Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Sean Ellis, CEO at GrowthHackers, about hacking customer acquisition. Sean defines his coined term “growth hacker” and talks about some topics in his upcoming book that draws from experiences from past products/companies he’s worked on including Dropbox, Eventbrite, Lookout, LogMeIn, and Uproar.
Items mentioned in this episode:
Transcript
Mike: In this episode of Startups for the Rest of Us I’m going to be talking to Sean Ellis about hacking customer acquisition, this is Startups for the Rest of Us episode 337. Welcome to Startups for The Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products whether you’ve built your 1st product or you’re just thinking about it, I’m Mike.
Sean: And I’m Sean.
Mike: And we’re here to share experiences to help you avoid the same mistakes we’ve made. How are you doing this week Sean?
Sean: I’m doing great Mike, how are you doing?
Mike: Good, I haven’t talked to you in a while.
Sean: Yeah, it has been a while.
Mike: I think the last time we were in a room in person it was back in MycroConf in 2001, is that correct?
Sean: Yeah, I think that’s correct and when in Vegas you don’t really remember too many conversations that you have because there’s so much stuff going on.
Mike: Do you remember the hot sauce incident?
Sean: I don’t.
Mike: Oh okay, Sean’s hot sauce flew from the stage, okay we’ll skip over that. So, I wanted to have you on the show to talk about a
[00:01:00]
Mike: new book that you’re coming out with and it’s called Hacking Growth, which I think it comes out pretty soon. This episode goes life on the 25th and it’s right about that time, right?
Sean: That is the day that it comes out, perfect.
Mike: Yes, so fortuitous Tuesday I guess we’ll call that. So, to give the listeners an intro to you though, you were the Growth Marketing executive at DropBox, Eventbrite, Lookout, LogMeIn, Uproar and you were like 1 of the 1st people hired in a marketing capacity each of those companies, is that correct if I remember correctly?
Sean: That is correct, Eventbrite would be the only 1 where there was actually somebody already going marketing when I got there but all of the others it was primarily engineers and I came in and started thinking about how to grow those businesses.
Mike: Got it and then you were also the founder of Qualaroo which you sold off last year, if I remember correctly, right?
Sean: That’s right. Yeah, we sold that February, March of last year and ha d a good run for a few years but really wanted to focus our efforts on Growth Hackers.
Mike: And that’s where you’re the CEO at today, it’s Growth Hackers dot com, there’s a fairly large community there and then you
[00:02:00]
Mike: also, coined the term Growth Hacker back in 2010.
Sean: Yeah, that was for better for worse, some people love it and some people hate it but I guess the good news there is that very few people ignore it, it’s evoking emotion.
Mike Yes, it does and I have heard mixed feelings on that, so I guess straight from the source, how do you find Growth Hacker, like what does it mean to you and how do you explain it to people?
Sean: Yes, so for me it’s about rapid experimentation across all of the growth levers. So, it’s really those growth levers sit across the customer journey where to contrast that against just marketing, marketing is generally externally focused. So, it’s looking only at acquisition and marketing is about just anything that’s important for driving growth in the business, you’re experimenting in those areas and the fact is that most of the really powerful levers actually sit in the product team’s area and so that’s what I think 1 of the big things that differentiates compared to marketing.
Mike: So, if I understand that correctly, you’re really
[00:03:00]
Mike: looking at Growth Hacking as a mechanism for taking all of the things that you’re currently doing and optimizing them or making them better, is that a fair assessment versus something like marketing where you’re doing content emails, searching engine optimization and that kind of stuff, is that correct?
Sean: Yeah, well there is optimization is definitely an important part of Growth Hacking but discovery is also important, so it’s taking everything from discovering new channels which would normally fit into marketing, so that part is still I believe really important for growth and a Growth Hacker should be doing those things but you should also be experimenting with what is that 1st user experience in the product, what should that look like, how do you get them to a really valuable experience with the product, how do you drive continued engagement, what are your different monetization levers for driving revenue growth. So, it’s really looking about what are all of the different levers that you can pull to drive growth of both customers and revenue in the business.
Mike: Okay, so with that in mind what are some of the most common misconceptions that people have about
[00:04:00]
Mike: Growth Hacking?
Sean: I think probably the biggest 1 is just that there’s these magic silver bullet kind of growth hacks that you just go and pick a silver bullet of growth hackers, so that would be 1 or another would be that you kind of, it’s about trickery, it’s about coming up with ways to trick users to find up for products and sometimes it’s just described as really clever marketing. I think all of those really miss the mark. What I was going for when I coined the terms was, I was looking at Dropbox where I was getting all of these resumes in with people having a kind of traditional marketing backgrounds or even online marketing backgrounds and they were so focused on everything a marketer could do or should do and I knew from my own experience that there was a smaller set of things that really impacted growth and then there were a lot of things that were just ignored by marketers or marketers didn’t have the access to them, they just didn’t have the right sort of influence in the organization that are also really important, so I was really trying to carve out a description
[00:05:00]
Sean: of what is really important for driving growth in business based on my own experience and when I looked at companies like Facebook and LinkedIn that were also growing quickly, what were they doing differently and how can we kind of make a description of a role that is more aligned with what really matters for driving growth in a company.
Mike: So, it’s really about for those high value multipliers so to speak, right?
Sean: Right and you can chaste that where I had a lot of startup CEOs at the time that were reaching out to me and saying hey can you maybe come and help us get some awareness in our company and you know I think that’s kind of the 1 big misconception of a lot of people in the startup world that’s like oh if people only knew if we could just some awareness we’d be killing it but the average person sees 3,000 advertisements a day. Nobody with a little start up salary is going to be able to get any meaningful awareness off of just running a few advertisements and having people see them, you build growth
[00:06:00]
Sean: through experiences and through a return on investment where you’re actually tracking your ability to convert, generate revenue and that was another big part of it, was marketers were kind of thinking like the CEOS and CEOs who were hiring marketers were looking for those types of marketers and you know in both cases they were really disappointed with the results most of the time, so you had this really high turnover with startups among marketers who were trying to take a traditional marketing play book to growing a business, a startup and just not very effective.
Mike: So, is that the core audience for this book, is it people who are coming in from a marketing position or would it be useful to developer slash CEO or just at like an engineer inside the company?
Sean: So, I think the reality of how growth works, whether people want it to kind of cohort it this way or not, it’s the collection of kind of all of the things that people are doing in product, which includes the engineers, which includes sales people,
[00:07:00]
Sean: which includes marketers and really they should be obsessed around that kind of journey that the customer takes to becoming a valuable customer of the business and so everybody who participates in that growth or in that value creation process should be interested in this book and CEOs in particular should be interested because how do you coordinate those efforts across a group and we’ve really distilled that down to a process where you can effectively manage growth across the really powerful growth levers to expand customers and revenue in a business.
Mike: I did notice when looking through the book that you did have sections in there where it was really aimed at people who were trying to implement it and some of your comments around that were specifically that you really need to have that executive level or management buy in order to make this stuff happen. Talk a little bit about that because I’ve seen things in larger companies where to get anything done almost requires CEO approval but is that the same thing in smaller companies as well??
Sean: Well so yeah, the bigger the company gets
[00:08:00]
Sean: or the older a company gets the more set in their ways they are and they’re not going to be able to kind of break down some of those functional silos that are just kind of historically how companies have been built without the CEO really playing a big role in that and so I think that’s what’s prevented a lot of bigger companies really embracing growth hacking as an effective way to growing their business. It’s really powerful so I think overtime they will make the transition to more of a cross functional full customer journey and work all of the levers of growth but in the short term it’s really what holds it back is basically a lack of kind of buy in necessarily from the CEO and then there’s a lot of things that you can do once you have that to make it effective and that’s a lot of what we cover in the book.
Mike: So, I guess to start with the outline of the book, you’ve got it broken down into 2 parts, the 1st part is the method of implementing it so it’s more or less a process and it talks about building the growth teams, determining what your type of product is, whether it’s a must have product
[00:09:00]
Mike: or something else and identifying the different growth levers in the business and then it talks about testing it and then in the 2nd half of the book you refer to it as the growth hacking play book where you talk about hacking customer acquisition, activation, retention, monetization and then bringing all of that collectively together to help create a cycle. Could you talk just briefly about what you mean about having that cycle in place and how that all ties itself together?
Sean: Yeah, so what you see in really effective growth organizations and growth companies is that they end up really building a rhythm around growth where they understand sort of how growth works within the business, what are the key drivers of growth within the business and they manage those and continue to optimize them but as a team they’re constantly figuring out new ways to enhance growth, so it’s basically analyzing the situation, prioritizing all of these ideas that they can generate to improve that situation and then running those tests and through the tests they learn and so continuing
[00:10:00]
Sean: to just run this process that helps them learn new, more effective ways to drive growth in the business is ultimately the outcome that everyone should be shooting for and what we’ve gone through in the book is how to really get all of the pieces in place to where you can get into that really high testing tempo rhythm as a team that’s a common element that you see across all of the really fast growing companies.
Mike: So that’s really like a systemization of growth hacking, so that you put all of these different pieces in place and then you just repeat them as quickly as possible, right?
Sean: Exactly and you’re just accelerating that fly wheel of growth and that comes from a deep understating of how growth is working and through testing you’re just keep learning new, more effective way to drive growth and you also learn what doesn’t work through the testing because not everything is going to be successful when you’re testing it but every test that you run you get smarter about what it takes to grow your business.
Mike: Could you talk a little bit more about the types of things that fail and 1 of the things that I’ve heard from people or their criticizing of the whole
[00:11:00]
Mike: concept of growth hacking is that they’re like oh there is not silver bullet, you know you can’t just growth hack your way out of anything, it doesn’t work that way and I think to some extent the critics are right when you phrase it in that particular way but I also think it’s important to realize not everything is going to succeed or there’s going to be situations where you don’t have a clear understanding of whether something is even working, if it’s moving the needle for you. Can you talk briefly about those types of situations and how do you recognize those?
Sean: Well so the 1st part that we really cover in the book that’s a critical prerequisite for growth is making sure that you have value in the 1st place, so if growth hacking doesn’t work or if you get kind of fleeting spikes of growth and then it comes crashing down it’s usually because the finish line for the customer is not a worthy finish line and there’s no reason to sticking around and keep using the product and if you can’t retain users it’s very hard to grow a user base, you’re basically just replacing customers month after month and in a SaaS
[00:12:00]
Sean: business you really see the pain of that, other businesses it might be less clear. So that’s the starting point, it’s just making sure that you have a product that’s a must have for users and then once you understand that, it’s about breaking down that path that gets people to that spot of becoming a must have user and then figuring out ways to improve the journey from consideration all the way to saying gosh I can’t life without this product. So, when you talk about silver bullets and hacks along the way, we definitely are not recommending that, here’s 6 things to do that are going to work every single time. I think there are certain principles that help govern what’s going to work and what’s not going to work. So, like if you read [UNKNOWN] there is some really good kind of examples of just human behavior but the individual programs and experiments that you run, you don’t know if they’re going to work until you run them and so you need a really good process for prioritizing which ones you’re going to
[00:13:00]
Sean: run and be focused on the area of your growth engine that should have the most focus because you have the most opportunity for improvement.
Mike: That makes a lot of sense, so the thing that I really wanted to drill into with you on this episode was the idea of hacking customer acquisition and you and I talked before on the podcast about identifying something that our listeners are probably not going to hear in other places. So, in digging into the hacking customer acquisition, 1 of the examples you threw out was Dropbox, that was kind of the 1st example that I came across in that section and the commentary in there was that there were initial cost of acquisition was around 400 dollars but they were only making about 100 per user each year, so clearly, they need to find some other acquisition strategy to make that type of business work. Can you talk a little bit about that process of identifying what was going to work for them, because you were there very early on in the process for Dropbox, so it’s not as if you weren’t directly involved in this, it’s not as if it’s a historical look from an external source?
[00:14:00]
Mike: I mean you were right there.
Sean: Right and that’s one of the great things about the book is we do bring in a lot of examples from other companies and you know talking with other growth leaders but a lot of it is based on my own experience and what I’ve done specifically in these companies to drive growth and Dropbox in particular, what we wanted to do with Dropbox was kind of explore the edges of possibilities around different channels and so we did do some exploration in basically the Google ad words, kind of paid search marketing just to see what the economics look like there and we quickly saw that the economics were not good in that area but at the same time we saw that there were all of these other great opportunities for growing the business and the 1 that was working literally, so I started the week that Dropbox launched at Tech Crunch, kind of the equivalent of Tech Crunch Disrupt, I think it was Tech Crunch 50th at that time but they launched the product, they got some good momentum, they had a pretty good user base during the beta but this was when it 1st became available to
[00:15:00]
Sean: the public and what I saw was there was a lot of passion for the product in that early user base and so that was 1 of the 1st things we did, was how can we tap into that passion to grow the customers and really trying to just break down how is growth happening already and what 1 of the thing we did was we found that growth was coming through a number of channels, so like if somebody wanted to share a file inside Dropbox, that was pretty effective. Somebody would share a file, the person on the receiving end would click on a link to get the file and they would be able to lightly experience Dropbox, so there was a small flow of people coming in from there, there were people coming in from shared folders and then there was just a lot of natural word of mouth was well and so it really started with trying to understand what the motivations were behind those people, ultimately people who love the product and were sharing just through word of mouth about the product, trying to understand those people and then kind of connecting the dots. How do we
[00:16:00]
Sean: get someone who discovers through a file share to actually, eventually understand the 360 view of what Dropbox could do for them and then end up loving Dropbox. So a lot of it was documenting initially and then really capturing what was our data around each of those on boarding flows and then a lot of surveying I think I probably had feedback from you know hundreds of people every single day through different surveys I was running, just to figure out what were the motivations and ultimately perceptions that people had throughout their journey, depending on each of these paths and then that informed our ability to prioritize where should we experiment 1st to try and increase those flows. So not just increase people coming in through those flows but how those people actually convert and become those active users on the product.
