just give this magazine thing a try.” We launched just on the iPad while I was in my day job, and I said, “I’ll give it a good, hard crack for a year.” Then I built it up, left my job; and, yeah, here we are today. But I guess the magazine just stemmed from just my own curiosity and wanting, I think, to fill that void in the marketplace that I identified.
Rob [04:04]: Very cool. To give folks an idea of where you were at, you were basically working a full-time job. You bootstrapped this. You didn’t raise funding. Everyone who helped you work on the magazine is a contractor, you mentioned, so you have, I’m assuming, contract writers, contract photographers, contract designers and layout folks. I mean this really was the effort of one person and very doable. This type of thing is very doable by anyone – right – if you were able to pull it off?
Nathan [04:32]: Yeah, I think so, definitely. I’ll be very clear. We have a lot of people that are helping me behind the scenes, and we do have some full-time staff now; but, yeah, yeah. To pull it off it was just me, man, and just utilizing freelancers, contractors all around the world; and I think that’s the awesome thing about the Internet now.
Rob [04:50]: Yeah, for sure. This is really cool. You’re 31 episodes in. You started, it looks like, March of 2013. How did you get that initial kick-start? You probably spent months planning, designing, building that first issue; and you launch into the iOS App Store, I assume, the Android App Store at the time. What did you do? How did you try to find people and convince them to download the app?
Nathan [05:15]: Yeah. I remember the first day we launched, we had 70 downloads. I made $5, and that was the first $5 I’d ever made online [laughs].
Rob [05:24]: Wow. Very cool.
Nathan [05:27]: What I realized was I needed – I didn’t have any money, and we were bootstrapping, so I had to work out, “What is the lowest-hanging fruit?” I quickly worked out that one of the best ways for us to get more downloads – I kind of tracked it back. So, “What does it look like for someone to subscribe to the magazine?” Before that, they have to download the app. Then before that, how do they even find the app? I did all sorts of things – not too heavily, to be honest with you, Rob. I didn’t really do any social while I was in my day job, so it took me about a year to build up the magazine. For that whole year, all I focused on was shipping a monthly magazine every month and try and get as many readers as I could. I didn’t really touch social, didn’t really touch content marketing, couldn’t afford any paid customer acquisition; so, I really had to just took at my playing field and find, “What’s the lowest-hanging fruit?” “Where’s the starving crowd?” I identified if you have an app, one of the lowest-hanging fruits is App Store optimization. So, Google for the App Store, like SEO for the App Store. What I found was that there’s all these people looking for business-type magazines, and they’re searching for key search terms like “entrepreneur magazine,” “business magazine,” “startup magazine,” “startup.” So, what I got really, really good with was optimizing that whole funnel from finding the app to getting people to subscribe. I can tell you for a fact that anyone that first opens the magazine, we have a 30 percent uptake of people subscribing. Then from there, I can tell you, working backwards, that if you search for “entrepreneur magazine,” “fast company,” “Forbes,” we actually piggyback off all of those magazines. So, if you ever search for those magazines that you want to read digitally in the App Store or Google Play Store – not hardly ever our downloads come from the Google Play Store – I’ll be very clear – but in the App Store, if you search for that, any of those key terms, “Foundr” will come up. We play also on the fact that you get your free Richard Branson issue. We try and build that trust; make it a no-brainer; and, yeah, just take it from there. But App Store optimization has been massive for us, Rob.
Rob [07:47]: I like that, because I have this theory called the “stair-step approach” to bootstrapping, and typically it involves launching a small product with a single marketing channel that you get really good at, then expanding into others and moving up this ladder. Typically, it’s with different products; but it sounds like with Foundr, you launched it, and you got really good at App Store SEO and, for lack of a better term, and then you branched out from there. I’m assuming by this time, you’re doing social. You’re obviously doing podcasts to promote it and other avenues, but when you started out, just getting that single tool on your tool belt can be so valuable for a first-time entrepreneur.
Nathan [08:22]: Yeah, I agree. That’s pretty spot-on, Rob; because it was only actually when I left my job we went down the content path. We used to have a really crappy website. It was terrible. It was just a basic landing page to keep Apple happy; but, yeah, once I left my job, it actually freed me up to focus on the content marketing page, roll out the podcast and roll out social. Yeah, we’re kicking some goals with social now, like the stuff we do with Instagram. We’ve got an email database of 100,000 that we built in a year from 3,000. A lot of that traction’s come from Instagram. We’ve found a few other channels now as well.