Mike: So, what were some of the leading indicators that you used to determine that you wanted to hack the acquisition process versus like activation or
[00:17:00]
Mike: retention or monetization, because I mean you said you experimented with the acquisition through paid ads and clearly it wasn’t going to work but what was it that pointed you in the direction of acquisition versus those other channels?
Sean: So we really didn’t just focus on 1, we were optimizing across the full path but the starting point was just figuring out how are they discovering this product and depending on the path that they came in, understanding what were their motivations on that path and it just seemed like the good opportunity initially was what could we do to, so in a sense you actually could say that we were more focused on activation for those channels initially and then as we improved that activation, then we started to think how can we get people to share more files, how can we get people to do more folder sharing and ultimately we built in a incentivized referral program so that people even started to just do natural word of mouth more often but we built
[00:18:00]
Sean: kind of incentives across each of these paths that were already happening and that really helped to accelerate them.
Mike: So, you just talked about how you had done like a lot of surveys and you had hundreds of them coming in everyday that you were looking at and trying to parse through. What was it that you were trying to find with those surveys?
Sean: So 1st thing I’m generally trying to figure out is intent, so like intent is this really powerful force for a marketer to work with and marketers have their own agenda. They’re like love me for this, but the other person is like in strong momentum looking for something specifically and so it became really important to understand what that intent was and then we were also trying to figure out at which point did they realize that they wanted the product more, it was more than just wanting the file that somebody had shared with them, but they wanted the product for sharing files and so really trying to understand what that transition point was and kind of crowd sourcing it with people who were making that
[00:19:00]
Sean: discovery on their own and the more that we understood those people, that gave us a clear picture of what was happening. So, 1 of the things that we kind of experimented with early on was very quickly, depending on whatever their intent was, telling them about all of the benefits that they could get from Dropbox and when you think about it, like probably the biggest barrier to the adoptions of a technical product is complexity. That’s probably more of a barrier than even price and so just like giving them a list of all the things they could do with it was actually causing a lower conversion rate than when we really kept it focused around what their intent was and trying to convert their intent 1st and then ultimately give them more of a 360 degree view of the product once they were more locked on than what their initial intent was.
Mike: Is it something that you would generally recommend for most business, especially when they’re starting out because it seems like to me the place most people start out when they’re launching a new product is there focused on the features page
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Mike: and everyone is like no, no, no you don’t want to do that, you want to pitch the benefits and of course from there’s it’s like okay well now instead of the benefits what is it that the people are actually trying to accomplish.
Sean: Yeah, so again it’s this idea of test, test, test, experiment, experiment, experiment. That’s what you see kind of through this whole process, so initially what I’m trying to do in a company is like kind of get out of my own head and just get enough people coming through the funnel so that I can try to figure out who is going to stumble in to what the product does that’s really valuable to them and get outside of those assumptions because I think it’s really hard to guess that ahead of time. You can have a bit of a vision as you build the product but a lot of the most successful products end up being valuable for unintended reasons, we definitely saw that at LogMeIn for example. So, the best benefit that I had with DropBox was through the beta, the team had done such a good job to build the flow of traffic coming in there that I didn’t have to focus on building the initial flow, I could right out of the gate
[00:21:00]
Sean: focus on understanding the flow. So the place where I actually start, like at the heart of things is I find that people who absolutely love the product, and I’m able to uncover that by just asking existing users on the product that are using it pretty regularly how they would feel if they couldn’t use the product anymore and I’m trying to hone in on the ones that they would say they would be very disappointed without the product and when they say that, that tells me like they’ve discovered something so valuable that they’re not going to churn and they’re telling me that they consider this a must have, if they would be very disappointed without it and so understanding that, that’s going to be the key to basically being able to build an overall benefit or promise of what the product will do for people that sets the expectation on what the product is truly great for and I think that’s 1 of the mistakes that a lot of marketers make, is that they initially kind of build that promise just on their own guy or own the founders vision
[00:22:00]
Sean: or whatever it might be but if it’s a promise that’s not aligned with what the product is truly great at delving it’s going to attract the wrong type of people who aren’t viscerally passionate about the product. So, start with understanding what that must have experience is, figure out the benefit that reflects that experience and then working externally to get hat into the message to set the right expectations goes a long way in just building a more passionate customer base and it starts to inform those customer acquisitions efforts as well.
Mike: So, when you’re trying to I guess hone in on what that compelling message is, is that the place where most people should be focusing their efforts early on?
Sean: So, it really depends, like I said I had the luxury at Dropbox of already having a decent flow of customers, so early on for most companies it’s that the initial efforts are how do I actually get any kind of flow of customers into the product and so that can be a really manual process. I wouldn’t obsess over ROI at that point, I think that’s another mistake that
[00:23:00]
Sean: people make in the very early days is they’re trying to tweak the economics of that customer acquisition, I would essentially say this is my learning budget originally and sometimes you don’t even have to spend anything at all, you can get more through just manually going out and recruiting users but it’s not about trying to find that big scalable challenge that’s going to pay, you know give you a great return on investment. Early on you’re just trying to convince some people to come in and experience the product or you can figure out if you have something that’s worth them sticking around on and then if you don’t you have to hit the reset button in the business and kind of go back to square 1 where you’re working on product market fit, but assuming that you do have that. Then what I would do from there is then to start to optimize that 1st user experience just enough so that by the time that you’re focused in trying to get the economics right in some channels that you don’t have something that it’s like it’s just
[00:24:00]
Sean: so, convoluted to get started with a product that you’re going in and you’re trying to do those ting with both hands tied behind your back and your odds are stacked against you. So, you want to get the basic kind of low handing fruit out of your on boarding funnel so that by the time you’re starting to do some channel testing where you’re actually trying to find that scalable way of trying to find customers it has a fighting chance of working.
Mike: Yeah and I think that’s sometimes pretty difficult to go through that process and realize how I spent all of this time building this product and working on it and it’s really not making any money and I would like to get to that point quickly and the solution is not necessarily a ton of traffic at it because if it’s not, when it converts everybody’s going to fall out and you’re just kind of spending a lot of money and a lot of effort for not good reason.
Sean: Right, so you go from this kind of period of when you’re trying to get product market fit, that’s a super patient process, so until you’ve created something that people care about, that’s where you just kind of blasting a little bit of traffic at it and those people don’t seem to care and
[00:25:00]
Sean: and then you’re sending more, you make some iterations, you send more but once you get that signal that it works, you do start to get some more urgency once you get the signal that somebody considers this product a must have, then you do have some urgency about pretty quickly trying to run some experiments through your funnel to figure out where it’s broken and so things like user testing dot com can be super valuable at this time of just giving someone a task of trying to come in and sign up and use your product for the 1st time and being able to watch videos of them coming in, super insightful. You can make a lot of really easy usability fixes there and then over time you want to start to AB test kind of different paths to go in there, but that requires a lot more traffic so some of it’s going to be more the usability testing to get those initial lists and then once you go out and you start to build traffic and you actually have volume coming into the funnel, that’s where it’s a little bit of a back and forth between the acquisition and activation, so if you’re really having a hard time with your acquisition
[00:26:00]
Sean: channels, maybe you need to work a bit more on the efficiency of your conversion and your funnel and then go back and then work the challenges again but it’s a little bit of back and forth but you usually at that point you’re back and forth between activation and acquisition.
Mike: So, if I were to ask you what sorts of examples of acquisition hacks that you’ve seen or that you’ve used before or that you found to be extremely helpful in the early stages of the business, like what sorts of things would fall into that category and I realize that these things are probably not going to be able to apply across the board to every type if business but I think there are probably some common ones that I think most people could start out with. So, let’s kind of break it down and say look okay if you’re just starting out what sorts of things would you try 1st?
Sean: So, the 1st question I would ask in any business is there active intent for this product? Do people know this category exists and they’re looking for solutions or am I doing something that’s really innovative that kind of nobody knows it exists? In that case, you’re not going to get any benefit from like going to
[00:27:00]
Sean: Google and starting to buy some search keywords for example just because no one even knows to search for it. So that would be the highest level, is just are there people looking for this type of solution or are they’re not? If there are, usually a good place to start is trying to kind of tap into that existing intent, if there’s not then you need to get into demand generation mode and it gets a little harder on the demand generation mode what’s, again, very category dependent as you were saying. It’s going to be different for companies but like in the marking technology space a lot of times a good place to start in that case, if a demand generation of people aren’t looking for it would be with constant marketing where you’re really writing your vision about how this enhances the life of a marketer or whatever it might be, but if there’s kind of some education where you have to set the context for your product then content marketing can be pretty effective but you can’t expect that you
[00:28:00]
Sean: can just write that content and people are going to stumble upon it so then you still need to market that content, so it’s this idea of you ultimately need to start to stack some of these things on top of each other, so probably the staying with the kind of frame work part that I was talking about initially. Initially you’re really trying to get that birds eye view on what types of channels might be useful for this business and there are so many choices that you need a pretty good process for figuring out where am I even going to start with this. 1 mistake that I do see with a lot of people is that they kind of try to test all of them and most of these channels are too hard to figure out if you’re just testing it like, oh I’m going to spend 15 minutes to try and figure out this channel and oh I’m going to run 1 ad in there but that didn’t work, I’ll move on. You really want to narrow it down to 1 or 2 that you really think will be effective, work that for a while, if it’s not then you have your back up channel and then your back up channel after that
[00:29:00]
Sean: you are kind of working across to, just ultimately your goal is to find 1 single source of customer acquisition that’s going to work for you and ultimately scale.
Mike: So, when you say work that for a while, kind of what is your mental benchmark for how long you should be spending on that or how much effort you should put in, because I think most of the people listening to this are probably not in a position where they can spend 40 hours a week on something. So, let’s say you’re spending 10 hours a week on it, like how long should you be running some of these experiments?
Sean: So, if it’s search, you can generally figure out if it’s going to work for you pretty quickly, if you feel like you’ve got a better mouse trap in a category where people are already searching or maybe not even a better mouse trap but just an additional mouse trap, if they’re searching for it then that means that they don’t necessarily a great solution and so like for example at LogMeIn, search was a great lever for us. So, we had a competitor go to my PC at the time that was spending hundreds of millions of dollars essentially promoting
[00:30:00]
Sean: their solution that was a pretty expensive solution and so we were able to basically draft off of that, spend that they had and we had a premium solution that was half of the price and then we actually even had a free version that could soak up some of that demand that they were creating that their high price wasn’t able to absorb. So, let’s say they had a 10 percent conversion rate to a purchase on their sign ups, that meant 90 percent of the people were interested in the category, they just the value proposition wasn’t strong enough and so there was a lot of search volume around remote access to your computer, you can control your computer from anywhere, so just being able to buy those keywords, we were able to get some good initial traction doing that. At Dropbox, it was a lot harder, like we did try to test some of the keywords as we talked about, like maybe well Dropbox is kind of like Backup but when we went and tried to buy the Backup keywords you’ve got these big enterprise backup solutions that we’re paying
[00:31:00]
Mike: a lot of money to generate a click and they had a high enough price point on their product where they could actually do that in a cost effective way. So, a premium Dropbox product just really couldn’t compete on those keywords. So that’s kind of that initial part is you just, I think in the case of search you can generally figure it out pretty quickly. Facebook is a channel that tends to work for a lot of companies, mostly because if you think of Facebook there’s like 1,000 or more targeting combinations that might work for your business. So, people in this city that are this age, that are this gender, that like this product, that generally if you test enough combinations you’re going to find something that works but even knowing how to test those combinations requires some familiarly with the platform itself, there’s a lot of kind of complexities and tricks within Facebook to really kind of make things work for you. So, your question
[00:32:00]
Sean: of they don’t have 40 hours to invest in figuring it out, then they’re going to be competing against people who do have 40 hours a week to figure it out, so that’s going to kind of be the trade off there.
Mike: Right but it sounds to me like your general strategy in those cases is just to drive enough traffic and enough eyeballs so that you can get the conversations going so that you can ask people questions and start honing in on that message and then from there, that’s like your optimization strategy is figuring out what the message to those people is, what will actually resonate and then that allows you to drive your cost of acquisition costs lower because you’re able to be more targeted.
Sean: Exactly, so you’re just looking for signals early on, my gosh for every dollar we spend on this channel in this pretty narrow targeting we’re generating 90 cents back on that dollar, like that’s pretty close. We haven’t done a lot of optimization of the landing page or maybe even the ad in there and you know if you see that kind of signal
[00:33:00]
Sean: that might be a channel to keep working, where gosh I’ve invested 150 dollars into this channel over here and we don’t have a single person who’s signed up for our product or even visited our website, like you could have such low signal at that point it doesn’t make sense to keep investing but that’s part of the balancing act that you’re playing is that if you don’t figure this out you’re going to fail. If you don’t figure out how to acquire, convert and monetize customers you’re going to fail and so it is a high stakes game that you’re playing in figuring these things out but you have to be pretty driven and experimental in getting the formula right.
Mike: So, when you’re experimenting the different things to try, how do you decide which ones to go after 1st, like what’s a prioritization strategy that people can use?
Sean: I think 1st thing you want to do is list out all the channels that you think could be potentially useful for you and we have a couple of good templates in the in the book for helping you
[00:34:00]
Sean: pick channels and prioritize them but basically the main thing that’s in the template that we have in there for this is essentially look at the channel across a number of criteria, so cost, targeting, control, so like is it something that you have to do weeks of advance, like looking at the control did you kind of weeks of advance and planning and once it started you can’t stop it or tweak it, that would be a low control channel. A high control channel would be something like Facebook or AdWords where you can hit the pause button, make a change, restart it, hit the pause button, you can do that over time. Similar to the control would be your input time, so if you wanted to test television it could take months to produce a television ad that you would have to put on the television, so that would be a really high input time where even if you were going to test a banner somewhere it’s still is a pretty high input time to design a banner that kind of that looks good enough that somebody might click on it versus if you’re going to do a Google ad, you can literally
[00:35:00]
Sean: write a Google ad in 5 minutes or even a Facebook ad that’s pretty easy to pick an image and build a Facebook ad in just a few minutes, so that would be a really low input time and that’s important. Then output time would be how long until I know that, that channel shows some promise. So how long does it take to start to read the potential of that channel and then the final criteria would be scale, so if this thing works is it something I can continue to invest in and scale a lot, like radio would be an example that if you can get radio working in 1 market, there’s a gazillion radio markets and there’s a gazillion radio stations and so you could really make that work effectively if you could get it working but you’re going to miss some of the control and maybe the targeting pieces that we talk about on these other criteria.
Mike: Won’t using these types of prioritizations kind of drive most people who are in similar places in their business into the same areas?
Sean: IF there’s an opportunity in those areas to generate a positive
[00:36:00]
Sean: return on investment, they’ll be fine. What I would weigh it towards is whether it’s a new emerging platform, what you’re not going to have in those platforms like say Snap Chat been around for a while now but the early days of Snap Chat, you’re not going to be able to just go download 6 articles on great ways to make Snap Chat an effective customer acquisition channel, you’ve got to literally go in there and kind of invent it. So, in that case it’s going to be hard but if you can invent it then you’re going to have a bit of a much less competitive environment in there because other people haven’t figured it out where if you compare that to Facebook, yeah you have massive scale on Facebook, it scores well across each of these but the down side of this is that there are super sophisticated marketers in there that are going to be hard to beat and so that’s again, part of the trade off that you’re making.
Mike: Yeah, I think the 2 things that kind of stand out for me from all of these things that you’ve just kind of touched on is the fact that iteration time alone is almost worth its weight in
[00:37:00]
Mike: gold when you’re trying to figure out what your marketing message is and you’re trying to drive eyeballs to figure out what’s going on and why people are using your product and why they would and what resonates with them and then the 2nd thing is that those emerging platforms, partly because they’re so low cost at that point, people aren’t really tapping into them and I can think of a specific example of somebody who literally doubled their revenue from 1 to 2 or 2 and half million dollars basically overnight on Instagram marketing, it was just insane looking at the graphs, it was just crazy how much.
Sean: That’s awesome, yeah because there’s not that many people that can effectively grow off of Instagram so that it makes sense that if you figure it out you’re going to have a pretty unique opportunity there.
Mike: Right and this was about a year before Instagram had any sort of paid advertising, they’d like figured out their own system and they had all of these spreadsheets. It was really quite interesting.
Sean: I have 1 quick example that really highlights the importance that you just touched on why you need to get your activation right in some of the lower funnel things to make your channel work,
[00:38:00]
Sean: we touch on it in the book but when we 1st were investing in search for log in it worked pretty well, like I mentioned there was a lot of intent for that type of solution and we were able to scale to about 10,000 dollars a month with a positive return on investment but I couldn’t scale beyond that and when I looked at what was outside of my control as a marketer I could see that 90 plus percent of the people who were signing up through my marketing campaigns were never using the product, so if they didn’t use the product they weren’t going to pay us any money was so I wasn’t going to get that return on investment. They’re not going to tell their friends so we’re not going to get any of the organic growth that is really important in companies, so just basically everything that is based on them using the product so I presented that data to my CEO, my CEO said oh my gosh you’re right, we’re going to have a really hard time growing the business if we don’t get this 1st user experience figured out and he put the overall product road map out on pause, put every product person, every engineer
[00:39:00]
Sean: on that 1st user experience to get it right and then within a few months we were able to 10X the number of people who signed up and actually used the product and what that meant from that channel in Google that had scaled to 10,000 dollars to a month now scaled to a million dollars a month, so if you think for like every dollar I was investing on some key words if I’m only getting 90 cents back I would cut them, now I’m getting 9 dollars back on that key word if you just take that increase in conversion rate to usage and assume that follows through to revenue and across all of these channels suddenly search became this massive channel for us and again now that I had people using the product they were going to talk about it, refer the product and because we have a freemium model that’s 1 of the big factors in a freemium model is that people should be spreading the word about this great deal on this free version and so by the time I left LogMeIn a few years later we had about 80 percent of our new
[00:40:00]
Sean: customers were coming in through word of mouth and so you take this million dollar plus a month being spent and that’s only account for a small fraction of the users and everybody else is coming through this word of mouth, so that’s really what we kind of talk about in the end of the book where it’s this fly wheel of a bunch of stuff really going well and that’s the goal that you need to get too but it’s the interdependency of these different growth levers and how they work together to ultimately build a really powerful growth engine.
Mike: Yeah, and I will say like I’ve looked through, I haven’t read the entire book but I’ve looked through a large amount of it and it’s extremely dense, there is a lot of information in here.
Sean: Yeah, my recommendation is somebody not try to read it cover to cover but instead really kind of try to get the big picture of the book, the beginning really kind of gives you a pretty good big picture and then just do deep dives on a few of the chapters, like just really try to like now I’m going to be all about acquisition and then really like absorbs and read that chapter 2 or 3
[00:41:00]
Sean: times and study the graphs and study the other parts and then after that, and put it into practice as you’re reading it, like use it as a kind of study guide as you’re working that part of the business and do the same thing for activation but like the more that you can kind of repeat this, repeat and really drill down into the chapters you’ll actually get a lot of value from the book. Just cover to cover it is so dense that it might be actually hard for a lot of people to read it that way.
Mike: So, I think that’s probably a good place to leave off. Do you have any other closing thoughts for the audience?
Sean: No, probably the biggest 1 that I would just say is again, this is super experimental just be prepared to test a lot and focus on learning from every test whether it works or it doesn’t work in the way that you intended, get smarter about every part of the growth kind of function in the business and if you do that you will figure it out if you’re like dedicated to it and you absorb what you’re learning through each test and just keep working to increase that cycle of testing, then that’s really critical for growing a business.
Mike: Awesome.
[00:42:00]
Mike: Well thank you very much Sean, I really appreciate you coming on today. In the show notes we’ll have a link to the book over on Amazon and it’s called Hacking Growth. If you have a question for us you can call it in on our voice mail number at 1 888 801 9690 or you can email it to us at questions at startups for the rest of us dot com. Our theme music is an exert from We’re Out of Control by Moot and it’s used under creative comments. Subscribe to us in iTunes by searching for Startups and visit Startups for The Rest of Us dot com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
[00:42:28]
Episode 336 | Key Takeaways from MicroConf Vegas 2017
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike reflect back on MicroConf Vegas 2017 and give you their key takeaways from both the starter and growth edition talks.
Items mentioned in this episode:
- MicroConf Recap
- DigitalMarketer
- Rubberstamp.io
- Smart Marketer
- CartHook
- Thoughtbot
- Giant Robots Podcast
- Startup Event Solutions
Transcript
Rob: In this episode of Startups For the Rest of Us, Mike and I talk about our key takeaways from MicroConf Vegas 2017. This is Startups For the Rest of Us Episode 336.
Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: I’m Mike.
Rob: We’re here to share our experiences, to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: I am still dehydrated and hoarse from last week. At the moment, I’m not sure if it’s just from being in Vegas for seven days or if it’s combination of that plus the pollen and stuff that I came back to in New England.
Rob: Yeah. Yeah, it’s crazy, the dehydration ability of Vegas. Right when I landed, I pull out the ChapStick. I was wearing ChapStick the whole time this time so my lips never got super raw. Yeah, I was drinking a ton of water. I didn’t stay up too late any night this time either. That was good. I think that helps.
Mike: Yeah. I tried to avoid that as well but I think there were couple of times where I was in bed sometime after midnight. I don’t think it was several hours late, it’s like one or two except for the very last night. Going to bed early certainly helps.
Rob: Yup. It also helps that we start the conference now at 10:00AM instead of 9:00AM. It’s just that extra hour gives you time to have a good breakfast and wake up slow. I didn’t feel tired at really any day at the conference, which is interesting considering that we basically had four days of back to back conference.
If you’re new to the show or you haven’t heard, we split MicroConf. Normally, we do two days and this time we did two back to back two day conferences. We did growth edition which started with a welcome reception on Sunday evening, and then we did two full days of talks, and then hanging out on Monday and Tuesday. We did starter edition which is for people who aren’t yet making a full time living from their business. That’s the differentiator between starter and growth. If you’re already making a full time then you should come to growth. Starter ran on Wednesday and Thursday. I was in Vegas close to a week by the time we took off.
Mike: You and I haven’t really talked about this. How did you feel about running the two of them back to back?
Rob: I have to admit, the fact that we’ve sold both of them out, heading into it made me think it was probably the right decision, because it really was a gamble. We decided to do this six months ago, realizing that we preselling the conference out too quickly. We didn’t want to grow it. There’s always the struggle of do we just keep raising prices till we just make the conference super big, make it a 400 person conference, 500 person conference. We’re trying to figure out how to do that. We eventually decided to split it up this way.
I was hoping that it would work well but I was, with any new thing, I’m always a little concerned about what could go wrong. Given the fact that we sold both of them out, my expectations were high that we made the right choice.
Once we arrived there, I pretty much heard almost exclusively positive feedback about the split, both from the growth folks and the starter audience. How about you, how did you feel?
Mike: Xander had asked us, it was Tuesday night, how we felt so far and whether or not we were going to be able to do it again. My mindset coming into Tuesday night was just, “Hey, we’re coming up on the halfway point.” It’s not like it was running two conferences back to back. It really felt like one giant conference just spanned four days. I think that from that perspective, it was more about mindset shifts.
I was also cautious about having this idea in my head that, oh yeah, I’ve talked to people here and they’ve said that they thought it was a really great idea because I feel like the people that don’t think it’s a good idea, or are not happy with it, or were uncomfortable with it, are probably not going to tell you basically to your face. Some people will but I feel that’s the stuff that’s going to come out in the reviews afterwards. You’re not going to find out right away. I don’t know, I was a little cautious about it just because I was hearing from people, “Hey, I really like the fact, this split.” Like I said, they’re not going to tell you necessarily, “Hey I really hate this.”
Rob: Yeah. I could totally see that. In the feedback though, in the survey we gave afterwards, people seem to have generally, a positive outlook on it as well. I think it really helped that we’re able to target the talks so well. We’re going to talk through some handful of a growth talks and a handful of the starter talks. Obviously we can’t talk through everything we did. Over the course of 4 days, we had 18 talks, 10 attendee talks, which are the shorter 12 minute talks given by attendees, two Q&A sessions, and two workshops. There’s a lot to pack in there. We obviously can’t cover everything in the span of a single show.
You’ll see as we talk through the topics that the growth ones are definitely more oriented at existing products, trying to scale up, or trying to stay sane while you’re doing it. And then the starter stuff is a lot more focused on these very first steps. That was the goal from the beginning, it was to be able to target the content specifically at the audience so you didn’t have someone coming feeling half the talks weren’t aimed at them.
Mike: Yeah. I think we did a really good job at that, in terms of splitting the content between those two. Going back and looking at the reviews, I think you’re right. As I said, Tuesday, I was cautious about just accepting things at face value but even in the reviews as you said, there’s a lot of good feedback there about how they liked how targeted everything was directly at where they were. Of course, we did see this from some of the reviews. People like, “How I wish there is a little bit more commingling of the two.” There’s always going to be a suggestions of, “Hey let’s do a two track conference or something like that.”
That’s really hard to pull off, especially if you’re trying to manage everything all in the same venue. There’s a lot of logistical stuff there but I think generally what did went over really, really well.
Rob: Yeah. The two track thing has only been success to the few times over the years but it’s tended to be something that we have intentionally, very deliberately avoided. I don’t know, we should probably crack that open again and just talk through and spit ball what it might actually look like to do that, to have a single conference for the starter track and the growth track.
Mike: Right. I figured in the past, all of our thoughts about that particular thing had been geared with the idea of having the entire conference aimed at one audience. And then of course, that’s where you do get in the logistical issues of let’s say, just for raw numbers. You’ve got 100 people coming and let’s say 70 go to one, and then 30 go to the other. If you’re really targeting two different audiences, then the two track conference idea kind of makes more sense. It’s easier to manage those logistics instead. I think you’re right, I think we just revisit it and think about it and see if it would work or see if it’s something we want to try.