Rob [08:56]: That’s pretty impressive. You said you built it on Instagram. Obviously, Instagram is heavily image-based, so was that pieces taken out of the magazine, like different pages or different stories that you’re putting up there?
Nathan [09:06]: Yeah. What I’ve found with Instagram is – same with all those social channels. If you go and look at “Entrepreneur” magazine, “Fast Company,” “Forbes,” a lot of them post quotes on Twitter, or Facebook. We do the same in Instagram. We post, like, 95 percent quote; and we post a little bit about the podcast, a little bit about the magazine, a little bit – it’s a very small portion – behind-the-scenes stuff. But the quotes work really, really well because they have that virality where people tag their friends. They share it. They screen-shot it. They repost it; and that’s worked very, very well for us.
Rob [09:39]: Yeah. See, I like this because anyone can take lessons away from this. Again, if you’re listening this, you’re not starting a magazine, per se, you hear what Nathan’s done as a first-time entrepreneur: a) he shipped. He just said, “I’m going to ship for a year, and I’m going to get 12 issues out, and I’m going to figure it out along the way. Then he focused on a single tool in his tool belt – it was this App Store optimization – and then expanded out from there. You’re now talking virality, which is how you went from 3,000 to 100,000 email addresses; and although Instagram may not be the particular channel if you’re running a B-to-B app, or if you’re doing other things there’s always byproducts. You’re basically taking byproducts of something you’ve already produced, which are quotes out of the magazine, which is your finished product that you’re selling. You’re taking these byproducts and figuring out where they’re going to catch. In your case, it is Instagram; but I can imagine for other apps there’re going to be other approaches. This is good stuff.
Nathan [10:29]: Yeah, I think it’s all about just, yeah, shipping every – producing something consistently every, single week; every, single day; every, single month and just focusing on it and just having a relentless ability to attack whatever it is you’re focusing on if you get a little bit of traction and just scaling that up.
Rob [10:48]: Speaking of scale, at this point, how many monthly readers to you have at this point?
Nathan [10:51]: We have 25,000 monthly readers.
Rob [10:53]: Got it. Looks like you have multiple channels now. You have the magazine, which is obviously your flagship. You’ve started a podcast. Are you interviewing folks that are also appearing in the magazine?
Nathan [11:05]: Yes. What we do with the magazine – and I didn’t realize this until later, but one thing we do is we do these interviews on Skype, just like me and you are doing, for the feature interviews in the magazine. Now, we’re actually repurposing – because we actually imbed those interviews within the magazine. What I realized after a year was I’ve got all these amazing interviews with all these super successful founders and hard-to-reach founders. Why not just get our best ones and put it out into the world with the podcasts? I know it’s a great tool, a great platform. I always said I didn’t want to do a podcast, and that was how we were going to differentiate ourself, and the podcast has really taken off. It’s been an amazing trust builder, so now it’s just like another, I guess, latch on our tool belt to build our platform, to build our reach and to spread the mission and the word of just really promoting entrepreneurship and showing people what it takes.
Rob [12:00]: Very cool. I’m curious. Do you do much of the writing in the magazine yourself? Or, is it all hired writers?
Nathan [12:05]: Yeah, no. We have a part-time editor who now helps with all of our content that goes out, because we’re pumping out a lot of content now, man. So, yeah, Tate, he’s from Boston. He manages all that, and then we have tons of contractor writers – you know, 15, 20 contract writers. I only write the “Editor’s Letter” –
Rob [12:24]: Got it.
Nathan [12:25]: – but in the early days when I first started and it was costing, like … oh, my God, man. It’s funny, thinking back. Operating costs to produce the first few issues was under $500 –
Rob [12:37]: Wow.
Nathan [12:38]: – and, yeah, I had to do some of the writing. I was getting my mom to help me do some stuff.
Rob [12:42]: Sure.
Nathan [12:42]: I was getting friends to help me do some stuff; but, yeah. No, long away from the writing and touching that now.
Rob [12:47]: Yeah, you were scrappy and lean at one point, and now you have to be –
Nathan [12:51]: [Laughs]
Rob [12:52]: – no, you have to be sane. You can’t work 80-hour weeks anymore. So, very cool. And then you’ve also branched out. I think folks will find this interesting. You’ve also branched in now to creating a couple of knowledge products, or information products. One is about marketing on Instagram.
Nathan [13:06]: Yeah, we have a crowd funding guide, but that’s just like an eBook that is very well-curated.
Rob [13:11]: Right, so you’re taking a little bit of a push into that area, right? What made you decide to start selling info products as well?
Nathan [13:18]: Yeah. What I realized was – the magazine was doing well, you know, a profitable, six-figure business – just the magazine alone. What I realized was a lot of people started asking me – because we were using Instagram as an amazing channel to grow the magazine and to build our awareness and reach and email database. What was interesting was I wrote this blog post and, still, to this day, it’s one of the most successful blog posts on our site. It was titled “How to Get 10,000 Followers in Two Weeks on Instagram,” and that just crushed it, man. Neil Patel always references it, all sorts of things. All these people would come up to me, and they found that blog post. What happened very quickly was a lot of people started asking me how I was doing this stuff, and then a lot of people started asking me to do consulting. I was like, “I don’t really have time.” “I don’t really want to focus on that.” I thought, “Why don’t I just create a course?” So, I just put out to our email list an email saying, “Guys, would this be something you’re interested in?” Even though our database was around 5,000, 7,000 at the time – this was very early, because we got some really great traction early on with Instagram within the first couple weeks. People were just like, “Yeah, I’d love” – hundreds and hundreds of responses from people writing back to me in our community. So, this was something our community as asking for. I launched a beta, and then we relaunched the full course, and then it’s been really, really lucrative for the business and also just the community that have signed up to the course, it’s amazing some of the results our students are getting. It was something that I was just like, “Wow! Okay, so this is something that our community wants. It’s something our community is asking for. They’re asking for more help,” and I’m constantly getting asked about all these other things around starting a business, how to scale – all these other things. So, what I’ve realized is “Foundr” is the front end of the business, and then we can further monetize and build it up for the back end. I’ll be very clear, Rob. I won’t be doing the teaching. I’ll have many other experts coming in, and we’ll be doing curated courses using the publishing model, where I offer somebody an opportunity to either white-light all their content, or their video course that they have existingly. Then we package it up in the Foundr way with our tools, with our platform, with our systems. Then we do a deal, like an ongoing profit split. That’s the model we’re going to scale up. So, “Foundr,” podcast, blog content, social content, all on the front end. Right now, 95 percent of our content is free; and then if people want more help, it is there. I speak to a lot of people in our community. I actually jump on the phone whenever I can and just find out what their biggest problems, frustrations, desires are. A lot of things I’m hearing is people are saying, “Nathan, we love the stuff you’re producing. We love the free stuff, everything you’re doing; but sometimes we just need more help,” “Need more help.” Like, “I want to try this.” “I want to do this.” “I want to do this.” People always love that handheld content if they don’t have time to stuff around, or – you know, a lot of people just want their hand held. So, I think this industry, the online education industry is a multi-billion-dollar industry; and I think we’re now better equipped, then, to tap into that.
Rob [16:44]: What I like about the approach that you’ve taken is the common approach for building an audience these days is to start a blog or a podcast; and then you build the audience up, you find out what they need, and then you build products for them. You’ve taken a different approach and started a magazine, then made that profitable and then are looking at basically these content upsells. I’ve seen a few others. I know “Entrepreneur” magazine has their book line, and they have some events that they throw. I guess a lot of magazines wind up throwing events in order to do it, but I do like this hybrid model; because – let’s be honest – just purely publishing a magazine or a newspaper these days, even online, is not a growth business, per se. People expect the content to be free. I know they do pay for yours; but it’s going to be very, very difficult to build that into, let’s say, a $10 million business, or a $20 million-dollar – I mean you just can’t get to the scale. Whereas, adding these upsells and actually charging money for really valuable information and being able to charge a premium for these courses that are put behind your brand name – because your brand name obviously has a lot of equity with the folks that are reading our magazine and respect what you’re doing. Then, if you can place that on front of some $19 eBooks at this point, and then maybe it’s a $100, $200 video course, maybe at some point you throw an event – that’s where you’re going to be able to really grow this business and increase your revenue.
Nathan [18:03]: Yeah, I agree. Look, don’t get me wrong, Rob. I’ve got my eyes on building an eight-figure business. I think we can do it, do be honest with you, probably in a couple of years. That’s my goal. Now, it’s all about just finding out further ways to serve our community; just keep producing epic content; and, yeah, just rolling out and serving as many of our people in our community as we can and just producing more epic content, whether that’s paid or free.
Rob [18:28]: Very cool. I’m interested to hear how – you started this magazine from scratch. You were, in essence, kind of an unknown, I’ll say; and within eight months, your eighth issue, you have Richard Branson on the cover. In fact, your sixth issue has Neil Patel. You got Ed Dale in issue two. You got some big names early on. How did you possibly pull that off?