Rob: The interesting thing is the cross growth and starter if you include the attendees, the speakers, the sponsors, and then we sold better half tickets where people can bring their significant other to evening events. Across all that, I think there were something like 420-ish attendees across both.
Actually day to day attending, growth was about 230, 235, and starter was around 165 or 170. Definitely healthy numbers but a good size in terms of manageability. I felt I was able to talk to a lot of people and it didn’t feel a sea of people to me.
Mike: Yeah. It’s hard once you get up to those numbers to be able to talk to every single person there but I do feel like I got to talk to it a decent chunk of people. That size is nice because everyone is still approachable. It’s not like I’ve talked to people while we were there and they said that they’ve been to a couple of other conferences where there’s 3000, 4000 people. It’s really hard to I guess maintain and establish relationships with people there but at the size, it’s a lot easier.
Rob: Yeah. Let’s dive in. As I said, we won’t be able to discuss all the talks but we do just want to take some highlights based on feedback that we received in the surveys we sent out at the end.
Russ Henneberry from a Digital Marketer made his first MicroConf appearance. He appeared based on a recommendation from Ruben Gomez, who said this guy is super sharp. He knows what he’s doing. He has a really unique insights on content marketing.
We had him speak on the first day. I instantly started hearing people being blown away. His talk was The Perfect Content Marketing Strategy. He talks a lot about misconceptions that content marketing is blogging. He looked at the seven characteristics of perfect content marketing.
This is a guy who’s been doing this since before it was called content marketing. He knows what he’s doing. Right in the hallway when we left, I heard some people saying, “Boy, that blew my mind. I’m going to change up my content marketing strategy because of it.”
Mike: What I really like was the way he identified specific pieces of the content marketing strategy and called them assets. I heard that from several other people as well, referring to the pieces that you plug in as an asset. We could give us an idea that you can reuse those assets in other places but by what referring to it as an asset and treating it as such, it gives you a more focus clear idea of exactly what you’re going to be doing with that particular asset or that piece of content and gives you the ability to build it in such a way that it’s not templatize but it’s got a specific purpose and that’s what it’s for. It was an interesting way to look at that that I haven’t really seen or heard before.
Rob: By the way there are summaries of all the MicroConf talks. If you go to microconfrecap.com. Thanks to Shai for taking notes and they’re very detailed outlines of what speakers were talking about.
Next talk I think we should discuss the same to have an impact was James Kennedy’s talk. It was how to stop giving demos and build a sales factory instead. I was super into it even though I’m not giving demos. I have noticed, I ought to give demos but he just had this whole process of how he grew Rubberstamp.io and how they’ve been growing it using essentially sales demos.
What was funny is I walked out at that talk and Anna on my Drip team, she came up and she said that talk made me want to do demos again. You know it’s having an impact when it makes you miss doing demos.
Mike: Yeah, that’s funny. I really liked how he’d laid out the entire process, the follow ups, what they do, how do they get people to the demos, how do they follow up with them to make sure that, “Hey, you have this demo coming up.” The foreshadowing aspect, the letting people know, “Hey, this is going to be the next step. This is what we’re going to do next.” So that it’s not a surprise to people so people aren’t wondering, “Okay, when is this person going to call me again? Are they going to send me an email or am I going to get a reminder?” It’s all about foreshadowing what those next steps are. I really liked that aspect of it.
Rob: I rounded out the day with a modified version of the talk that I had done in Europe about selling Drip and it was called 11 Years to Overnight Success: From Beach Towels to A Life Changing Exit. I tweaked the talk quite a bit for the growth audience. I just thought through some more aspects of it. Also, I have so much more distance from the sale now. A lot of it was about the Drip acquisition, the thought process, and the mindset behind that.
I definitely enjoyed talking about it. Since it was essentially the second time I’ve given the talk, I find that my second, third, fourth times of giving talks are always better. You just have more of an idea of what resonates with people and it’s better practice and that kind of stuff. I felt like it came off pretty well.
Mike: Yeah. I think in your talk, one of the things that you pointed out, this is not a surprise to anyone but the fact that it takes a long time to get to that point, there are all these different missteps or places you go where it’s either just the learning opportunity or you feel you’re making a lot of progress, if you take it as a whole then you get to see that entire journey. It’s interesting to see that. I saw in Europe as well. I do think that you gave a better talk here in Vegas than you did in Europe. It probably is a direct result of hearing yourself give that talk on a stage, and then talking to people, finding out what resonates, then plug in those things back into it. It’s nice to get that feedback and be able to incorporate it later on.
Rob: On the second day of growth, this would have been Tuesday, we had Ezra Firestone from Smart Marketer. He talked about the exact formula they’ve used to generate $5 million in revenue from software in the past 3 years. It’s pretty obvious that Ezra does a lot of speaking because he commanded the stage and really kept people captivated.
Mike: Yeah. As you said, he obviously speaks a lot. It’s nice to be able to see somebody get up there and be able to just do things off the cuff. It’s clearly not rehearsed. Clearly, he has the ability to get up there and speak to things from the audience. Almost like a comedian when you see them perform and they’re able to either deal with the hackler or comments from the crowd and incorporate that into what it is that they’re talking about. Ezra definitely had that ability. It’s clearly a direct result of being up there in front of a lot of people and talking to a lot of people. Some of that could just be the personality in terms of being what appears to be a strong extrovert. I think that being able to incorporate those things really helps to send the right message when somebody is up there on stage like that.
I do like the fact that he went into some detail. For example, the multi-touch marketing and creating multiple touch points in your sales funnel so that people are hearing different messages along the way through that sales funnel. They might hear one message and then they hear a different one. In some cases, they’re getting reiterated to them so they are essentially strengthening the original messages.
Rob: That afternoon, Sherry Walling talked about understanding your past, current, and future self. Really kicked off with how founders view their startups as they do their children. That there is a study done that was doing brain scans of founders as they showed pictures of children they didn’t know versus their own children and it showed parts of their brain activating. It was people seeing companies that were there versus other people’s companies in that sense. It was showing that the brain activity when you see your children is very similar to when you see your own company.
She talks about the pluses and the minuses of this. She looks at how your past contributes to who you are, what to do in the present, and then looking ahead, asking yourself, “What will my future self want me to do about this decision right now?” I was pretty fascinated by it.
Mike: Yeah. I thought that when she dove into that part of the talk, that was kind of fascinating to me just because when you’re building a product, you’re working so hard on it and you’re pouring all of your energy into it. It’s not something I think that most people think about in terms of what would my future self think of me doing this or what would my future self want to be the result of this. She really dug into that and tried to portray it as a situation where you do have to think about those things and you do have to let things grow on, in some cases on their own, without too much input from you, whether it’s hiring people to take over certain pieces of it or just being cognisant in other fact that what you’re doing today is not always going to be correct but you have to make the best decisions that you have with the details you have right now.
Rob: Lars Lofgren wrapped this up. He finished off the growth speaker docket. His talk title was 2 Inbound Engines that Drive 30,000 Leads Per Month, actually more than that. I think he said they’re collecting more than 40,000 emails a month, which is just fascinating. He runs marketing for Ramit Sethi.
He really talked about the two engines are one, ramping volume and two, split testing your choke points. He talked a lot about going really deep on one thing and how they’ve spent a year just going after, they started going after SEO with the ultimate guide and then that wasn’t working so they switched it up. He said he’d rather have 49 amazing blog post and one PDF than 50 amazing PDFs because he need the blog post to drive the organic traffic, so that people will download PDF and become a lead.
He has talked a lot about how he doesn’t do any campaigns. He only puts in systems that he doesn’t want to go from marketing campaign to marketing campaign. I thought was a really interesting look attitude. It’s a very long term way to think about it but it’s also the way to think at scale in terms of really scaling up sustainable traffic.
Mike: I thought it was really interesting that even given the size of the team that Lars runs, that they really are only focused on one channel at the moment. I guess I would have thought that they would have done more or I would have thought they were been going after two or three. In the context of this talk and looking at it retrospect, it does make a lot more sense as to why they’re going so deep on one particular channel. It’s because it’s working well for them. You really want to double down on those and optimize everything you possibly can until you get to a point where it’s no longer working or you’re longer getting the gains that you could be getting.
I think you and I have talked about similar things in the past where people have said, “Oh, I want to take my app and go multilanguage with it or localize it for different places.” The reality is most people are not at a point where they’ve saturated the market. This is the same idea. It’s really going so far deep until you get to the point where the diminishing returns are so little. That’s when you would start focusing on something else. It’s amazing with 40,000 email addresses acquired every month, they’re still not there.
Rob: Tuesday night, we had the closing reception for growth and we had that opening reception for starter. That was a time for people to mingle and have S’mores, and an open bar.
Mike: You’re not kidding about the S’mores either.
Rob: I know. There were fire pits in the back and people are making S’mores. That was a lot of fun, though. I see everybody mix in together. It was a big group and that allowed the starter folks to meet some of the growth folks, and then the growth folks to do their last hurrahs before they kicked off for home.
Like I said, starter was around 165, 170 people. We did something interesting. For those who don’t know, we worked with a conference coordinator who handles a lot of the logistics. His name is Xander. He suggested that you and I not try to emcee two conferences back to back. I think his original phrase was consider getting some fresh blood on the stage. Just someone new with a fresh voice who maybe could our starter audience could really relate to.
We invited Jordan Gal to do it this year. I think our plan is that every year, we’ll either do it with ourselves or we may bring in a different guest emcee. I thought that went really well. My thought, it was nice to not have to be present and constantly thinking about what was going to happen after the next talk and what we’re going to say. I think it took definitely took a load off of me.
I’ll toss it to you in a second here if you felt the same way. I thought the feedback was generally positive. I didn’t really hear anybody who was surprised or shocked that you and I weren’t up on stage all the time. Even then, you and I, were introing some things and you were handling sponsorships so it wasn’t like we weren’t present.
Mike: Yeah. It definitely felt some of the load was taken off for the starter edition just because with the growth edition, there were so many things going on. You and I were back and forth on stage pretty much the entire time. I felt I couldn’t concentrate as much on the talks during the growth edition as I could in the starter edition. It was really nice to be able to I’ll say step back a little bit but still be pretty heavily involved in all the stuff that was going on.
I think that I agree. I’ve heard from some of the different attendees that they thought that it was interesting that we did that. I didn’t really see any negative feedback on that particular piece of it. I think there was maybe a little bit of disappointment that people, they don’t get to see you as much up there because you spoke a growth but not at starter. I think there was maybe a little bit of an expectation of that. But generally, it was pretty positive feedback.
Rob: Yeah, that’s interesting. You know about half way through starter, I started thinking to myself, “I think I should speak. I think I should have spoken this year.” I think neither you nor I knew how challenging that it would be to run these back to back conferences and so didn’t want to commit ourselves to speaking at both, which is why we divided and conquered. I spoke at growth and you spoke at starter.
Given how things went and how I felt it was fairly smooth and I wasn’t exhausted. I don’t know if I could have written two talks from scratch but certainly I might have some material that I could have pulled together for starter.
Mike: Yeah. I think for this year, I think it was definitely the right decision to have you speak at growth and have me speak at starter just because there were so many unknowns. That’s really the issue. With MicroConf, you really only get the one chance of that specific event, whether it’s MicroConf in Vegas or MicroConf in Europe. You can’t just do it over again. It’s not something that you do every week. You don’t want to go too far in a direction that is going to be difficult to manage moving forward or for the rest of that week.
I think for this year, it was definitely the right choice. Whether we change that in the future is up for debate or discussion but I don’t think that we made the wrong choice there.
Rob: Jordan Gal also kicked us off and did the first talk of starter. He talked about all the mistakes that they made along the way with his startup Carthook. You know how they’ve continued to grow during that and the learnings that came from it. When we originally talked, we talked about him doing the same talk he had done in Europe but he basically just wrote a completely new talk for the Vegas audience.
Mike: What I really liked about Jordan’s talk was the fact that he showed all those different failures along the way, at least the ones that he felt were failures but if you looked at how things were going for the business, things were still generally going up into the right. It’s interesting to note that your own personal viewpoint of how things are going, are always going to be worse than how things are actually going. Not always I guess. There are some exceptions where things are just tanking and you have no idea. I think at the back of our mind we know that things are going in that direction.
From external, you look at the business saying, “Oh things are going fantastic, things are going great.” But the founders we’re like, “Oh man, we screwed this up or we screwed that up.” It’s a very different viewpoint when you’re talking to somebody about, “Hey, we’ve made this mistake, we made that mistake.” Externally, people have a different view of what’s going on inside the business than you do as the founder.
Rob: Another notable talk from that first day was Ben Orenstein. He works for thoughtbot and he’s a co-host of the Giant Robots Podcast. He was another one who had obviously had quite a bit of speaking experience. Just really nailed the audience engagement part. I thought he did a very, very good talk. He had actually surveyed the starter audience in advance and he had rewritten his talk multiple times to try to really nail exactly what they needed.
When he surveyed the audience, he found out that about half of folks, it’s starter edition so it makes sense they seem split about, but about half of folks had basically $0 in revenue and then half had in the hundreds and on up. He actually just had two parts to his talk. It was like, “If you have $0 in revenue, do this.” It was super prescriptive and it was really good. I think it hit home with people. It gives a good message to have. If you are over that, then he had these 10 tactical wins that they had implemented over at Thoughtbot because they have a couple different SaaS apps that he runs over there. I thought it was pretty fascinating.