Nathan [18:51]: Yeah. One thing I realized, Rob – I didn’t know this when I started, but having a magazine is very, very powerful for building authority; and people take you really seriously. Some of the people we’ve got lined up for 2016 for our covers is crazy, like really, really hard-to-reach founders. I don’t know if I can say, but we’re talking to billionaires and stuff like that to get on our front covers – more billionaires, not just Richard Branson. Yeah, people take you really seriously, Rob; and you have a little bit more weight as opposed to having a blog or a podcast. I didn’t realize this until – it took me a few months to work this out, because if you actually look at the front cover of the first issue, Rob, I didn’t even have a successful person on the front cover. I had a stock image [laughs], and that’s kind of funny, looking back; because now we don’t have any problem. The reason we had that stock image was because no one would get back to me, but I just kept pitching, man. I just kept hustling, and within the first four months, I realized, “Richard Branson’s been on the front cover of every, single business magazine. Why can’t he be on the front cover of ours?” I just went down this path of finding out how to contact him, and I made a lot of phone calls. One thing: if you want to get any ambassadors for your brand, well, here’s a few, quick hacks for people that I know all you guys that are listening are going to love. One, make phone calls. I found that they get so much better cut-through, if you want to find ambassadors for your brand, if they’re an influence in whatever niche you’re in. If they have a book, try and contact the publishers. Find out who publishes that book, like Random House. Find their PR team. Speak to them and then try and find either the company’s PR team, or the agency that represents that person or company’s brand – their PR team. Then just try and find those people, because they’re actually paid to find press, so they can make you look good whatever kind of mutually beneficial exchange in value you come up with. Then I found myself about four months into the magazine on the phone to Sir Richard Branson’s head of PR. I pitched her over the phone. I remember I was so nervous. I was stumbling, and she said, “Look, please understand we get, like, ten requests a day; but shoot me an email. I promise I will get back to you. It might be a while, but I will get back to you.” I pitched for a Skype interview, and she said, “Sir Richard’s really busy, but he can do an email interview.” Then from there, his team worked with me to get the photos, and we come up with a feature, and we ask the questions. We get the answers. Then we come to a story, an angle; and then from there, to be honest, Rob, that was Richard Branson. Then I’ve just used that as a springboard to gain influence in the space. Yeah, just keep pitching, man. I’m just very, very relentless and very organized now, too. We’ve got up until June 2016 covers booked with some very cool, hard-to-reach founders. They’re going to be amazing interviews, hard. It’s going to be really solid content. Yeah, I’ve just played on that springboard. Another good tool that I use in my arsenal, if you are pitching over email, is a Gmail plugin called “Rebump.” Because you come from an email marketing background, you might know of it. It’s amazing. It allows you pretty much to just “set and forget.” When you are pitching business development style, you send an email. You get the Gmail plugin installed on your Gmail, and then you tick that little box. Then there’ll be literally, like, templated emails that will follow up; and it knows, because it’s connected to your Gmail, if somebody writes back and just flat-out follows up for you. That works very, very well.
Rob [22:39]: Yeah, I use Boomerang for that –
Nathan [22:41]: Yeah.
Rob [22:42]: – but it doesn’t automatically follow up. It just boomerangs it back in, and then I have to do another reply; but that’s what I commonly use. I think that’s a really good tip. That ties back in with something Steli Efti was saying. He’s kind of the master of startup sales, and he was saying that at MicroConf last April – basically, that you just have to follow up. Oftentimes, he wouldn’t get a sale, or wouldn’t get an answer until he followed up 15, 20, 30 times; but the people who are doing that are the ones that probably are the ones that are getting Richard Branson and Daymond John and Seth Godin and Tony Robbins like you are. I’d imagine these days, though, with all the issues you have and with all the people you can mention that you’ve already interviewed, you just have such credibility that I bet – when you emailed Seth Godin, was it even that big of a deal? Or, did he say, “Sure, I’ll just come into the magazine”?
Nathan [23:27]: Yeah, you got it spot-on, Rob. I just had to build it up, just build up that credibility and just keep – I used Richard Branson as a springboard. Yeah, with Seth Godin, it was pretty much I emailed him; and then he emailed me back in the morning, saying, “Can you do it in two hours?” I was like, “Yeah, [?].”
Rob [23:43]: That’s great.
Nathan [23:43]: So, we had the podcast interview; and, yeah, it was really cool; really, really fun. Great guy.