Mike: I think part of what resonated with his talk was that he zeroed in on those tactical pieces where it’s essentially a switch or a lever that you can use to get more out of your business and move things forward faster. Some of them are not necessarily obvious. Some of them that are obvious like for example, created an email course. Then there are other ones where integrating and partnering with other people that’s not quite as obvious but in retrospect, it makes a lot more sense that you can leverage those partnerships to grow your business because you’re essentially leveraging other people’s audiences. If you’re starting out and you don’t have a lot of discussions with other founders, that might not come to you as an obvious tactical piece of advice.
Rob: Rounding at that first day at starter, it was Sujan Patel, who many of may know as a growth marketer. He worked for When I Work and has a number of SaaS apps that he runs now.
He talked about from idea to launch your first 1,000 customers was zero marketing budget. He broke it up into three separate sections. The first was about prelaunch marketing, the second was about nailing your launch, and the third was about scalable marketing approaches.
I really like that differentiation. I think folks who are just starting out often get confused of, “How do I fill my email list?” And that’s your pre launch marketing stuff. “How do I market once I’m out and I’m trying to grow?” They are highly related but they are different. I like that he differentiated that. And then he just kept throwing out ideas that they had tried, things that had worked, things that hadn’t. Again, I took away a lot and I think the audience probably did as well.
Mike: That’s something that I saw from the survey results is that people really liked the speakers who dug into things that didn’t work because it was easy for them to look around and find examples of, “Oh, somebody did this and it worked for them. Somebody did this other thing and it worked for them.” The thing that stuck out in people’s minds was the fact that some of the speakers talked about, “Hey, I tried this and it didn’t work.” Or “I was going to go down this path and we backed off because of X, Y, and Z.”
It was interesting that that piece of it, not even just failure but the pieces that resonate with people were the ones where the speakers started to go down a particular road and pulled back because those are not the things you typically hear about on blogs. You read about the success stories but not necessarily the failures or the missteps. People really found that those aspects of the talks were really helpful to them.
Rob: On the following day, one of the notable talks was Mr. Patrick Mckenzie Patio11. He dug into basically a paint by numbers approach to productized consulting, which is a pretty good option for folks just starting out, wanting to get their first dollar. He broke down an approach of how to build that up. I think he said within 12 months you could be a $12,000 MRR in terms of a productized consulting business and then he laid out the steps to do that.
Mike: I think it was probably surprising to people that when he laid out that approach that he was talking in broad strokes numbers about, “Hey, you could charge $800 to a large business for just taking out the trash for example.” That’s not a huge amount of money to them because companies with more than 20 employees pay way more than that sometimes.
I’ve seen business plans or businesses for sale where that’s exactly right. I’ve seen literally that line item before. It can be fairly high. You don’t really think about it but there is all those business problems that larger companies have. By larger, I mean 20 employees and up that is a genuine business opportunity. You just don’t typically think about it unless you see what those line items are. That’s difficult for most of us who are developers or just not involved with any sort of budget discussions for a larger business.
Rob: Another talk that I heard positive feedback about and I thought he did a good job commanding the stage was Justin Jackson talking about the freedom ladder, financial independence through products. He talked about a lot of different ways that he had tried over the years to make a full time living. In essence, he said January 1 of 2016 is when he finally was able to make it from his own products and he didn’t have to consult anymore.
He talked about many different ideas but one that was interesting and seem to resonate with a few people that no one else has talked about was just doing workshops, like in person workshops. He says yes, it’s super scary and yes, he has given a workshop where it was just him and two other people but he said, “That’s how you’re going to learn. If you can’t get a couple people to get into a room in your local town, how are you going to get folks on the internet to pay you any money?” I thought that was cool way to think about it.
Mike: I think that’s one of the fears that people have about running those workshops, is that you only get one or two people there. I talked to somebody who had given a talk at a conference where they said they were expecting a couple of hundred people in the room and it was multitrack conference and they ended up with eight or something ridiculously small like that. One or two of them got up in the middle of the talk and left but at the same time those are the places where you learn, those are the places where you figure out what’s going to work and what’s not.
What we all want is to be able to go in and run a workshop like this. We get 30 or 40 people. The problem is at that point, you are essentially performing in and front of a group of 30 or 40 people and you’ve never really performed in front of group of 5 for example.
What you’re doing is you’re making larger mistakes in a larger environment. It’s intuitive that you want the smaller ones first. Those are the ones that help you get the experience so that when you go those larger environments, you give a larger talk or a larger workshop that is not as scary. You’ve got the butterflies out, you’ve been able to answer the exact same questions in that larger workshop that you have in smaller ones. You can refine your answers from there as well.
Rob: You mostly rounded out the day and rounded out starter. You actually interviewed John Collison, did a moderated Q&A with him. For those who don’t know, he’s a co-founder of Stripe. Xander was saying he’s the youngest billionaire, either in America or in the world. Because I think he’s what, 25? Stripe is now worth $9 billion and he owns a big chunk of it. That was cool. How did it feel to be up on stage with him?
Mike: That was interesting. I wasn’t necessarily nervous from that regard because I don’t think that Xander had mentioned that to me. It was interesting looking at the schedule and how things were going to be going for the rest of the day. I realize that I was probably going to be up on stage for a good chunk of that last day.
I think that the Q&A session went well. We took some questions from the audience and let them. There was a list of questions that we had, that we want to get out there and then ask. A lot of the audience asked questions. I thought that was a good split.
Of course, obviously, I’ll say a little bit risky because you never know what somebody is going to ask. I thought that John was very honest and upfront. He just said, “Look, if I can answer the question and help you out, I will. If there’s something I can’t talk about it, I’ll just tell you I can’t talk about it.” I thought that that was very humble of him. I really liked talking to John both before, during, and after the conference just because of how he carries himself. He’s obviously a very skilled and intelligent person. I think he makes for a good founder that is a good fit with our audience as well.
Rob: The last talk of starter was your talk. It was idea validation and customer development. It’s pretty self-explanatory what you went through. How did it feel? What feedback did you get and how did you feel on stage?
Mike: After the talk, I got some good feedback from people. It was odd because the workshop that I did was also on that. That was I’d say pretty well attended. Even during the workshop that I did, there were a lot of questions that I got. I took some of those questions and I went back to my talk and rearrange things a little bit. May or may not have been the best idea to make some of those changes in the middle of it or just before I was going up there but I also think that some of those things are really important to cover in terms of, “Hey, if you do this, this is what can happen.” Going out there and showing a specific idea, that was something else that people are pointed out to me like, “Hey, I thought that that idea had legs and it’s really interesting you showed that hey, you got these data points and were able to prove like hey, this idea is not going to work or it’s not going to work for you at least.”
Rob: Overall, I think MicroConf this year, the MicroConfs in Vegas were quite successful. I had a great time and we’ve already gotten a lot of positive feedback about it. Keep plugging along and we’re looking at doing one in Europe here in late fall.
I did want to give a shoutout to our sponsors, to the speakers that flew in, very busy people coming in to give back to the community, as well as Xander. Xander helps us run the conference. If you have an event that you need help with, even meet ups, product launches, and conferences, Xander really works a lot in the startups space and the techs space. He’s at startupeventsolutions.com.
Mike: I think that about wraps us up for this. If you have a question for us, you can call it in our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com.
Our theme music is Next for Periodic 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 and we’ll see you next time.
Episode 335 | Lessons Learned from Unbounce’s 5 Split Tests Across 2.3M Exit Overlay Visitors
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk through an article by Unbounce about split testing their exit overlays. The guys give you a full walk through and their opinions on the findings of the article.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about lessons learned from Unbounce’s five-split test across 2.3 million exit overlay visitors.
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: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: Well, we are in sunny Las Vegas as people are listening to this, and right now outside it is raining.
Rob: Is it supposed to rain on Tuesday?
Mike: No, I’m still in New England. We recorded a week ago early. Come on, man! Get with the program!
Rob: We’re time warping here. Yeah, so we record just a few days early, and I take off for Vegas in a couple days, and it’s supposed to be what? 70s and 80s? Pretty sunny there?
Mike: Yeah, I think I saw like 84 or 85, something like that last week when I looked.
Rob: It’d be nice. I’m looking forward to getting out and seeing the folks, you know, seeing the speakers, meeting the new speakers, and hanging out with people we haven’t seen for six to twelve months. It’s always exciting to kind gear up for that.
Mike: Yeah, it’ll definitely be interesting this time around just trying to keep up and pace ourselves for the two conferences. I know in years past every single year without fail, my voice starts to fail at about the second or third day. So I’m going to have to be a little careful about that.
Rob: I agree. The good thing is we’re not emceeing the Starter Edition, so we should have less talking. Although, you’re doing a talk there, so you’re really going to need to keep your voice going.
Mike: Yeah, my talk is the last slot on the last day so four or five days of talking and hopefully my voice will still stay with it.
Rob: Indeed. On my end, not too much new this week. Wanted to look at a couple recent iTunes reviews, and we’re up to 517 worldwide iTunes review. This one- I love the subject- “Best podcast ever” from John Turner, and he says “best podcast for anyone looking to start selling software or a SaaS product.” And we have Ray223 who says, “The oldest and the best. Thanks Rob and Mike for all the insights. Keep up the great work.” We have another from [Ludwig?] from Denmark, and he says, “If you’re considering have a startup, listen in here.” Really appreciate these reviews. If you haven’t left us an iTunes review, it goes a long way towards helping us to reach new audiences, to grow the show, and frankly, just keeps us motivated and keeps us from crying ourselves to sleep at night. I know Mike, you often pull up the reviews and read them to feel good about yourself, right? Oh, is it just me?
Mike: I think it’s just you, yeah.
Rob: Cool, so let’s get into the topic this week. We’re going to be talking through an article that’s on Unbounce.com’s blog. And the title of the article is “Lessons Learned from 2,345,864 exit overlay visitors.” And what they did is they ran split tests and some observational tests, which we’ll talk about in a second. They ran five of them over the course of two years, and it’s about 2.3-2.4 million visitors during that time. And so they just outlined the tests they ran, and with the results you would expect, and what actually happened. And I like how detailed this post is, and I like that some of the assumptions that we will make- when I say the split test you’ll think “I know which one is going to win.” Sometimes that’s correct, and other times it’s not. And so it’s kind of a fun walkthrough of people who are doing a lot of pretty sophisticated testing.
Mike: Do you think that that’s an exact number or just kind of a ballpark estimate of the 2,345,864?
Rob: I think they went into Google Analytics, you know, and just pulled up the number from the date of the first split test until today or whatever so I imagine it’s pretty exact.
Mike: So one of the things we wanted to mention before we kind of dive into this particular episode is the fact that there is a certain kind of minimum threshold you have to kind of be at in order for split testing like this to work. And I think Rob, you said the minimum you would even consider doing these kinds of split tests is when you get to about 30,000 uniques a month, right?
Rob: Yeah. You and I were talking before the show, and I ran some loose math, and let’s say these guys have 2.4 million unique visitors to their blog over the course of this 2 year thing, which is what they’re positing. So back of the napkin, 2.4 million is about 100,000 visitors a month, and at that rate, think about if you’re using exit overlay you’re around 1% to start with in terms of converting people to subscribers. So 1% of 100,000 is about 1,000 new subscribers a month. If you split test you could very likely get to 2% and that’s 1,000 to 2,000 and that’s a big difference. That moves the needle. As you start lowering the number of visitors you’re getting, let’s think about 50,000. That number’s going to move from about 500 to 1,000 new emails a month, and that’s still for me, still moves the needle. But as you start dropping down- 30,000? It’s like well, I’m going from 300 to 600. That’s cool. That’s about as low as I would go. If I have 10,000 and I go from 100 to 200 subscribers a month, I actually think at that point you should be focusing more time on generating traffic rather than split testing the traffic you have. So my mental math is somewhere in the 30-40,000 uniques a month if you’re going to start running experiments like this to have it actually move the needle.
Mike: So with that in mind, let’s start digging into these experiments. Let’s see what they found out.
Rob: Yeah. So they say back in 2015 they launched their first ever exit overlay. So it’s an exit intent popup that only appeared when you tried to leave the site. And the idea was they just wanted to collect more email addresses. And when they first started their conversion rate with the very first one, and it says “Conversion optimization tips you’ll actually use. Subscribe to our blog.” There’s no lead magnet, there’s no mini course, it’s just subscribe to the blog. And they were at 1.25% from the start, and we should probably take a quick break here. Some people hate exit intent popups. Some people love them for how well they convert. I think Unbounce takes a pretty good approach to it, and they actually write custom code to assure that you only see one even if they have a bunch running in different categories as people hear later. They were very specific to not hose the user experience because that’s the thing that sucks with exit overlays. If they keep popping up and you’re trying to read and you’re trying to go to another tab to do something, so this is a place where you can listen to these ideas, and you don’t have to do this with exit overlays if personally you don’t want to. This could just as well be a little Drip widget in your lower right, this could be a lead box, this could be embedded form in your website- all the stuff they do could still be applied to that, but they just happen to do it using exit intent.
Mike: Yeah, that kind of applies across the board to a lot of different marketing efforts. If it’s something that you’re not particularly enthralled with when you come across it- if it’s something that you just say “Aw, I can’t stand these things,” and you just keep closing them and they keep coming back, that really turns you off from trying them to begin with. But there’s also a difference between your experience on your website and the visitor who’s coming to your website. So you have to keep in mind what your end goal with these is and whether or not it even makes sense. Obviously you’re not the one browsing your site, but at the same time you are not necessarily representative of the person browsing your site. They may not care nearly as much as you do about it.
Rob: So we’ll kick into first experiment here in a second. In the post they say there are a few testing conditions they want to lay out. Number one: all overlays were triggered on exit, which means they were launched only when abandoning visitors were detected. Number two, they say for these first three experiments they compared sequential periods to measure results rather than true A-B tests. So they do say this is less scientific, more observational because you run them for thirty days and then run them for thirty days and compare the two time periods. They say that when comparing these sequential periods testing conditions were isolated by excluding new blog posts from showing any of the overlays. Conversion is defined as either completing the form, meaning they enter their email or later on they try something where it’s just a click, and we’ll get into that later. And lastly, it’s from January 2015 and ended November 2016, so almost two years. So that’s setting the stage. The first experiment they ran was to go from their generic signups which I talked about earlier which just said “Conversion optimization tips you’ll actually use.” and “Subscribe to the Unbounce blog” button. If you compare that with actually giving away content, the hypothesis is if we give away an e-book it’s going to generate more opt-ins. Both Mike and I would agree and most listeners that you’re going to increase your conversion rate if you do that. So they gave away an e-book called “23 Principles for Visually Designing More Persuasive Landing Pages.” And what happened, Mike?
Mike: Well, it looks to me like the conversion rate doubled from 1.27% to about 2.65%. Now the interesting thing here is you kind of mentioned this upfront- this wasn’t a true split test. The duration for the test itself was about half the time of the stuff they had running. So they ran the initial one for 170 days and then the split tests or the tests that they ran was for 96 days to offer this e-book.
Rob: The variant or the challenger, if you will.
Mike: Yep. And the conversion went from 1.27% to 2.65% so almost half the time and twice the conversion rate which kind of translates to the fact that they got about the same number of conversions in half the time. That’s a phenomenal increase to be honest.
Rob: It’s really cool. Yeah, this is good. I feel like this supports a lot of stuff that we’ve talked about over the years and what you would naturally think so that’s good. Their observation on this is offering tangible resources versus non-specific promises compositively impact conversion rates.
So experiment two gets a little more complicated. So they went from their single field- meaning just getting an email address- and you think about at this point they’re at a 2.65% conversion rate, they’re giving away an e-book, they’re asking for an email. They said that data people always spoil the party and someone internal to Unbounce wanted to get more information, not just the email. So they added three other form fields, so instead of just email they asked for a first name, do you work for an agency, and your company size, and they knew this was going to tank when they knew it was going to tank conversion rates, and it’s exactly what I thought would have intuited as well. Every form field you add from 1, 2, 3, and up, you are going to almost in all cases a decrease in conversion rates. And this once again confirms that. Take us through the results.
Mike: So the results basically went in the opposite direction. Just to point this out as Rob said at the very beginning, these were all run against different people, so it’s like somebody saw one and they ended up seeing another one. It’s really different segments of their audience that were seeing these, so again, the time periods were different that they used. And it looks like they did not want to run this one for very long just because the results were so bad, but the conversion rates went from 2.65% down to 1.25%.
Rob: D’oh! Right back to where they started. They’re still giving away that resource but just adding the three fields just tanked them.
Mike: Yeah, so it’s pretty obvious that even just looking at it you probably don’t want to fill out that form. If it’s in exiting intent and you are already inclined to leave, making it more difficult to send them information is just not going to work out in your favor.
Rob: I like the quote the post author says, “I knew this was for a good reason. Building our data warehouse is important. Still, a small part of me died that day.” And then it got worse. Basically since they added all the fields to it they had to expand the size the overlay and they just made it bigger so it could hold the form fields and then they realized that they had made it so big that the size was too large for many people’s browser windows. So the overlay only fired two out of every three visits. So not only did they have a lower conversion rate, but they cut their potential audience by a third. So then they redesigned the overlay to make it smaller and fit, but internally they decided that even though it was a lower conversion rate, they needed that data. And so now their new baseline is back to 1.25% which is kind of hard as a conversion rate optimized to make that much of a gain to double and then have to go back.
Mike: It depends on your situation because this is one of those places where you really need to make a judgment call about whether you need that data or not and whether you need it now. I think it’s this case with the types of questions they’re asking, I think they could probably get away with not asking certain things. But they went from asking just an email to first name, email, do you work for an agency, and company size. And those individual things really let someone on a marketing team target down and send a highly specific content to those people. You’re not going to send something about a freelancer to somebody who’s running an agency with thirty-five people. So it allows you to target the content you’re sending them and make sure that it is speaking their language and talking directly to their pain points because they’re going to have different pains than a freelancer. And if it’s important to have that information now, awesome. But I would also question whether you need to have it on that page. So one of the things that I’ve seen is that you can do this type of thing where you ask for a very limited amount of data and then on a next page you ask for more because they’ve already bought into the premise at that point. Let’s say they give you an email address and then it flips to another page and says, “Hey, thanks for that information. Can you tell us a little bit more info so we can more specific about the things we send you?” And at that point you can ask them, and if they don’t give it to you, you can follow up later and try and get it later or there’s different ways down the road that you can get it. But the question is do you need that information right now?
Rob: Yeah, and that’s called progressive profiling, if people are curious. There’s a really good tool that actually has a tight integration with Drip that does exactly that. You can set up all these fields and you can progressively over time- the first time you visit it’ll ask you for email, and then the next time it knows it already has your email so instead of doing nothing it’ll adjust for your first name or it’ll ask for something else. It’s pretty sophisticated stuff. That tool’s called Convert Flow, if you’re interested.
Alright, onto the the third experiment. I like this one. It starts off with the quote “It seemed like such a good idea at the time…” So the third experiment is challenging one overlay like they have now, just the one overlay giving away the e-book with the four form fields versus ten different overlays. And the ten different overlays are highly targeted or hyper relevant to each of their ten blog categories. So you can imagine on a blog you might have categories and one of them is split testing, one is copyrighting, one is email, one is paper click, one is social. So creating a separate overlay for each of those with hyper relevant headline/pitch, all that stuff. And so they did this and they said it took three hours maybe to do this, and then they have a table, and the results are kind of crazy. The email category result was .45%. So remember their baseline is currently at 1.25%. So their email is at .45%, their legion and content marketing is at .85% so there’s kind of the bottom end ones. And then their copyrighting one is at 3.22%, and their landing pages and mobile optimization is at 2.46%. So huge range now, but having that more granular data is super more interesting because now you know you have some big wins and some big losers you can just focus more on the losers rather than trying to do it across the board. They only did it for ten days. They said their conversion rate was a combined 1.36%. So it is slightly higher than the 1.25%. They said it eventually crept up to 1.42% after an additional quarter million views, but it didn’t do anything as much as they had hoped. So to take a step back, if you take a look at their copyrighting category they say “How to write killer landing page copy” versus their conversion rate optimization category was “How to Get Started with A-B Testing” and then the next one is UX and so the headline was “The Seven Deadly Sins of Landing Page Usability.” And so I don’t know that these were e-books, and they don’t say that each of these was as effective as that 23 Principles of Design e-book they originally gave away, but that was the idea here. That’s how they were trying to target to the specific category.
Mike: What I find interesting about this is that they decided to just go back to the baseline and use the average of all of these because it seems like there are certain cases where the targeted headlines work a lot better. So for example the copyrighting and the campaign strategy and the mobile optimization- those things have a much higher conversion rate. But then if you look at the other ones, like the email category or the social category, the conversion rate on those is less than 1%. So it makes sense to at the very least go back to the baseline but I kind of question why they didn’t go with those specific ones in those particular categories that were overperforming 2-3x what the baseline was.
Rob: Yeah, I agree. The average was a little weird, and I think they’re doing that just to kind of give you a general idea because now that you have this data, what would you expect is the next thing to do? It’s to keep the ones that are at 2% and above and only try to optimize the low performing categories, and that’s exactly what they did. They were going to test new offers over five categories that had low conversion rates and reasonable enough traffic volume to make it worth the test. Because some of these, now that you’re getting more granular, some might only get 1,000 views in a month so it’s not really worth diving in. What they did is they were then doing resource versus resource, and so they were basically trying a different headline to give away an e-book.
Mike: One thing that comes to mind now that you mention that that kind of leads into the next experiment they did, is if they start changing that and they start running different types of ads in some categories versus others then it changes a lot of the math around and it becomes a lot harder to test that stuff.
Rob: Oh totally. Yep. And so the result of this one, they don’t really go into much detail. They just say they saw a slight improvement in one of them, in a couple of them they saw a dropoff, but in legion and content marketing there was a dramatic uptick, and the results were statistically significant. So they’re making progress. They had five low-performing ones, and they basically knocked two of them out, so really they just have three low-performing ones.
And so for their fifth and final experiment as of this writing, they wanted to test legion overlays, which is what they’ve had the whole time asking for email and first name, etc. versus click through overlays. And so they talk about have an exit intent popup that basically has a headline and then a button that says either “get the video” or “get the e-book”- they’re still giving something away, but then that takes you to a landing page. And that landing page has a lot more text and a lot more conversion-oriented stuff. And so that’s what they tested.
Mike: So to contrast this experiment versus the other ones: the other ones were tweaking the headlines, they were asking for more or less information. And in this particular experiment what they mean by “click through” is they would make an offer to them, and the person did not have to fill anything out. They could simply click on a button that would take them to a landing page that would then ask them for information. So essentially they were providing a mechanism for them to say yes, I’m interested or not, and they could quickly answer that. And when the person clicks on the button it takes them to that landing page and then they can fill out that information so it becomes a two-step process instead of a one-step process.
Rob: Right. And this is actually something Clay Collins has talked about for years, and I heard about his podcast he used to have called The Marketing Show, and then when he came on our show a couple years ago well before the first [?] thing happened, he talked a lot about not popping something up and asking for information and they go with this juiced up opt-in where you can click a button and then the next step was a form and it just feels more- it tends to have better conversion rates and tends to make people feel more welcome and like you’re not just asking for something right up front.
So for this experiment they point out for this to be successful, the conversion rate on the overlays would need to increase enough to offset the dropoff that they expect by adding that extra landing page step. Because you figure 1.25% of people might submit one with the form fields in it, and then maybe after two or three times of having to click the button but now you need to get a lot of those folks to actually fill out the form on the landing page. So not surprisingly engagement with the overlays increased amazingly the ones with the buttons. And engagement is just clicks. And so the one with the form fields was .79%, and the ones with just the button click through was 3.62% so that’s about 4 1/2 times better. So that was just getting click throughs. In the end in their CRO category, the overlay with the button where you click through to the landing page, that essentially netted them twice the leads. So they had 100% improvement in terms of the net leads they received by having someone do a two-step opt-in instead of just popping up a form field in front of them. And in their legion category (they have this category on their blog) it was about a 50% (it was from 45-56) so little under 50% increase. And so they only did it in two categories and their next step would be applying the same format to all the other categories and measuring the results. So two-step opt-in for the win.
Mike: Yeah, so if it’s confusing, to kind of consolidate that, it is a two-step process versus a one-step process, so depending on where you calculate the conversions for that you have to take those into account. And not just the percentages but also the net result of it. So it’s not just about the people who click on that link and go to the next page, it’s about who clicks on the link and goes to the next page and submits their information. And what is the net result of that versus the original. And in both the cases here they had either a 100% or a 50% increase. Both of which are pretty significant especially considering the volume. And they took the time to say okay, this makes sense for us to kind of expand this and go out through the rest of our categories and implement it across the board.
Rob: And so that’s where they leave off. They’re kind of summarizing stuff that ended three months ago, and I’m sure they’re running their next tests as we speak. The nice part about this, I like their concrete examples. There’s so much that you read about split testing that can be vague or rule-of-thumb, and these- your mileage my vary, but a lot of the stuff they intuit really comes to pass, and I think it’s always helpful to get ideas for your own split tests. You may not have time to create ten different overlays, and unless you have 100,000 uniques a month to your blog, I wouldn’t create ten overlays. But especially some of those earlier tests were pretty big wins for not a ton of effort, for writing a new headline and giving away a resource you already have on your hard drive.
Mike: You know, Quickbooks is going to love you for saying “Intuit” all the time.
Rob: Yeah, I know. For using their intuition, yeah. I’m going to come up in their Google Alerts a bunch.
Mike: Yep, their SEO guys are going to start calling you. Interesting side note here, one of the things that Unbounce talks about is that they also have a list of what they’re going to be looking at next. The first one is a charter test which is what happens when they test their on-exit trigger. I guess there’s a 15-second time delay. And then there’s a referral test, which is what happens when they show different overlays to users from different traffic sources. And then the third one they’re looking at is new versus returning visitors. Do returning blog visitors convert better than first-time blog visitors? And I think those are all going to be interesting tests. If you’re interested in taking a look at that, go over and check out Unbounce’s website, subscribe to their blog, and I’m sure they will post out the results when they get those, and we’ll be sure to check it out.
Rob: While you’re at it, go to the lead page’s blog and subscribe too. They turn out good content like this as well. Got to plug the company man.