Rob [23:48]: Yep, that’s what I’ve heard.
I want to wrap us up on this final topic. You told me offline that you were sued by one of the biggest magazines in the first four months of your starting. Obviously, you lived to tell about it. Talk to us a little bit about what happened there and how you recovered. I’m definitely interested to hear how you felt during that time.
Nathan [24:09]: What happened was – it’s funny, looking back. We were just talking about this offline. It is not a very nice feeling to be sued, especially when it’s your first-ever business, and especially when you have no money and you don’t never, ever in the world ever expect that to happen. Just always play it really smart. Don’t ever think it won’t happen to you, because it might. You just never know. What happened to me was the magazine actually wasn’t called “Foundr.” We had to change it four months in. I remember we’d just locked down the interview with Richard Branson, and I was just thinking, “Wow. We’re kicking some [grows?].” Then I woke up in the morning about 7 a.m., about to go to my day job, and I checked my email. I got this email from this lawyer saying, “Hey, Nathan. I’m from so-and-so. I just want to know if you weren’t aware. You’re being sued by this company. They’re one of the biggest print magazines in the States.” He said, “Yeah, I just wanted to let you know you’re being state in Dallas, State [of] Texas. You’re being sued by this company.” He’s like, “You probably want to move fast.” He’s like, “I actually have a really good relationship with the judge on this case, so you should totally get me to represent you.” [Laughs] And I was just like – 7 a.m. in the morning, I was freaking out. I was like, “Is this sophisticated spam?” I haven’t been served. I didn’t know what the hell was going on, man. You know, it was crazy! A long story short, I had to change the name. I’m so glad that it happened now when it did, because we got a ten times better name, ten times better branding. It was such a blessing in disguise; but at the time, Rob, I was so stressed out. It was really, really crazy. I was lucky enough I didn’t even have to pay any money just because I had some amazing mentors that helped me through that whole process. Some of my mentors had been sued before. We just changed the name, and they left us alone. It was, yeah, really a blessing in disguise, [a] great lesson to be learned early on. But for the audience, when it comes to trademark infringement, if you’re erring on the side of caution, just don’t even do it. Make sure that your name, your branding is very individual and unique. If you think to yourself that it might be a little bit similar, or it might be a concern, just, yeah, go down the path of making sure you protect yourself. I think that’s really important.
Rob [26:34]: Right. Then the other lesson – because I’ve heard from several folks who’ve had run-ins like this – is that when you’re contacted – in an ideal world, they wouldn’t have just sued you. They would have sent you a letter letting you know about the issue, and then – you know what I’m saying – and then send a [?] – I’ve had a friend who’s had a couple different WordPress plugins, and as it turns out, it accidentally infringed on trademarks of company names, because they were helping people use that company through WordPress. So, it’s a natural thing to include the name in there. But they’ve been nice enough not to just sue him. They sent him a letter. Typically, it’s an email. It says, “Hey, I’m in the so-and-so department. This has come to our attention. We want to work with you to help you transition,” you know? They don’t give some hardline. There’s two ways to go about this, right? You can come in swinging and be like, “My lawyer will be in touch!” Or, you can say, “Let’s work with you on this.” That’s the way that I think so many of these cases turn out, and I think it’s such a better approach to just be able to resolve it without going to court; because let’s be honest. If you actually go to court, the only people that win there are the lawyers. They get paid a lot of money, and even if you win in –
Nathan [27:39]: [Laughs] That’s right.
Rob [27:39]: – court, you almost never really win in court. There’s just not that much money that comes out of it for either side.
Nathan [27:45]: Yeah, that’s exactly right. And, look, dude, I had no money at all. So, [laughs] you know.
Rob [27:49]: Wasn’t gonna happen, yeah.
Nathan [27:50]: [Laughs] Yeah, that’s right. We weren’t really making much money at all, anyways.
Rob [27:55]: Yeah. Well, very cool. Thanks again for coming on the show. If folks want to keep up with you online, where should they look?
Nathan [28:01]: You’re welcome, Rob. Best place is just hit up our website: foundrmag.com, F-O-U-N-D-Rmag.com. Now you know why we spell it “Foundr” without the “e,” because there was no one in the world that had that name, so we can be protected.
Rob [28:19]: Very cool. Thanks again.
Nathan [28:21]: You’re welcome. Absolute pleasure.
Rob [28:23]: If you have a question for us, call our voicemail at 888.801.9690, or email us at: questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, and we’ll see you next tim
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