Mike: I get it. Well, I think that about wraps us up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt for ‘We’re Outta 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 334 | Why some products fail and others succeed
Show Notes
In this episode of Startups For The Rest Of Us, Mike and Rob talk about why some products fail and others succeed. Based on a listener question they lists reasons for both sides while also revealing some old failed product ideas of their own.
Items mentioned in this episode:
Transcript
Mike [00:00]: In this episode of ‘Startups for the Rest of Us,’ Rob and I are going to be talking about why some products fail and others succeed. This is ‘Startups for the Rest of Us’ episode 334.
Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it.
I’m Mike.
Rob [00:26]: And I’m Rob.
Mike [00:27]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob [00:30]: Kind of the same old stuff. Just hiring a few more folks. We had two new developers start last week, and I think we have two or three open job recs right now. Doing a little bit of MicroConf prep with yourself and Zander. Kind of finalizing the schedule and some sessions. And, you know, fighting the good fight.
Mike [00:49]: It’s amazing how much the little things for MicroConf eat into your time. I mean, there’s all these little things that you think will take five minutes or something like that and they end up eating through twenty or thirty.
Rob [00:58]: Right. Yeah. There’s been a little bit of evening work and some thought and schedule crafting that’s gone on. But, overall, can’t complain given that we’re basically putting on two conferences back to back. I don’t feel like it’s anywhere near even the same amount of work that we used to put in five years ago on the conference.
Mike [01:16]: Right. It seems like it’s not twice as much work to hold the two conferences back to back either. At least not yet. I mean, we haven’t been onsite for it so that could certainly change things.
Rob [01:23]: Yeah, that’s true. And what’s nice about that is, like we’ve talked about in the past, we opened enough tickets that we just about sold out of both conferences but not quite. And I think that’s exactly where we want to be. I think we’ve sold four or five tickets in the past week across the two conferences, and that’s the ideal pace I feel like. Is that last minute folks who want to come who hear about it late I would really like for them to still be able to buy tickets and we’ve never had that really at any MicroConf in the past. So, it’s been kind of nice to see that.
How about you? What’s going on?
Mike [01:55]: Well, kind of related to MicroConf. I’ve been working on my working on my MicroConf talk a little bit. And outside of that, I’ve obviously been putting time into Bluetick and right now I’m working out some UI and workflow issues related to allowing people to self-onboard just because there’s certain parts of the setup process in onboarding that are a little bit more complicated. So, we’re reworking the UI a little bit to make it easier for them to do that and just kind of give them a wizard to walk them through it and anticipate where they’re going to run into issues. Because we’ve seen enough demos in onboarding sessions where this is obviously a problem and getting it the point where people can do that without our help and assistance is definitely going to be worthwhile.
And then kind of related to that is I’m working on recording some video walkthroughs of different parts of the application to show people how to use it so that I don’t have to walk people through those demos myself. Just based on stuff that I’ve learned that people have asked about and said, “What does this do?” Or, “How does that work?” And looking at places to key those videos in so that it’s obvious that if you need help here’s a little button just click on that and it will walk you through this particular piece.
Rob [02:55]: Yeah, that’s a really good way to go. I think that’s kind of become the blocking and tackling template. For this I know it worked really well for us in the early days of Drip. And it still does. I think the videos I recorded two years ago are still live. Or someone may have re-recorded them because we changed our top nav and we were like they get out of date.
And that’s the one bummer with videos is you have to re-record the whole thing as soon as you change one part of the app. You can’t just edit text or replace a screenshot. But recording a sixty- or ninety-second video that’s really tight can go a really long way for brand new people just getting oriented with a specific feature. And in Drip we actually embedded it right at the point they needed to consume it. They were also in the KB but there were only three or four constructs in the beginning. It was broadcasting campaigns and I don’t remember what else. But right as you got into a broadcast it’s like, “What’s a broadcast?” And then there was a sixty-second video of me talking about it. How to use it, how to set one up. Boom. Done. And we got some good feedback about that early on.
Mike [03:48]: That’s basically the approach that I’m using. It’s like right at the places where they need that information, that’s where the videos are and you’ll just be able to click on a little button that has the video embedded into it and it’ll just pop up over the page or something along those lines. We’re still kind of working that out. But, as you said, the one concern that I have is that there’s still parts of the app where the UI is changing and I know that those pieces are going to get out of date and it’s like, “Do I really need to worry too much about that?” Right now, I’m just going to say heck with it and record them and if they get out of day, they get out of date. And if we need to go back and re-record some of them then we will. Or I will.
Rob [04:23]: Yeah, that’s the way to go. One piece of advice there is I would consider only having the videos easily accessible during the blank slate phase. That’s where there’s zero data on that page and that’s when someone’s just trying to get started. They can watch the video or they can dive right in. Once they have one or two of these things set up, the odds of them needing to watch that video drop dramatically. At that point, you could potentially have a little link out to a KB or something.
I don’t know that you need to go so far as to – for the rest of the time that someone uses the app, you always have some link available for them to drop it in. Because you only need that the first one or two times tops that you’re going to set this up.
Mike [05:04]: That’s an interesting approach. I can certainly embed it on certain pages directly where if the page loads and there’s no data behind it, then show that video. And then otherwise up in the top corner or something like that, have a little help icon that they could click on.
That’s something I have to think about whether or not having that extra button there that’s kind of hidden or out of the way where people can just click on that and say, “Get help for this page,” for example. I wonder how much value that adds.
Rob [05:29]: Yeah. You could throw it in and then you could instrument it just to say, “How many clicks does this get?” Throw it into Mixpanel or Google Analytics or something. It’s just a javascript action. And then you could always remove it if people aren’t using it.
We found that the blank slate approach has worked really well. We got a lot of positive feedback about it. And then it kind of goes away once you’re past the blank slate which tends to be when you don’t need it anymore. So, that’s one way to do it that we’ve found to be quite good.
Mike [05:52]: Cool. I’ll definitely take a look at that.
Rob [05:54]: So, what are we talking about today?
Mike [05:55]: Well, today’s episode is based on a listener question from Matesh. And there was a conversation that kind of went back and forth so I’ll sort of paraphrase things here. But essentially he was asking about why some early ideas failed, specifically related to us. But I thought that it might useful to listeners for us to address that in a broader sense and talk about why different products fail and why different products succeed. And different ways that you can mitigate that and identify whether or not you’re on the right track or the wrong track.
Rob [06:23]: Sounds good. Let’s dive in.
Mike [06:25]: When you’re looking at the success and failure of different products, I think that there’s two very broad categories that things fall into. And the first one is whether you launched it or not. Clearly, if you never launched something then it’s not going to succeed. And that’s kind of a whole bucket of failures. There’s plenty of hard drives out there that are probably just littered with projects that people have started and then never finished. I think it’s pretty clear that there’s tons of reasons why those things failed. Most of it’s just people didn’t spend the time on it and follow through with it. But I think that we just kind of ignore those and move on to ones where people have launched it but, for whatever reason, it didn’t succeed.
Rob [07:00]: Okay. But before we do that, I have to tell you about at least one of my projects – it was probably circa 2005, 2006 – and I never launched it. But I still think this idea is as bad as it was the day I conceived it.
I always wanted to be able to follow artists and bands and directors and writers. Like I love Aaron Sorkin’s writing. And I wanted to go to one place to paste them all in or select them from a list and then, whenever they release something new, I would hear about it. You would think this would be fairly easy but I found myself keeping this big text document of all these band names and then these writer names and authors. And then I would periodically go through it and past them into Amazon and look and then I’d past them in here and there. And then I was just like I don’t think there’s really a good service for it. I think Bandsintown may do that now but I’m not sure it tells you about CD’s.
But anyways, I went through and I built the dot net and I hooked it up to the Amazon API and I did all this stuff. And then I realize this is an awful idea. This is something that some big venture funded company would do and try to create a big buzz around and raise a bunch of funding and then they’d go out of business and someone would come and pick up the scraps. Although I wish this existed and in a really palatable format.
Mike [08:10]: I think what you’re looking for is indieshuffle.com.
Rob [08:13]: Yeah? Does it do it for all the things I mentioned?
Mike [08:16]: I don’t know. You’d have to probably look at it and figure out whether or not. There’s probably little things that you were looking for that either are there or are not.
Rob [08:24]: Got it. So, this is cool for music?
Mike [08:27]: Yep.
Rob [08:27]: But it doesn’t have any of the other stuff. I follow authors who write fiction and nonfiction. And I follow, like I said, writers and directors so I would need film. Mine was going to be all that because you could, of course, use Amazon to look for those as new products came out. A new book or a new DVD at the time because there wasn’t streaming.
I’d imagine there’s either a service out there doing this now or there’s three different services. One for each genre.
Mike [08:52]: Yeah. Indieshuffle, I believe, is primarily aimed at music only. But there’s probably ones out there that are similar for those other spaces.
Rob [09:00]: Totally.
Mike [09:01]: Interestingly enough, I have an idea that I started back in 2005. I wrote out all the designs for it and it literally became a multibillion dollar business. It was named Lighthouse but the idea was essentially file sharing made easy so that you could just drag stuff into a folder and it would automatically share it on other machines. Sound familiar?
Rob [09:19]: Dropbox.
Mike [09:20]: Yep.
Rob [09:21]: Yeah. Now to be fair there were like 30 Dropbox competitors even when Dropbox came out. So, you could very well have been the 31st. Because obviously, the idea was one thing but Dropbox getting out ahead, raising the $10 million and execution is what took it ahead.
Mike [09:36]: Oh, totally.
Rob [09:36]: But it is fun to know. I almost acquired a business that did exactly – this was a Dropbox competitor – and the guy wanted a crazy multiple. But it was basically that. It had all the apps and all the stuff. It was kind of like a virtual thumb drive is what we were thinking of at the time.
Good thing you never launched that one because without raising a bunch of funding I’m not sure that you could have ever gotten that off the ground to the extent that they did. Because it’s the freemium model that allowed them to really get the traction, right?
Mike [10:00]: Right. It was 2005 when I wrote the design document for it and it was like an almost forty-page design document for it. But I never followed through and actually wrote it. I still wanted to tweak things out and figure out whether it was going to work or not. And at the time I was transitioning over into doing consulting because I’d left my full-time employment at the time. So, I was doing a lot of consulting and traveling and I just didn’t have the time to work on it.
Then fast forward like two or three years to 2008 is kind of when I went back to it. I started working on it and I think I probably wrote like a code for a week or two, and then I stumbled across Dropbox. And I’m like, nope, that’s it.
Rob [10:37]: Let’s say you had tried to build it in 2005. Do you remember how expensive servers were and storage and all that crap? It would have taken you literally millions of dollars to build it to any type of scale that would have paid. It was not a bootstrappable business even if you were ahead of Dropbox. Just purely for the cost of everything.
Mike [10:58]: The market that I was specifically looking to serve was magazines where they need to collect digital materials and files from graphic artists and they need to get those to their office. The problem was that most of those people had to use FTP servers and a graphic artist just does not know how to use FTP. They had problems with it. So, I was trying to make it easy for them to share their files. And there’s a general use case scenario that Dropbox came out and addressed at the consumer market. It’s interesting how that whole thing ended up playing out.
Rob [11:31]: Totally. What do you mean they don’t know how to use FTP? I think your wife takes offense at that.
Mike [11:35]: No. The thing is, she was actually the one who enlightened me to the problem because she was working with all these people who needed to send files to her. And they couldn’t figure it out. She was working at the magazine and they were trying to send her files and they just couldn’t get them or they didn’t’ get them in time. There was a lot of issues with FTP. You send the file and there’s no notifications behind it either. So, obviously, Dropbox has the notifications and stuff built into it.
There were all these ancillary things that went into that in transferring the files and making sure that people knew about them and there were deadlines and stuff like that. But, I don’t know. It’s interesting to look back on that stuff.
Rob [12:11]: For the listener wondering what we’re talking about, Mike’s wife used to be a graphic designer for a magazine. It was obviously a problem within her purview there.
Cool. So, let’s dive in. I totally sidetracked this whole episode so we could talk about these old, crappy ideas. Well actually, your idea was a good idea. Just one that would have taken a different approach.
Mike [12:30]: It kind of leads back to some of the reasons why something doesn’t get off the ground. It does relate to the episode, both of those things do. But I guess to kind of step back and go back on track, there’s a difference between launching and not launching. Once you’re past that, things also break down into a couple of different categories. And the first one is, did you get any paying customers or not? Because there’s a big difference between a product that gets zero customers and gets at least one. And there’s a lot of reasons why something might get no customers. Obviously, the most prevalent one is probably you didn’t do any marketing or you weren’t able to talk to people.
There’s also the quality problem issue. Your product has to be good enough for people to want to pay for it. Has to have the features that they need. Had to be solving a problem for them. And if it’s not doing any of those things then you’re not going to get any customers.
Rob [13:15]: Yep. Isn’t this startup founding 101 these days? Product building. The first step is figuring out what the problem is to be solved. So, there should be some conversations. And this only became popular really around 2007, 2008. Before that we just went off and everybody just built stuff and hoped people would use it. And then Steve Blank really bringing his customer development approach to the forefront. And that was the first time I heard about asking your customers in advance. And it was like, “Whoa, you can do that? What does that even look like?” And then there were several books written for our work group because one of them where Tim Ferriss did the ad words in advance of offering the product for sale. But there were six or seven books that had talked about that before that came out. And that was when it was like this really makes a lot of sense to try to do as much validation as possible up front to ensure that you are in fact solving a problem.
Mike [14:08]: That’s the first bucket of potential failures. The next one is: if you’ve achieved paying customers but the product is still losing money. Essentially you’ve got negative margins. And there’s a bunch of different reasons for products that fall into this category. They could range from your infrastructure or your hosting costs being too high. Your cost of acquisition is too high compared to your lifetime value. That means that your cost to acquire a customer is more than they are worth. It may cost you $50 to acquire a customer but if they’re only going to give you $25 over the course of the lifetime of that customer, it’s really not worth being in that business. You can’t sell at a loss and make it up on volume.
There are other situations where if it’s a product high service, for example, you might be selling something for $100 and then you’re farming out the work, but it costs $150 in labor to deliver whatever that is to the customer. And, again, you’re in the situation where’s you’re trying to deliver something, and you’re just simply not charging enough. And even in those situations, you can’t necessarily just raise prices and expect the problem to be solved. There’s certain types of problems or situations where the customer is simply not going to be willing to pay more money for something. They have this in their head that they can afford “X” and if you go to “X+5” or “+10” they look at that and say it’s not worth it to pay to have that problem solved at that price point.
Rob [15:27]: This is where I would guess if you had actually launched that Dropbox competitor, this is what you would have found if you tried to bootstrap it. You would have had to charge enough that you wouldn’t have been able to get – well, if you’d gone after magazines that’d be fine. That’s a whole other issue. But let’s just say you had gone after the consumer market like Dropbox did, you would have probably wanted to charge $5 a month or whatever. $40 or $50 a year and you wouldn’t have had the organic growth and the big exponential growth curve that Dropbox did have because they were doing that freemium model up front.
So, one thing to think about here is if you do raise a big bucket of money and you decide that you want to grow this thing super-fast and get the volume, it’s a lot more of a riskier bet because you’re not getting your money up front. But that’s how these companies get to the $100 million and eventually the billion dollar valuations.
With that said, I’m doubting – if you’re listening to this – that that’s where you want to go. So, you really do need to pay attention to unit economics. I heard someone at one point say that they wanted to start a competitor to Kissmetrics and Mixpanel. And I told them, “Do you realize they spend” – I forget what the amount was. It was like a quarter of a million dollars. It was more than a quarter of a million bucks a year and this was in the early days. This was before they scaled up. It was a quarter million a year just kind of table stakes just for all the hardware. Or even the EC2 credits. Or whatever it was they were doing because it’s just such a resource intensive business. So, diving into these analytics platforms or something with a lot of queues where you’re sending email – as I know all too well from having worked on Drip all these years – there can be real infrastructure costs. There’s a difference between a crud app like Basecamp or invoicing software or something and switching over to something that really gets a lot of requests per second, 1,000, 2,000, 3,000 request per second. There’s a true marginal cost per customer that you add.
It’s not something you’re going to be able to predict exactly. But it is something to keep in mind and do a sanity check of like, “Is there anything here that’s really going to scale up exponentially in terms of server load or in terms of support costs as I grow this app?”
Mike [17:25]: And sometimes those aren’t very easy or straight forward to calculate. I remember some offhand comment about it was either Kissmetrics or Mixpanel where one of the early versions of the app, they had 25 servers running in order to support nine customers. Which is more than one server per customer. And if you look at the price points that they’re charging you really can’t afford to have two to three servers per customer at the price points that they currently had. It’s just simply not possible. So, if you’re trying to develop a competitor to it, your hosting costs alone are going to kill you. There’s no way that you’re going to be able to make that work.
That said, they did get funding, and they’re able to scale it based on the fact that they’re able to drive those prices down. It’s a starting point. But, again, not everybody’s going to be able to be in a position where they can get that money and invest it to be able to drive those costs down as far as they need to go in order to make the business work long term.
Rob [18:16]: So, you’ve talked about the first step was never launching. The second one was zero customers versus one or more customers. This third one is getting paying customers but realize that it’s losing money. I think we have two others that we want to cover in terms of the ways that products can fail. What’s the next one?
Mike [18:32]: The next one is you have what I would call a mediocre success. It has paying customers but it’s got a marginal profit. And by marginal, I mean it’s almost not worth your time to do. The product is at least break even and it is making money but maybe it’s only making a couple thousand dollars a month. Maybe it’s $2,000 or $3,000 but, again, even if it’s making $3,000, if you’re spending thirty hours on it, is that worth your time? I think that’s an individual question you have to answer but if it’s paying you $10 an hour for your time then it’s probably not. If it’s paying you $50 or $100 or $200 an hour for your time then I would consider that probably more than a mediocre success. But there’s also overhead associated with running more than one product at a time and having each of them be a mid-range success that is simply not meeting your needs full-time. And the context which in it’s going to be harmful.
But, going back to the products that are a mediocre success, there’s problem solution fit. If it’s not a problem that people really need solved or it’s a nonexistent problem, chances are good that you can get some people to pay for it. But you’re not going to get large scale numbers of people. You’re going to get those people who it’s a really painful problem for and they’re willing to pay for it. But that could just be because they don’t know what some of the alternatives are out there or they haven’t done their research. And you can very quickly fall into a situation where people are using your product for something it simply wasn’t designed to do.
Rob [19:54]: Another thing that could be wrong when you have some paying customers but essentially a marginal profit and you’re not growing is you don’t have product market fit. So, you’ve built a product but you’re offering it to the wrong market or audience or there is not market or audience for this. And a related piece of that is market positioning where it might be related to your pricing or how you’ve portrayed it against competition but you really need to dig into why is your product better and for whom. And it might not be differentiated enough against the competitors and new products really need that.
People need to be able when they hit your website to think, “What bucket does this fit it? Is this invoicing software or proposal software or email marketing software?” And if you have just a description that is what the product does, everybody’s trying to figure out what bucket you fit into. As we’ve talked about in the past, creating a new bucket or creating a new product category is very expensive. HubSpot kind of did that and I think they might have said it took them $5 million before they were able to – he said they had to raise millions and millions of dollars before they were able to really define that product category. And I think that it’s a common mistake people make and one that I made with Drip in the early days was not wanting to position this against other competitors. Or just put it into a specific space like this is email marketing software but here’s why it’s better. Or this is marketing automation but here’s why it’s better.
I kind of wanted to be this new unique thing and all the headlines were just so vague and nondescript that people were having a tough time understanding. So as soon as we went with the, “This is marketing automation but it doesn’t suck,” That was the headline for so long. That really put us in a good position because people then realized, “Okay. So, you’re not going to own this entire market but you are going to own this portion of people who hate the other providers that are there.” So, that was a big product positioning fit for us. And I’ve seen other products be able to do that as well.
Mike [21:44]: The other thing that what you just talked about does is that it allows people to mentally identify who your competitors are because if they can’t do that then it’s going to be difficult for them to compare and contrast what you offer versus what some of the other ones offer. And sometimes you want to be able to specifically define who your competitors are and you can use market positioning to do that. But you can also take a particular market and either go upscale with it or down scale with it.
With Drip, for example, it was essentially pitched as Mail Chimp but more advanced. It was not quite advanced to the level of Infusionsoft or Marketo or things like that. It was more for a small business scenario then for a large enterprise or for somebody who’s just working out of their home office. And, obviously, that has changed over time but that was the position that you started in and that served Drip, obviously, very well.
Some other reasons you might be having some mediocre success is that you have poor design, which if your UI is not very good, it can affect some of your adoption rates. If somebody hits your website and they look at the screenshots of the product and it doesn’t look very good, then they are probably less inclined to purchase it. Even if you’ve gotten a base of customers who used it and the reason they used it is because they were experiencing the pain so much that they just had to have a solution. And they didn’t really care what it looked like. But, as you start to expand your customer base, people are going to care. They’re going to start taking those things into account. If you have misspellings in your UI, for example, that’s going to reflect on them. They’re going to say, “If you can’t get even just these basic things right on the surface, if it’s a complicated product in any way, shape or form, what sorts of problems are going to be underneath the covers?” So, you have to keep those types of considerations in mind.
Poor design decisions can lead to essentially a high churn rate which high churn is simply a symptom of something else. It could be support, it could be onboarding, it could be poor design, it could be quality, it could be downtime issues. There’s lots of different things associated with that. But at its core, high churn rates are associated with some other problem. And it could just not be even a technical problem. It could be that you are marketing to the wrong people and those are not the type of people that are going to stick around. It could be a symptom of a market targeting problem.
Rob [23:54]: Right. Back to poor design. You can point to apps that are successful that have poor design, and I will tell you, yeah, they were early. They were the only choice at the time. Or they really did a lot of heavy outbound sales, and the people who they talked to didn’t know any better. So, a lot of the email marketing or marking automation or big sales like sales force CRM stuff, yeah, the UI’s aren’t great. But you’re not them. You didn’t start ten years ago. You’re starting today. And today UI is a huge deal unless you’re in a very tight niche where you’re kind of the only player. So, this is something that you definitely need to pay attention to.
And in regards to churn, you’re right. It is a symptom of something. It’s often a symptom of crummy support or no product market fit or there’s a bunch of reasons that can happen. But all of this stuff is going to keep your grown flat. And that’s exactly a good way to have paying customers but essentially marginal profit assuming you are working on this a lot.
If you think about the micro-businesses I used to run – like DotNetInvoice or beach towels or apprentice line jobs – those had paying customers but they were highly profitable in the sense that the money that came in, I spent almost no time maintaining things. It was really all work done up front, and the money that came in was mostly profit. Maybe it was only a couple grand a month like you said but I wasn’t spending thirty hours a month on it. So, if you cobble a few of those together, you can actually kind of nice little lifestyle making $10,000 a month with a handful of these small apps not investing the time.
But that’s not really what we’re talking about here. We are talking about you having the intent of growing a SaaS app and working on it most of your free time and getting it to ten, twenty or thirty thousand because we’re guessing that, probably if you’re listening to this, that’s the goal that you have.
Mike [25:31]: The last one we’re going to talk about in this particular category is the high cost of acquisition but also a corresponding high lifetime value. Let’s say that your cost of acquisition is $1,500 and your lifetime value is $2,000 but you’re getting $100 a month from each person. Well, it’s going to take you fifteen months to get back the money that you’ve paid to acquire that customer which means that you have to spend a lot of money up front to get a return that is going to put you $500 in the black but it’s not going to start until another fifteen months after you acquire them. And that’s a very difficult position to be in. That’s why some companies go out and they raise funding to be able to start putting money into that funnel to help them figure out how to move that up, how to lower their costs of acquisition. And they’ve proven that it’s a profitable business model. They really just need to make the numbers work.
And if you’re in a position like this, it’s very difficult to do that because it’s going to stunt your growth. It’s going to make it a long slow slog in order to make that into a profitable product which defines this as a mediocre success.
Rob [26:32]: There are a lot of hurdles that you have to get through if you look at this list that we’ve just talked through. Just getting something launched is a pretty big deal. I know that we used to always talk about on the podcast how that’s not the finish line like most people think. That’s maybe the 40% marker and these days, the further things get and the more competitive they get, I think that may be even earlier. It’s so much easier to get to launch today than it was five years ago just given the tools that we have and all the resources and things like Heroku the platforms as a service. I used to have to spend a lot more time doing that stuff even the marketing tools as well. And then just getting zero versus one customer is a big hurdle. And then getting to the point where you’re marginally profitable. I think we’ve seen a lot of folks get there these days. It’s a hard place to be in because it feels like by that time you’ve worked so hard on the app and you’ve spent so much time building and launching and promoting and then you get to the point where it’s making $1,000 a month top line and it’s $500 a month in hosting costs and you’re still spending twenty hours a week developing on it. It can be tough. It can be a long slow ramp of death, if you will.
I think there are a bunch of other potential reasons that an app can fail but once you make it past this point where you have customers and marginal growth, if you can make it past that, those are the apps that we hear about. Those are the apps that we talk about. Those are the folks that do the attendee talks or the main stage talks at MicroConf. Or that you hear interviewed on podcasts. That’s kind of that final hurdle. I shouldn’t say final because, obviously, there’s so much more beyond that. But it is a point where you just feel like you’ve done something that so few people have done. It’s a big bridge to cross to get past that product market fit or get to that point where growth really does start coming easy. And it’s almost magical when that happens and you see that growth curve go up. And you think to yourself, “Oh my goodness. How did we get here?” Suddenly you go from scrambling from customer to customer to the point where 7K MRR growth per month. You look at that and you say, “Yeah, that was an okay month.” Or you can be disappointed with that. It sounds insane when you say that out loud but you do get to the point where that is the norm or less.
I just want to encourage you. If you’re listening to this, it does sound like a long road, but there is hope. There is a point where you get there and it just feels like everything’s hitting on all cylinders. You’re always going to have stress; you’re always going to have the next feature you need to get out or the competitor that’s ripping you off. But there does hit a point where you’re going to feel proud of yourself. You’re going to feel like you’re kicking ass and that’s where you want to get to. That’s the goal.
Mike [29:01]: That sounds like a pretty perfect place to stop for today’s episode.
Rob [29:04]: Thanks again to Matesh for writing in. And if you have a question and you’d be interested in hearing us discuss it on the show and maybe even turn it into an entire episode, call our voicemail number at 888-801-9690. You can email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from ‘We’re Outta Control’ by MoOt. It’s used under creative comments. Subscribe to us in 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 time.